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RBI Compounding Application

Which Offences Can Be Compounded by Regional Office of RBI?

Compounding negotiations Under the RBI regional office is a legal task which should be conducted with utmost care. Read more about the same right now! What Is Compounding?

Compounded by Regional Office of RBI, With a lot of the laws and ever-altering corporate rules, people frequently end up breaking several requirements of law. Therefore the solution has been given for the compounding of offences under FEMA, whereby someone can freely accept the contravention and pertain for the compounding of offence, attempting redressal without getting on through the procedure of litigation. Basically, it’s an option for accepting the negation and undergoing the required compounding process without any issues.

Laws Governing Compounding

RBI has been authorised to compound all the negations under FEMA except Section 3(a) which can be compounded by the Directorate of Enforcement (that deals with) If any person contravenes any requirements of the Foreign Exchange Management Act, 1999 (42 of 1999) to fulfil the clause (a) of Section 3 of that Act, based on the amount of contravention the compounding process is conducted by different officials  in the following manner:

Offences That Can Be Compounded by the Regional Offices of RBI

Based on the different types of offences the compounding procedure and the power of compounding under different officers vary. Here are some of the offences that can be compounded by the Regional Offices of RBI: 

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  • Delay in filing inward remittance that is received for the issue of shares
  • Delay in filing form FC(GPR) after issuing of shares
  • Delay in filing the annual report  on Foreign Liabilities and Assets (FLA) 
  • The total delay in providing shares or refund of share application money ahead of 60 days along with the mode of receipt of funds
  • Breaching of pricing guidelines for issue/transfer of shares
  • Issue of ineligible instruments 
  • Issuing shares of a company without the approval of RBI or the Government required
  • Delayed submission of form FC-TRS on the transfer of shares from resident to non-resident
  • Receiving investment in India from non-residents or taking on record transfer of shares by the investee company.

Offences That Can Be Compounded by the Central Office of RBI

The following are the offences that can be compounded by the Central Office of RBI:

  • Negations relating to mergers, acquisitions and transfer of immovable property outside India
  • Negations relating to the establishment in India of a Branch office, Liaison Office or project office
  • Breaches falling under Foreign Exchange Management (Deposit) Regulations, 2000

Process of Compounding

1. Filing an application to the compounding authority has to be submitted along with the demand draft of ₹5000/- along with the following: 

  • Compounding application: As per the format provided in Annexure II of the Foreign Exchange (Compounding Proceedings) Rules, 2000
  • Details of Application: In case of negations relating to Foreign Direct Investment (FDI), External Commercial Borrowings (c)Overseas Direct Investment and (d) Branch Office/Liaison Office, the applicants should provide all the information as described in Annexure III of the Foreign Exchange (Compounding Proceedings) Rules, 2000
  • Undertaking: An undertaking that the applicant is not under any investigation by any agency such as DoE, CBI etc
  • Copy of Memorandum of Association (MoA)
  • Latest audited balance sheet
  1. The application will be compounded on the basis of documents and submission made
  2. The compounding authority may call for further information, record or another document
  3. In case the contravener fails to submit the additional information within the specified period, the application is liable for rejection
  4. The RBI may at times refer a compounded application matter to the Directorate of Enforcement (DOE) for further investigation where there is sufficient justification for doing so.

Penalty Under Compounding

The guidance structure for calculating the amount to be imposed on compounding is as below:

Types of contraventions Formula

1] FEMA 20 (Reg. 10) and FCTRS (Reg. 4) require the submission of ECB declarations. However, FEMA 120 (Second/Subsequent Remittance) and FEMA 3 (Non-Submission of ECB Declarations) do not require it. 

A) FEMA 20 (para 9(1)(A), 9(1)(B), FCTRS (Reg. 10) and taking on certificate FCTRS (Reg. 4) 

B) FEMA 3 Non-submission of ECB declarations C) FEMA 120 Second/Subsequent Remittance without attaining of UIN will be encircled under Item 5 in the table. 

Failure to report/delay in documenting acquisition/setup of subsidiaries/step-down subsidiaries or changes in the shareholding pattern in Item 2 below.

Fixed amount: ₹10000/- (applied once for each contravention in a compounding application) + Variable amount as under: 

Up to ₹10 lakhs: ₹1000 per year 

₹10-40 lakhs: ₹2500 per year 

₹40-100 lakhs: ₹7000 per year 

₹1-10 crore: ₹50000 per year 

₹10 -100 Crore: ₹100000 per year Above ₹100 Crore: ₹200000 per year

E) Reporting negations under LO/BO/PO As above, subject to a top of ₹.2 lakhs. In the case of Project Office, the percentage of contravention shall be @10% of the total project cost.
2] If a non-submission/delayed compliance of APR or share certificates (FEMA 120) or AAC (FEMA 22) or FCGPR (B) Returns (FEMA 20) or FLA Returns (FEMA 20 (R)) is required (FEMA 120), AAC/APR/share reports hesitations (FEMA 22), or FLA Returns (FEMA 20 (R)) respectively. ₹10000/- per AAC/APR/FCGPR (B) Return delayed. Delayed receipt of share certificate – ₹10000/- per year, the total amount being accountable to a ceiling of 300% of the amount invested.
3] A non-allotment of shares or an amount/compensation after the specified 180 days is required in FEMA 20/2000-RB (non-allocation of shares or compensation after the stipulated period). B] LO/BO/PO (Other than documenting contraventions) ₹30000/- + given percentage: 1st year : 0.30% 1-2 years : 0.35% 2-3 years : 0.40% 3-4 years : 0.45% 4-5 years : 0.50% >5 years : 0.75% (For project departments the amount of contravention shall be supposed to be 10% of the expense of project).
4] In addition to the corporate warrant against which FLA Returns of all other negative definitions except Corporate Warrants are permitted, FEMA 20(R)/2017-RB dated 7 November 2017 added to FLA Returns other than corporate warrants.

FLA Returns ₹50000/- + given percentage: 1st year : 0.50% 

1-2 years : 0.55% 

2-3 years : 0.60% 

3-4 years : 0.65% 

4-5 years : 0.70%

 > 5 years : 0.75%

5] Any problem concerning Corporate Guarantees concerns the issue of Corporate Guarantees without UIN/ without approval anywhere mandatory or open-ended warrants or any other contravention.

₹500000/- + given percentage: 

1st year : 0.050% 

1-2 years : 0.055% 

2-3 years : 0.060% 

3-4 years : 0.065% 

4-5 years : 0.070% 

>5 years: 0.075%In case the contravention comprises a problem of warranties for raising forward the loans which are financed back into India, the amount assessed maybe tripled.

How Vakilsearch Can Help in RBI Compounding

Our experts at Vakilsearch can provide the best solution when it comes to filing an RBI compounding application. Over 1000 companies have chosen Vakilsearch for conducting their legal activities there.  Frankly speaking, our experts deal with RBI compounding applications on a regular basis. They know how to conduct the process smoothly without any delay. All the processes can be conducted online in the comfort of your home, reach out to our experts right now!

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