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The Reserve Bank of India sets the framework and procedures for compounding contraventions under the Foreign Exchange Management Act 1999. Persons who commit a contravention submit an application with the prescribed fee to the Reserve Bank of India. The Reserve Bank of India examines the application and assesses the amount of contravention to issue a compounding order. The contravener pays the specified sum within fifteen days from the date of the compounding order. Contraventions involving money laundering or terror financing go to the Directorate of Enforcement.
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RBI/FED/2015-16/1 FED Master Direction No.4/2015-16 January 1, 2016 ( Updated as on May 24, 2022 ) ( Updated as on January 04, 2021 ) ( Updated as on April 04, 2019 ) ( Updated as on September 19, 2018 ) ( Updated as on December 22, 2017 ) ( Updated as on February 02, 2017 ) ( Updated as on May 26, 2016 ) To, All Authorised Dealer Category – I banks and Authorised banks Madam / Sir, Master Direction- Compounding of Contraventions under FEMA, 1999 The provisions of section 15 of Foreign Exchange Management Act, 1999 (42 of 1999) hereinafter referred to as FEMA, 1999, permit compounding of contraventions and, as such it empowers the Reserve Bank to compound any contravention as defined under section 13 of the FEMA, 1999, except the contraventions under section 3 (a) of FEMA, 1999, on an application made by the person committing such contravention. Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules), as amended from time to time, lays down the basic framework for the compounding process. 2. Instructions issued on "Compounding of Contraventions under FEMA, 1999" have been compiled in this Master Direction . The list of underlying circulars/ notifications which form the basis of this Master Direction is furnished in the Appendix . All AD Category – I banks and Authorised banks may bring the instructions contained in this Master Direction to the notice of their constituents. 3. The Master Direction will be updated from time to time as and when fresh instructions are issued. Yours faithfully, (Ajay Kumar Misra) Chief General Manager in Charge INDEX Description General Power to compound by Reserve Bank Delegation of Powers to Regional Offices Authorisation to compound the contraventions by FED, CO Cell, New Delhi Application for Compounding Pre-requisite for Compounding process Scope and Procedure for Compounding Issue of Compounding order Payment of the amount for which contravention is compounded Directions to the Authorised Dealers Reporting requirements
1.1 In terms of Section 15 of the FEMA 1999, any contravention under section 13 of FEMA 1999 may, on an application made by the person committing such contravention, be compounded within one hundred and eighty days from the date of receipt of application by the officers of the Reserve Bank as may be authorized in this behalf by the Central Government in such manner as may be prescribed. In terms of Section 13(1), if any person contravenes any provision of FEMA, 1999, or 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 lakhs, where the amount is not directly 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.
1.2 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 had made the Foreign Exchange (Compounding Proceedings) Rules, 2000 relating to compounding contraventions under chapter IV of FEMA, 1999.
1.3 In terms of the Foreign Exchange (Compounding Proceedings) Rules, 2000, effective from June 1, 2000, RBI is empowered to compound contraventions relating to Section 7, 8 and 9 and the third schedule to FEMCAT Rules. Vide GSR 609 (E) dated 13-09-2004, RBI was empowered to compound all the contraventions of FEMA 1999 except Section 3(a) with a view to providing comfort to individuals and corporate community by minimizing transaction costs, while taking severe view of willful, malafide and fraudulent transactions.
2.1 If any person contravenes any provisions of Foreign Exchange Management Act, 1999 (42 of 1999), it can be compounded in case where the sum involved in such contravention is:
2.2 Every officer specified under sub-rule (1) of rule 4 of the Reserve Bank of India (Compounding Authority) shall exercise the powers to compound any contravention subject to the direction, control and supervision of the Governor of the Reserve Bank of India.
As a measure of customer service and in order to facilitate the operational convenience, compounding powers have been delegated to the Regional Offices/ Sub-Offices of the Reserve Bank of India and they are accordingly empowered to compound the following contraventions of FEMA 20, FEMA 20(R), FEM (NDI) Rules and FEMA 395 as per details below:
FEMA 20/2000-RB dated May 3, 2000
In supersession of the earlier Notification No. FEMA 20/2000-RB dated May 3, 2000, the Reserve Bank hads issued Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 notified vide Notification No. FEMA 20(R)/ 2017-RB dated November 07, 2017.
FEMA 20(R)/ 2017-RB dated November 07, 2017
The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 and Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 i.e. Notification No. FEMA. 395/2019-RB, both notified on October 17, 2019, by Government of India and Reserve Bank of India respectively, have since superseded the earlier Notification No. FEMA 20(R)/ 2017-RB.
FEM (Non –Debt Instruments) Rules, 2019 dated October 17, 2019
FEM (Mode of Payment and Reporting of Non-Debt Instruments) Regulations dated October 17, 2019 (FEMA 395/2019-RB)
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