Legal Advice

How to Submit Compounding Application to RBI

Can you submit a compounding application to RBI? Yes, you can! But are you worried about its process and its complications? Don't worry we got you covered. In this article, we will discuss the process of submitting a compounding application to RBI.

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The breach of the Foreign Exchange Management Act, 1999, and the rules that are issued thereunder is considered infringement. Compounding refers to the process of admitting a contravention and seeking redressal as outlined under Section 13 of FEMA, 1999. it also applies to sections that are not compatible with the Reserve Bank. Contravening can be mitigated if you admit your mistake and incur fewer costs for transactions. For serious offenses, however, the Reserve Bank will not compound them.

Who Can Apply for Compounding?

Suppose a person violates any provision of FEMA, 1999, or regulation that comes with it. In that case, one may apply for compounding to the Reserve Bank. Suppose an application seeks to compound for violations under section 3(a) of FEMA, 1999. In that case, it should be submitted to the Directorate of Enforcement.

 What Are the Details Required to Be Filled in the Application Form?

Any person can apply for compounding in order to not have a FEMA violation, except if they violated Section 3(a) of the FEMA, 1999. Once they have been notified by the Reserve Bank of India or by a statutory authority, the applicant can make an application with ₹5000.

SUBMIT COMPOUNDING APPLICATION TO RBI

Documents Submission: Submit Compounding Application to RBI

You need to fill out the appropriate application and provide your contact details, authorized official representative details, email ID, mobile number, along with any other documents that may be required.

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.

You should apply with all details and documents required to avoid returning and terminating the process of compounding. On the date of submission, the compounding application will be processed once the application is completed and all the necessary details and a demand draft of ₹5000 are submitted again.

Serious violations or contraventions like terror financing, money laundering, or anything that comprises the nation’s sovereignty are directly referred to the directorate of investigation for further investigation. The applicant must pay for the infringement within a specified time period.

The applicant may not be able to receive a second compounding order if they commit any similar contravention within three years of passing the compounding. The violations following this three-year period shall be dealt with according to FEMA, 1999.

Process of Compounding:

When applying for compounding, the RBI will pay close attention to your application.

The Compounding Authority may ask for more information or records to ensure that you have done everything correctly.

Below are the factors that are considered for passing the compounding order and the amount to pay for the infringement:

  • Any unfair advantage gained due to committing a contravention
  • Loss caused to any authority due to the committed a contravention
  • Benefiting economically by avoiding compliance
  • Repeating contraventions
  • Conduct of contravener while submitting the compounding application

Conclusion

Overall, the above article explained the process of applying the compounding of contraventions with the RBI.

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