RBI/2010-11/7
Master Circular No.07/2010-11
July 01, 2010
To,
All Authorised Dealer Category - I banks and Authorised Banks
Madam / Sir,
Master Circular on Compounding of Contraventions under
FEMA, 1999
The compounding of contraventions under Foreign Exchange Management Act
(FEMA), 1999 is a voluntary process available to the citizens of India, by which
an applicant can seek compounding of an admitted contravention of any provision
of FEMA, 1999 under Section 13(1) of the FEMA, 1999.
2. This Master Circular consolidates the existing instructions on the subject
of ';Compounding of Contraventions under FEMA, 1999'; at one place. The
list of underlying circulars / notifications, consolidated in this Master
Circular, is furnished in the Appendix.
3. This Master Circular is being issued with a sunset clause of one year.
This circular will stand withdrawn on July 1, 2011 and be replaced by an updated
Master Circular on the subject.
Yours faithfully,
(Dr.Sujatha Elizabeth Prasad)
Chief General Manager
NDEX
1 General
1.1 If any person contravenes any provision of FEMA, 1999, or contravenes any
rule, regulation, notification, direction or order issued in exercise of the
powers under this Act, or contravenes any condition subject to which an
authorization is issued by the Reserve Bank, he shall, upon adjudication, be
liable to a penalty up to thrice the sum involved in such contravention where
the amount is quantifiable or up to Rupees Two lakh, where the amount is not
quantifiable and where the contravention is a continuing one, further penalty
which may extend to Rupees Five thousand for every day after the first day
during which the contravention continues (Section 13(1), Chapter IV of FEMA,
1999).
1.2 Foreign Exchange (Compounding Proceedings) Rules, 2000 have been
published by the Government of India empowering the Reserve Bank to compound
contraventions under FEMA, 1999. The provisions of Section 15 of FEMA,
1999 permit compounding of contraventions and empower the Compounding Authority
to compound any contravention as defined under Section 13 of the Act on an
application made by the person committing such contravention either before or
after the institution of adjudication proceedings.
1.3 The Government of India has, in consultation with the Reserve Bank placed
the responsibilities of administering compounding of cases with the Reserve
Bank, except under Section 3(a) of FEMA, 1999. Accordingly, the procedure
for compounding of contraventions under FEMA, 1999 have been framed with a view
to provide comfort to the citizens and corporate community by minimizing
transaction costs, while taking severe view of willful, malafide and
fraudulent transactions.
2. Compounding Powers
2.1 The compounding powers of the Reserve Bank and the Directorate of
Enforcement (DoE), respectively, are as under:
- Reserve Bank has been empowered to compound the contraventions of all
the Sections of FEMA, 1999, except clause (a) of Section 3 of the Act, ibid.
- Directorate of Enforcement would exercise powers of compounding under
clause (a) of Section 3 of FEMA, 1999 (dealing essentially with Hawala
transactions).
2.2 For effective implementation of compounding process under FEMA,
1999, the Reserve Bank has framed the procedure for compounding of
contravention. Once a contravention has been compounded by the Compounding
Authority, no proceeding or further proceeding will be initiated or continued,
as the case may be, against the contravener.
3. Process of Compounding
3.1 An application for compounding of a contravention under FEMA, 1999
may be submitted to the Compounding Authority (CA) on being advised of a
contravention under FEMA, 1999, either through a memorandum or suo moto
on being made or on becoming aware of the contravention. The
format of the application is appended to the Foreign Exchange (Compounding
Proceedings) Rules, 2000 (Annex).
3.2 The application for compounding any contravention in prescribed
form together with a copy of the memorandum, wherever applicable, with the
prescribed fee of Rs.5000/- by way of a demand draft drawn in favour of “Reserve
Bank of India” and payable at Mumbai may be submitted with relevant facts and
supporting documents to: The Compounding Authority, [Cell for Effective
implementation of FEMA (CEFA)], Foreign Exchange Department, 3rd floor, Amar
Building, Sir P.M. Road, Fort, Mumbai- 400001.
