FEMA act is used to strengthen the foreign exchanges. Learn Everything about the compounding orders under FEMA
What Is FEMA?
Analysis of Compounding Orders Under FEMA: The Foreign Exchange Management Act,(FEMA)1999 is an act of the Indian parliament to strengthen and amend the laws about foreign exchange to promote external trade & payments and facilitate the standardised improvement and supervise the foreign exchange market in India. Compounding Orders under FEMA allow individuals, companies, and other entities to voluntarily disclose and settle contraventions related to foreign exchange transactions, remittances, investments, and other transactions
What Is Compounding?
Compounding refers to the technique of conceding freely the breach of any of the requirements of FEMA, 1999 including the rules, regulations, announcements, laws, ways, or the booklets published under the said Act.
The person contravening the requirements acknowledges the reversal and applies for compounding to resolve the errors. This protects the legal proceedings and prepares the procedure simple and fast. The offense is to be responded to within 180 days from the date of the certificate of a petition by the administrators of the Reserve Bank of India (RBI).
Section 15 of the Foreign Exchange Management Act, 1999 empowers the RBI to merge any contravention made under Section 13 of FEMA, 1999 except the contraventions under Section 3(a).
Analysis of Compounding Orders Under FEMA
Any contravention of the requirements of FEMA, 1999 shall be compounded by following administrators under the direction, control, and maintenance of the governor of the RBI.
| Sum Involved in Contravention | Compounding Authority |
| Amount up to ₹ 10 Lakh | Assistant General Manager of RBI |
| Amount more than ₹ 10 Lakh but less than ₹ 40 Lakh | Deputy General Manager of RBI |
| Amount ₹ 40 Lakh and more but less than ₹ 100 Lakh | General Manager of RBI |
| Amount ₹ 100 Lakh and more | Chief General Manager of RBI |
No contravention shall be compounded unless the quantity implicated in such contravention is quantifiable.
Laws Governing FEMA
The following constitutions cover the compounding of contraventions under FEMA:
- Section 13 of FEMA encompasses liabilities in appreciation contraventions which are compounded
- Section 14 of FEMA enforcement of the rule of adjudication authority
- Section 15 of FEMA 1999 will have the powers to compound contraventions and empower the compounding authority to compound the contraventions
- Master Direction – analysing the Foreign Exchange Management Act,1999 (updated as of 04 April 2019)
- Master Direction- the contraventions in compounding FEMA, 1999 (updated as of April 04, 2019)
- Foreign Exchange (compounding proceedings) Rules, 2000 (the Rules) as revised from time to time, enact the main fractions
Application and Procedure for Compounding
Someone who contravenes any provisions/ rules/ regulations/ notifications/ directions or laws problems under FEMA, 1999 except contraventions under Section 3(a) can pertain for compounding along with the prescribed fees of ₹ 5000 by way of pressure the draft is drawn in favor of ‘Reserve Bank of India’.
The petition can be made once the applicant is intimated about the contraventions of the RBI or the statutory permission. The petition can also be made on evolving familiarity with the mistake.
The petition must be made in the prescribed configuration comprising the connection features i.e. the name of the applicant or his authorised administrator or delegate of the applicant, telephone or mobile number along with the email address. Apart from the petition in the prescribed format, the following articles must also be furnished:
- Facts as per Annex II relating to foreign direct investment
- External Commercial financing
- Overseas Direct Investment, and branch office/ liaison office copy of
- Memorandum of Association (MOA)
- Recent audited balance sheet along with an effort as per annex III that they are not under any investigation or explanation by any agent like Directorate of Enforcement (DOE), CBI, etc. as on the date of the petition.
Also, the applicant should notify the compounding authority or RBI if any such proceedings are inaugurated after documenting the petition but on or before the date of allocation of the compounding order.
If the RBI compounding application is not documented in the prescribed format or the necessary information, articles or statements are not present in the application and are documented without the demand draft towards the petition payments, it will not be accepted and will be refunded to the applicant. Once the application is finalized in all characteristics within the provided time then the date of such compliance will be contemplated as the date of receipt of the petition and shall be filtered accordingly.
Serious contraventions i.e. contraventions implicating money laundering, terror financing, or anything influencing the sovereignty and honesty of the nation or the trials where the applicant declines to spend the sum for which the compounding order was approved within the specified time duration shall immediately pertain to the directorate of enforcement for further investigation and important activities would be taken accordingly.
If the applicant again dedicates some contravention within 3 years which is related to the contravention for which a compounding order has already been enacted, it shall not be compounded again and requirements of FEMA, 1999 shall occur. Any contravention after the expiry of the duration of 3 years shall be deemed for compounding.
Once the application is collected, the RBI shall assess the same basis of the statements and resignations made. Also, the compounding authority can ask for further data or certificates benefiting the compounding method. Based on the above, contravention is quantified.
How Vakilsearch Can Help in Raising a Proposal for RBI Compounding
Experts at Vakilsearch can effectively help an individual in applying RBI compounding to protect them from prosecutions. Initially, our expert team will collect a member and all the files regarding previous compounding and board resolution approvals along with the FIRC report. After collecting all the documents a compounding application is drafted from our end and submitted to the RBI office throughout the process our experts will provide holistic support.
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