Compounding is a chance provided to the applicant to reason out the contravention. Learn everything about compounding contraventions relating to foreign investment now
What Is Compounding?
Compounding is an option to provide an explanation to the applicant due to the breach of the requirements of the Foreign Exchange Management Act (FEMA), 1999, and any laws/restrictions/warnings/rules/directions/ booklets published thereunder. Compounding refers to the procedure of voluntarily conceding the negation and accepting the redressal.
Compounding Contraventions Relating To Foreign Investment
The RBI is authorized to compound any contravention as explained under Section 13 of FEMA, 1999 apart from the negations under Section 3(a)1, for a specified amount after giving a chance of personal hearing to the contravener. It is a voluntary procedure in which a person or a corporation wants the compounding of an acknowledged contravention. It gives satisfaction to any individual who contravenes any requirements of FEMA, 1999 by underrating transaction fees. Intentional, repeated, malafide, and dishonest negations are not compounded and are treated as a crime.
Further, in terms of the provision to rule 8 (2) of Foreign Exchange (Compounding Proceedings) Rules, 2000, introduced by GOI announcement dated 2) February 2017, if the Directorate of Enforcement (DoE) is of the view that the compounding continuing pertains to a severe contravention like money laundering, terror financing or affecting sovereignty and honesty of the country, such situations will not be compounded by the RBI. Also, the cases needing the special requirements under Section 37(A) of the FEMA, 1999 – relating to possession clasped outside India in contravention of section 4, shall not be capable of compounding by the RBI.
If someone contravenes any requirement of the FEMA, 1999 [except Section 3(a)] or contravenes any rule, regulation, notification, direction, or declaration granted in the practice of the powers under this Act or contravenes any situation case to which permission is allocated by the RBI, can pertain for compounding to the RBI. Applications investigating the compounding of contraventions under Section 3(a) of FEMA, 1999 will be provided to the DoE.
When someone is familiar with the contravention of the provisions of FEMA, 1999 by the RBI or any other statutory council or the auditors or by any other means, she/he may refer to compounding. One can also make a petition for compounding, suo moto, on evolving awareness of contravention.
Documents Required for Compounding
The documents and forms documented in the FED Master Direction No. 18/2015-16 titled ‘Master Direction – Reporting under Foreign Exchange Management Act, 1999’ dated January 01, 2016 (Updated as of September 18, 2019) can be utilised for compounding. You can download the master direction from the RBI official website.
It is necessary to submit the following documents while compounding:
- Furnish necessary details as per Annex II to foreign direct investment, overseas direct investments, external commercial borrowings, and branch offices/liaison offices
- A certified copy of the Memorandum of Association
- Submit the newly audited balance sheet and proof that you are not under any kind of investigation or inquiry by any jurisdiction or agency like the CBI
- Suppose any such scenario arises post-filing the application. In that case, you must inform RBI before the date of issuance of the compounding order.
Fees Involved in RBI Compounding Petition
The petition in the prescribed layout along with necessary articles and a demand draft for ₹5000/- drawn in favor of the ‘RBI’ should be mailed to the RBI while delivering the request for compounding.
Application for Compounding
Along with the request in the prescribed format, the applicant may also provide the circumstances as per the annexes- associating to Foreign Direct Investment (FDI), loans, Overseas Direct Investment (ODI), and branch office/liaison office, as adequate, Along with a proof that they are not under any form of investigation under the government forces like the CBI. duly filled ECS authorisation form, a canceled cheque copy, a copy of the Memorandum of Association (MOA), and a recent audited balance sheet while comparing the compounding of contraventions under FEMA, 1999.
- Applications adapted to the RBI must include the contact details i.e, name of the applicant / authorised official or deputy of the applicant, telephone/ mobile number, and email ID
- All requisite permissions should be attained and compliance should be finalised before investigating the compounding of contravention
- Compounding can be accomplished only after all the essential executive activity is detailed, utilising attaining post-facto permissions or relaxing the agreements in trials where such agreements are not acceptable under FEMA, 1999
- Documents of authorisations and other compliances should be provided along with the application.
Can Anyone Opt for a Private Hearing
It is not necessary to follow or opt for a private hearing. In case someone opts not to follow the hearing they may imply their intention in writing. The petition would be removed for reports accepted by the compounding authorities. The amount assessed in the compounding order, as the quantity assessed, is computed and established on the guidance note on the analysis matrix as included in the master direction on the compounding of contraventions under FEMA.
How Vakilsearch Can Help in Applying for RBI Compounding
It is of paramount importance to compound the contraventions under the foreign investment Act. Non-compliance may result in huge penalties implemented on the applicant based on the type of contravention. Since this process is highly complex it is better to avail expert help.
At Vakilsearch we help more than 1000 companies every month and help in RBI compounding applications. If you want to apply for RBI then it is best to reach out to us. Our experts will get in touch with you and provide an explanation for all your queries and file an RBI compounding application on your behalf. Our experts will be available throughout the process to guide you and help you to complete the procedure without any delay.
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