3.3 On receipt of the application for compounding, the proceedings
would be concluded and order issued by the CA within 180 days from the date of
the receipt of the application for compounding. The time limit for this purpose
would be reckoned from the date of receipt of the completed application for
compounding by the Reserve Bank. The CA may call for any information, record or
any other documents relevant to the compounding proceedings and will hold the
proceedings. The Compounding Order will be passed by the CA after affording the
contravener and others concerned, an opportunity of being heard.
3.4 The application will be examined based on the documents and
submissions made in the application, in terms of sub rule (1) of rule (4) of the
Foreign Exchange (Compounding Proceedings) Rules, 2000 and assess whether the
contravention is compoundable and if so, the amount of contravention is
accordingly quantified.
3.5 The nature of contravention is ascertained keeping in view,
inter alia, the following indicative points :
a. whether the contravention is technical and / or minor in nature and needs
only an administrative cautionary advice;
b. whether the contravention is serious in nature and warrants compounding of
the contravention; and
c. whether the contravention, prima facie, involves money-laundering, national
and security concerns involving serious infringement of the regulatory
framework.
3.6 The disposal of the compounding application is made by issue of a
Compounding Order specifying the provisions of FEMA,1999 or any rule,
regulation, notification, direction or order issued in exercise of the powers
under FEMA, 1999, in respect of which contravention has taken place.
3.7 The CA may call for any additional information, record or any other
document relevant to the compounding proceedings. Such additional information/
document are required to be submitted within the period as may be specified by
the CA and the application may be rejected if such information/document is not
submitted within the prescribed time.
3.8 Where there is sufficient cause for further investigation, the
Reserve Bank may refer the matter to the Directorate of Enforcement for further
investigation and necessary action under FEMA, 1999, as deemed fit by them or to
the Anti-Money Laundering Authority instituted under the Prevention of Money
Laundering Act (PMLA), 2002 or to any other agencies, as deemed fit. Such
applications will be disposed of by returning the application to the applicant
since the compounding application will have to be disposed of within 180 days.
4. Scope and Manner of Compounding
4.1 The CA will exercise jurisdiction in respect of the contraventions
alleged to have been committed in relation to any of the provisions of the FEMA,
1999, or any rule, regulation, notification, direction or order issued in
exercise of the powers under FEMA, 1999.
4.2 The CA will form an opinion on the basis of the application,
together with the documents submitted and on the basis of submissions made
during the personal hearing on the nature of the contravention.
4.3 The application for compounding will be disposed of on merits, upon
consideration of the records and submissions and at the absolute discretion of
the CA. The following factors, which are only indicative, may be taken into
consideration for the purpose of passing the Compounding Order and for arriving
at the quantum of sum on payment of which contravention shall be compounded:
- the amount of gain of unfair advantage, wherever quantifiable, made as a
result of the contravention;
- the amount of loss caused to any authority / agency / exchequer as a
result of the contravention;
- economic benefits accruing to the contravener from delayed compliance or
compliance avoided;
- the repetitive nature of the contravention, the track record and / or
history of non-compliance of the contravener;
- contravener’s conduct in undertaking the transaction and disclosure of
full facts in the application and submissions made during the personal
hearing; and
- any other factor considered relevant and appropriate.
5. Issue of the Compounding Order
5.1 An opportunity for personal hearing is given to the applicant for further
submission of documents in person in support of the application within a
specified period. If the contravener or its authorized representative fails to
appear in person or make any submissions before the CA for personal hearing, the
CA may proceed with the processing of the compounding application on the basis
of information and documents available in the application for compounding.
5.2 The Compounding Authority will pass a compounding order on the
basis of the averments made in the application as well as other documents and
submissions made in this context by the contravener during the personal
hearings, if any.
