Master Directions - Compounding of Contraventions under FEMA, 1999, dated April 22, 2025 (Updated as on April 24, 2025)(SupersedesMaster Direction- Compounding of Contraventions under FEMA, 1999, (Updated as on May 24, 2022))

RBI/FED/2025-26/135 FED Master Direction No.04/2025-26

April 22, 2025 (Updated as on April 24, 2025)

To,

All Authorised Dealer Category – I banks and Authorised banks

Madam / Sir,

Master Directions - 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’], enable compounding of contraventions and, 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. Government of India vide Notification G.S.R. 566 (E). dated September 12, 2024, has notified the Foreign Exchange (Compounding Proceedings) Rules, 2024 in supersession of the Foreign Exchange (Compounding Proceedings) Rules, 2000.

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.

3. Further, in terms of Section 11 (2) of FEMA, 1999, the Reserve Bank may, for the purpose of ensuring the compliance with the provisions of the Act or of any rule, regulation, notification, direction or order made thereunder, direct any authorized person to furnish such information, in such manner, as it deems fit. Authorised Dealers are therefore, advised to take necessary steps to ensure that checks and balances are incorporated in systems relating to dealing with and reporting of foreign exchange transactions so that contraventions of provisions of FEMA, 1999, attributable to the Authorised Dealers do not occur. In this connection, it is reiterated that in terms of Section 11(3) of FEMA, 1999, the Reserve Bank may impose on the authorized person a penalty for contravening any direction given by the Reserve Bank under this Act or failing to file any return as directed by the Reserve Bank.

4. All AD Category – I banks and Authorised banks may bring the guidelines contained in this circular to the notice of their constituents.

Yours faithfully,

(Dr. Aditya Gaiha) Chief General Manager in Charge

Guidelines for compounding of contraventions under FEMA, 1999

INDEX

Description

1. General

2. Compounding of contraventions by Reserve Bank

3. Application for Compounding

4. Cases not eligible for compounding

5. Procedure for Compounding

6. Issue of Compounding order

7. Payment of the amount for which contravention is compounded Annexure I - Details for payment of Compounding application fee and compounding amount. Annexure II - Details of transactions relating to Foreign Direct Investment, External Commercial Borrowings, Overseas Direct Investment and Branch Office / Liaison Office Annexure III - Undertaking in relation to status of investigation by Directorate of Enforcement

8. General

1.1 In exercise of the powers conferred by section 46 read with sub-section (1) of Section 15 of FEMA, 1999, the Central Government had formulated/notified the Foreign Exchange (Compounding Proceedings) Rules, 2024 (hereafter referred as ‘Compounding Rules, 2024’) relating to compounding of contraventions under Foreign Exchange Management Act,1999 (42 of 1999) (hereafter referred as ‘FEMA, 1999’).

1.2 In terms of Section 15 of the FEMA, 1999, any contravention under section 13 of FEMA 1999 {except that of Section 3(a) of the Act} may, on an application made by the person committing such contravention (hereafter referred as ‘applicant’), be compounded within one hundred and eighty days from the date of receipt of such application, by the officers of the Reserve Bank, as prescribed in Rule 4 of the Compounding Rules, 2024.

1.3 Accordingly, in terms of Section 13(1) of the Act, 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.

1.4 Accordingly, the facility of compounding of contraventions as specified in Section 15(1) of FEMA, 1999, has been provided to persons involved in foreign exchange transactions to reduce compliance burden as well as costs wherever violation of the Act or the Rules and Regulations issued under the Act are involved. However, compounding of contraventions of cases falling under Rule 4(2) and Rule 9 of the Compounding Rules, 2024 shall not be compounded.

2. Compounding of the contraventions by the Reserve Bank

2.1 In order to facilitate operational convenience, contraventions of following Rules and/or Regulations issued under the Act shall be compounded by the compounding authorities of the Reserve Bank at the Regional Offices.

2.2 The contraventions of Rules and/or Regulations related to Liaison/ Branch/ Project office (LO/ BO/ PO), Non-Resident Foreign Account (NRFAD) and Immovable Property (IP) shall be compounded by the compounding authorities of the Reserve Bank attached to the FED, CO, Cell at New Delhi office: