Compunding offences under FEMA

Last Updated at: November 04, 2019
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Compounding offences under FMEA

The concept of compounding has already been spoken in another post but that was a very vague one which generally classified the types and uses of compounding nature of offenses. Now in this post, we would talk about the reduction of punishment of severe nature with monetary punishment. This time it is very much particular with FEMA and its various rules which act as a pathway to reducing the degree of punishment.

FEMA (Foreign Exchange Management Act) 1999 is being used in the management of external trade and payments of foreign exchange in India. So as you already know what is compounding, it was introduced to the FEMA by the Reserve Bank of India in 2005. The FEMA act allows monetary payment in the place of prosecution. But the issue is offences in which it has been specifically stated that the offences in which the corresponding punishment is either imprisonment only or imprisonment and fine are not compoundable by nature.

The Act

The FEMA provides compounding of offences under Section 15 for the offences specifically mentioned under that section. Section 13 states that if any person contravenes any provision of FEMA, or any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or breaches any condition subject to which a consent is issued by the RBI, they will, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention, where the amount is quantifiable or up to Rs 2 lakhs, where the amount is not directly quantifiable and where the contravention is a continuing one, then the penalty which may extend to ₹ 5,000 for every day after the first day during which the contravention continues.

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Moreover subclause 2 of the same section says “Any Adjudicating Authority adjudging any contravention under sub-section (1), may, if he thinks fit in addition to any penalty which he may impose for such contravention direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government and further direct that the foreign exchange holdings, if any of the persons committing the contraventions or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf”

Steps involved

The first and the foremost requisite is to get approval and all compliance need to be fulfilled.

This step is then followed by the filing of an application with the attachment of relevant documents. The format is given in Foreign Exchange rule Annexure I.

It has been stated that the form has to be added with a Demand draft of Rs. 5000 towards Reserve Bank of India. This form along with the DD has to be given to the Compounding Authority (CA). After receiving the application the RBI scrutinizes the application and if the offence is of simple nature then the person would be made to be compound his offence after a personal hearing.

But if the offence is of a severe nature, then the RBI informs to Enforcement Directorate. After a personal hearing, the compounding order would be issued with the amount needed to be paid as a penalty. Once the compounding has been done, then no further action can be taken against the person on the same issue.

The Compounding Offences usually takes time of 180 days to complete after the application received from the offender. RBI has been doing its level max to bridge the connectivity to the common person and to itself as it was lacking for a long period. The RBI tries to make it approachable for the offender to rectify his/ her mistake.

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Compunding offences under FEMA

903

The concept of compounding has already been spoken in another post but that was a very vague one which generally classified the types and uses of compounding nature of offenses. Now in this post, we would talk about the reduction of punishment of severe nature with monetary punishment. This time it is very much particular with FEMA and its various rules which act as a pathway to reducing the degree of punishment.

FEMA (Foreign Exchange Management Act) 1999 is being used in the management of external trade and payments of foreign exchange in India. So as you already know what is compounding, it was introduced to the FEMA by the Reserve Bank of India in 2005. The FEMA act allows monetary payment in the place of prosecution. But the issue is offences in which it has been specifically stated that the offences in which the corresponding punishment is either imprisonment only or imprisonment and fine are not compoundable by nature.

The Act

The FEMA provides compounding of offences under Section 15 for the offences specifically mentioned under that section. Section 13 states that if any person contravenes any provision of FEMA, or any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or breaches any condition subject to which a consent is issued by the RBI, they will, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention, where the amount is quantifiable or up to Rs 2 lakhs, where the amount is not directly quantifiable and where the contravention is a continuing one, then the penalty which may extend to ₹ 5,000 for every day after the first day during which the contravention continues.

Get FREE legal advice now

Moreover subclause 2 of the same section says “Any Adjudicating Authority adjudging any contravention under sub-section (1), may, if he thinks fit in addition to any penalty which he may impose for such contravention direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government and further direct that the foreign exchange holdings, if any of the persons committing the contraventions or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf”

Steps involved

The first and the foremost requisite is to get approval and all compliance need to be fulfilled.

This step is then followed by the filing of an application with the attachment of relevant documents. The format is given in Foreign Exchange rule Annexure I.

It has been stated that the form has to be added with a Demand draft of Rs. 5000 towards Reserve Bank of India. This form along with the DD has to be given to the Compounding Authority (CA). After receiving the application the RBI scrutinizes the application and if the offence is of simple nature then the person would be made to be compound his offence after a personal hearing.

But if the offence is of a severe nature, then the RBI informs to Enforcement Directorate. After a personal hearing, the compounding order would be issued with the amount needed to be paid as a penalty. Once the compounding has been done, then no further action can be taken against the person on the same issue.

The Compounding Offences usually takes time of 180 days to complete after the application received from the offender. RBI has been doing its level max to bridge the connectivity to the common person and to itself as it was lacking for a long period. The RBI tries to make it approachable for the offender to rectify his/ her mistake.

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