5.3 Where the compounding of any contravention is made after making of
a complaint under sub-section (3) of section 16 of FEMA, 1999 as the case may
be, one copy of the compounding order made under sub rule (2) of Rule 8 of
Foreign Exchange (Compounding Proceedings) Rules, 2000 will be supplied to the
applicant (the contravener) and also to the Adjudicating Authority.
6. Post-compounding procedure
6.1 The sum for which the contravention is compounded as specified in
the order of compounding under sub-rule (2) of Rule 8 of Foreign Exchange
(Compounding Proceedings) Rules, 2000 is payable by way of a demand draft in
favour of the “Reserve Bank of India” within fifteen days from the date of the
order of compounding of such contravention. The demand draft has to be deposited
in the manner as directed in the compounding order.
6.2 The provisions of the Rules do not confer any right on the contravener,
after a compounding order is passed, to seek to withdraw the order or to hold
the compounding order as void or request a review of the order passed by the CA.
6.3 In case of failure to pay the sum compounded within the time specified in
the compounding order, it shall be deemed in terms of Rule 10 of the Foreign
Exchange (Compounding Proceedings) Rules, 2000, that the contravener had never
made an application for compounding of any contravention under these Rules.
6.4 On realization of the sum for which contravention is compounded a
certificate in this regard shall be issued by the Reserve Bank subject to the
specified conditions, if any, in the order.
6.5 In respect of the contraventions of FEMA, 1999 (as defined in
section 13 of the FEMA, 1999), which are not compounded by the Compounding
Authority, other relevant provisions of FEMA, 1999, shall apply.
7. Pre-requisites for compounding process
7.1 In respect of a contravention committed by any person within a period of
three years from the date on which a similar contravention committed by him was
compounded under the Compounding Rules, such contraventions would not be
compounded. Such contravention would be dealt with under relevant provisions of
the FEMA, 1999 for contravention. Any second or subsequent contravention
committed after the expiry of a period of three years from the date on which the
contravention was previously compounded shall be deemed to be a first
contravention.
7.2 Contraventions relating to any transaction where proper approvals
or permission from the Government or statutory authority concerned, as the case
may be, have not been obtained, such contraventions would not be compounded
unless the required approvals are obtained from the authorities concerned.
7.3 Cases of contravention, such as, those having a money laundering
angle, national security concern and / or involving serious infringements of the
regulatory framework or where the contravener fails to pay the sum for which
contravention was compounded within the specified period in terms of the
compounding order, shall be referred to the Directorate of Enforcement for
further investigation and necessary action under FEMA, 1999 or to the authority
instituted for implementation of the Prevention of Money Laundering Act 2002,
(PMLA) or to any other agencies, for necessary action , as deemed fit.
7.4 The Reserve Bank generally advises the persons concerned of their choice
and option to make an application for compounding as and when such
contraventions come to its notice. The facts constituting such contraventions
will be brought to the notice of the Directorate of Enforcement in case no
application for compounding is made within the time indicated by the Reserve
Bank.
Annex
Foreign Exchange (Compounding Rules), 2000
Notification No. G.S.R.383(E) dated 3rd May 2000
As amended vide
G.S.R.443(E) dated November 2, 2002
G.S.R. 609 (E) dated September 13, 2004 and
G.S.R. 613 (E) dated August 27, 2008
In exercise of the powers conferred by section 46 read with sub-section (1)
of section 15 of the Foreign Exchange Management Act, 1999 (42 of 1999) the
Central Government hereby makes the following rules relating to compounding
contraventions under chapter IV of the said Act, namely:-
1. Short title and commencement –
(1) These rules may be called the Foreign Exchange (Compounding Proceedings)
Rules 2000.
(2) They shall come into force on the 1st day of June, 2000.
2. Definitions - In these rules, unless
the context otherwise requires -
(a) 'Act' means the Foreign Exchange Management Act, 1999 (42 of 1999);
(b) 'authorised officer' means an officer authorised under sub-rule (1) of rule
3;
(c) 'applicant' means a person who makes an application under section 15 (1) of
the Act to the compounding authority;
(d) 'Compounding Order' means an order issued under sub-section (1) of Section
15 of the Act;
(e) 'Form' means a form appended to these rules;
(f) 'section' means a section of the Act;
(g) all other words and expressions used in these rules and not defined but
defined in the Act, shall have the meaning respectively assigned to them in the
Act.
3. (1) 'Compounding Authority' means the persons authorised by
the Central Government under sub-section (1) of section 15 of the Act, namely;
(a) an officer of the Enforcement Directorate not below the rank of Deputy
Director or Deputy Legal Adviser (DLA).
(b) An officer of the Reserve Bank of India not below the rank of the
Assistant General Manager.
4. Power of Reserve Bank to compound contravention -
1[(1)
If any Person contravenes any provisions of Foreign Exchange Management Act,
1999 (42 of 1999) except clause (a) of Section 3 of the Act.]
(a) in case where the sum involved in such contravention is ten lakhs rupees
or below, by the Assistant General Manager of the Reserve Bank of India;
(b) in case where the sum involved in such contravention is more than rupees ten
lakhs but less than rupees forty lakhs, by the Deputy General Manager of Reserve
Bank of India ;
(c) in case where the sum involved in the contravention is rupees forty lakhs or
more but less than rupees hundred lakhs by the General Manager of Reserve Bank
of India;
(d) in case the sum involved in such contravention is rupees one hundred lakhs
or more, by the Chief General Manager of the Reserve Bank of India;
Provided further that no contravention shall be compounded unless the amount
involved in such contravention is quantifiable.
(2) Nothing contained in sub-section (1) shall apply to a contravention
committed by any person within a period of three years from the date on which a
similar contravention committed by him was compounded under these rules.
Explanation: For the purposes of this rule, any
second or subsequent contravention committed after the expiry of a period of
three years from the date on which the contravention was previously compounded
shall be deemed to be a first contravention.
(3) Every officer specified under sub-rule (1) of rule 4 of the Reserve Bank of
India shall exercise the powers to compound any contravention subject to the
direction, control and supervision of the Governor of the Reserve Bank of India.
(4) Every application for compounding any contravention under this rule shall be
made in Form to the Reserve Bank of India, Exchange Control Department, Central
Office, Mumbai along with a fee of Rs. 5000/- by Demand Draft in favour of
compounding authority.
5. The Power of Enforcement Directorate to compound
contraventions -
2[(1) If any Person contravenes provisions of Section 3(a) of Foreign
Exchange Management Act.]
(a) in case where the sum involved in such contravention is five lakhs rupees
or below, by the Deputy Director of the Directorate of Enforcement;
(b) in case where the sum involved in such contravention is more than rupees
five lakhs but less than rupees ten lakhs, by the Additional Director of the
Directorate of Enforcement;
(c) in case where the sum involved in the contravention is rupees ten lakhs or
more but less than fifty lakhs rupees by the Special Director of the Directorate
of Enforcement;
(d) in case where the sum involved in the contravention is rupees fifty lakhs or
more but less than one crore rupees by Special Director with Deputy Legal
Adviser of the Directorate of Enforcement;
(e) in case the sum involved in such contravention is one crore rupees or more,
by the Director of Enforcement with Special Director of the Enforcement
Directorate.
Provided further that no contravention shall be compounded unless the amount
involved in such contravention is quantifiable.
(2) Nothing contained in sub-section (1) shall apply to a contravention
committed by any person within a period of three years from the date on which a
similar contravention committed by him was compounded under these rules.
Explanation: For the purposes of this rule, any second or
subsequent contravention committed after the expiry of a period of three years
from the date on which the contravention was previously compounded shall be
deemed to be a first contravention.
(3) Every officer of the Directorate of Enforcement specified under sub-rule (1)
of this rule shall exercise the powers to compound any contravention subject to
the direction, control and supervision of the Director of Enforcement.
(4) Every application for compounding any contravention under this rule shall be
made in Form to the Director, Directorate of Enforcement, New Delhi, along with
a fee of Rs.5000 by DD in favour of the Compounding Authority.
6. Where any contravention is compounded before the
adjudication of any contravention under section 16, no inquiry shall be held for
adjudication of such contravention in relation to such contravention against the
person in relation to whom the contravention is so compounded.
7. Where the compounding of any contravention is made after
making of a complaint under sub-section (3) of section 16, such compounding
shall be brought by the authority specified in rule 4 or rule 5 in writing, to
the notice of the Adjudicating Authority and on such notice of the compounding
of the contravention being given, the person in relation to whom the
contravention is so compounded shall be discharged.
8. Procedure for Compounding -
(1) The Compounding Authority may call for any information, record or any
other documents relevant to the compounding proceedings.
(2) The Compounding Authority shall pass an order of compounding after affording
an opportunity of being heard to all the concerned as expeditiously as possible
as and not later than 180 days from the date of application.
9. Payment of amount compounded -
3The sum for which the contravention is compounded as specified in the
order of compounding under sub-rule (2) of rule 8, shall be paid by demand draft
in favour of the Compounding Authority within fifteen days from the date of the
order of compounding of such contravention.
10. In case a person fails to pay the sum compounded in
accordance with the rule 9 within the time specified in that rule, he shall be
deemed to have never made an application for compounding of any contravention
under these rules and the provisions of the Act for contravention shall apply to
him.
11. No contravention shall be compounded if an appeal has
been filed under section 17 or section 19 of the Act.
12. Contents of the order of the Compounding
Authority -
(1) Every order shall specify the provisions of the Act or of the rules,
directions, requisitions or orders made there under in respect of which
contravention has taken place along with details of the alleged contravention.
(2) Every such order shall be dated and signed by the Compounding Authority
under his seal.
13. Copy of the order - One copy of the
order made under rule 8(2) shall be supplied to the applicant and the
Adjudicating Authority as the case may be.
Format of Application
Form
(See Rule 4 or 5)
(To be filled in duplicate and shall be accompanied
by certified copy of the Memorandum issued)
1. Name of the applicant (in BLOCK LETTERS)
2. Full address of the applicant (including Phone and Fax Number and email
id)
3. Whether the applicant is resident in India or resident outside India
[Please refer to Section 2(v) of the Act]
4. Name of the Adjudicating Authority before whom the case is pending
5. Nature of the contravention [according to sub-section (1) of Section 13]
6. Brief facts of the case
7. Details of fee for application of compounding
8. Any other information relevant to the case
I/We declare that the particulars given above are true and correct to the
best of my/our knowledge and belief and that I/We am/are willing to accept any
direction/order of the Compounding Authority in connection with compounding of
my/our case.
Dated:
(Signature of the Applicant)
Name
Appendix
List of Rules/ A.P. (DIR Series) Circulars
consolidated
in the Master Circular Compounding of contraventions of FEMA, 1999
Rules
Sl No
|
Rules No.
|
Date
|
1
|
Foreign Exchange (Compounding Proceedings) Rules, 2000
|
May 3, 2000
|
2
|
Foreign Exchange (Compounding Proceedings) Rules
2002
|
November 2, 2002
|
3
|
Foreign Exchange (Compounding Proceedings)
Rules, 2004
|
September 13, 2004
|
4
|
Foreign Exchange (Compounding Proceedings)
Rules, 2004
|
August 27,2008
|
A.P. (DIR Series) Circulars
Sl No
|
Circular No
|
Date
|
1
|
AP (DIR Series ) Circular No. 31
|
February 1, 2005
|
2
|
AP (DIR Series ) Circular No. 56
|
June 28, 2010
|
1GSR 613(E) dated August 27, 2008
2 GSR 609 (E) dated September 13, 2004
3 GSR 443(E) dated November 2, 2002