What are the Procedure for RBI Compounding Application?

Procedure for RBI Compounding Application

Under section 13, the FEMA Act states that if any individual violates any of the provisions of the Act or any of the rules, notifications, regulations, orders, or directions issued while exercising the powers of the Act, or if he violates any of the conditions that are subject to RBI authorizations, he can be held responsible for a penalty of up to three times the amount related to such a violation. A maximum of Rs 2 lakhs can be charged for this amount wherever it is quantifiable. A penalty of Rs 5000 per day may be imposed if the amount of the contravention cannot be quantified or is continuous in nature, after the first day of the discovery of the contravention, if the amount cannot be quantified or the same is continuous.

As a legal term, compounding refers to a settlement that is cordial or amicable with the intention of avoiding prosecution for a past offense. Compounding, however, is not regarded as a right at all. Compounding is only provided/delegated by the law under which the said offence has been committed.

Basic Concepts

  1. According to Section 15 of the Foreign Exchange Management Act (FEMA) 1999, compounding of contraventions is permitted. Section 13 of FEMA also permits the RBI to compound as set forth therein. In any case, if the person committing the violation requests that the contravention be excluded, it will do so.

Furthermore, whenever a contravention has been compounded and a proceeding, continuation or initiation has      been initiated on account of the compounded contravention, no further proceedings, continuations, or initiations will be allowed.

  1. According to Section 13, individuals who violate any provision of the Act, any rule, notification, regulation, order or direction issued as part of exercising the Act’s powers, or contravene any condition subject to RBI authorizations will be subject to a penalty of up to thrice the amount related to such violation. In case the amount is quantifiable, it can reach a maximum of 2 lakhs. After the first day of becoming aware of the contravention, the penalty can be increased to Rs 5000 per day if the amount is not quantifiable or continuous.
  2. The Central Government has, however, crafted the Foreign Exchange (Compounding Proceedings) Rules, 2000, by exercising the powers conferred by Section 46 of the Foreign Exchange Act, together with those conferred by Section 15, sub-section (1). In Chapter IV of FEMA, it refers to compounding violations. It has taken effect on 03.05.2020.

RBI application requires the following documents

Please see our checklist below for some basic documents:

  • The RBI has sent us a memo
  • RBI has received all FIRC and FDI reports
  • Resolutions of the Board on item 2
  • Allotment & FCGPR filed with RBI & ROC
  • Offenses compounded previously if any
  • Disputes

RBI Compounding Procedure

  • The RBI’s regional office will receive and process the compounding application
  • Payment of the penalty with RBI after receiving the order

Click Here: RBI Compounding Application

FAQ

1. When should one apply for compounding?

It is possible for a person to apply for compounding when the Reserve Bank, any other statutory authority, the auditors or any other source informs him/her of the violation of FEMA, 1999. On becoming aware of a contravention, one can also apply for compounding suo moto.

2. What is the procedure for applying for compounding?

FED Master Direction No. describes the reporting and other form requirements. For compounding, please refer to the Master Direction for Reporting under Foreign Exchange Management Act, 1999, dated January 1, 2016 (updated as of January 24, 2018). Click on the link below to download the above Master Direction from the Reserve Bank’s website. Applications must be accompanied by applicable documents.

Leave a Reply

Your email address will not be published.