Componding under Fema

COMPOUNDING UNDER FEMA
BY CA.SUDHA G. BHUSHAN
21 July 2012

INSTITUTE OF COMPANY SECRETARIES OF INDIA

Scheme of Presentation
 Brief overview FEMA
 Enforcement under FEMA
 Adjudication under FEMA
 Appeal under FEMA
 Compounding under FEMA

By CA. Sudha G. Bhushan
 Meaning
 Authorities
 Procedure
 Application
 Practical aspects

FEMA
Brief Overview


Procedural and
Administrative Enforcement

Aspects
• Reserve Bank of • Central
India Government
• Regulations (S 47) • Rules (S 46)

Relevant Rules/Regulation
• Foreign Exchange Management ( Adjudication Proceedings
and Appeal) Rules, 2000
• Foreign Exchange (Compounding Proceedings)Rules , 2000


Enforcement under FEMA

 Officers of Enforcement

 Directors of enforcement
 Special Directorate of Enforcement

 Additional Director of Enforcement
 Deputy Directors of Enforcement
 Deputy Legal Adviser
 Assistant Director of Enforcement
 Assistant Legal Adviser

Adjudicating authority
• Following has been appointed as the Adjudicating Authority
under FEMA [under section 16 of the Act vide S.O 535(E),
dated 1-6-2000 to hold an enquiry under Section 13 of the
Act].
• Directors of Enforcement

• Special Directorate of Enforcement
• Additional Director of Enforcement
• Deputy Directors of Enforcement

• Makes a
Officers Complaint

Adjudicating • Holds
Authority Enquiry

• alleged to have
committed
On Persons contravention
u/s 13

Contd…
 Director of Enforcement have the jurisdiction over the cases
involving an amount exceeding Rs. one crore

 Special Director of Enforcement I, II and III have the jurisdiction
over the cases involving amount exceeding Rs.one crore

[jurisdiction over specified zones]

 Additional Director have the jurisdiction over the cases involving
amount of Rs.75 lakhs but not over 1 crore.

 Deputy Director’s jurisdiction is on the cases in which amount
involved does not exceed Rs. 75 Lakhs.

 Under Section 6(3)(g) and 7(1)(a) is Commissioner of Customs and
Central Excise.

Special Director
(Appeals)
Appeal against Order
passed by

Adjudicating
Authority Appellate Tribunal

Procedure
• Director Appeal • Appellate Tribunal
- Three copies • - Form II
- Form 1 • Three copies
• Demand draft of INR

- Demand draft of INR
5000/- payable in 5000/- payable in
favour of special favor appellate
director tribunal for foreign
exchange, New Delhi

Appellate Tribunal
• Adjudicating authority
not being Assistant
Special Director Director /Deputy

(Appeals) Director of enforcement
• Adjudicating authority
being Assistant Director
of Enforcement or a
Deputy Director of
enforcement

Special Director (Appeals)

Appellate Tribunal

High Court

Compounding
• Not defined under FEMA
• As per Master circular dated 01 July 2012 :- Compounding of
contraventions under FEMA is a voluntary process by which an
applicant can seek compounding of an admitted contravention
of any provision of FEMA under Section 13(1) of the FEMA,

1999.

Amount of Penalty
Amount of
contravention • Thrice the sum involved in such
contravention
is Quantifiable

Amount is not • Two Lakh Rupees
quantifiable

• Rs. 5000 per day for every day
Continuing during which the default continues

Compounding Powers
• Reserve Bank of India – All the Sections of FEMA except
Section 3(a) of the Act
• Directorate of Enforcement – Section 3(a) of the Act
(Essentially dealing with Hawala Transactions)


Nature of Contravention
• Whether the contravention is technical and /or minor in
nature and needs only an administrative cautionary advice

• Whether the contravention is serious in nature and warrants

compounding of the contravention

• Whether the contravention, prima facie, involves money
laundering, national and security concerns involving serious
infringement of the regulatory framework.

Directorate of Enforcement
 Sum Involved in  Authorized Person
Contravention
 Rs 5 lakhs and below  Deputy Director

 Above Rs.5 lakhs but of  Addl. Director of
below Rs.10 lakhs Enforcement Directorate

 Above Rs 10 lakhs but of  Special Director
below Rs. 50 lakhs
 Above Rs. 50 lakhs but with  Special Director with Legal
below Rs. 1 crore Adviser of Deputy
Enforcement Directorate
 Rs.1 crore or more  Director of Enforcement with
Special Director of

Reserve Bank of India
 Sum Involved in  Authorized Person
Contravention
 Rs 10 lakhs and below  Assistant General
Manager of RBI
 Above Rs.10 lakhs but

of below Rs.40 lakhs  Deputy General
Manager of RBI
 Above Rs 40 lakhs but
of below Rs. 1 Crore  General Manager of
RBI
 Rs.1 crore or more
 Chief General
Manager of RBI

Compounding authority

Persons authorized by the Central
Government under sub-section
(1) of section 15 of the Act

An officer of the
An officer of the Reserve
Bank of India not below the
not below the rank of
rank of the Assistant General
Deputy Director or Deputy
Manager
Legal Adviser (DLA)

Process of compounding
• A duly completed application (in duplicate) 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 “Form” of the
application is appended to the Foreign Exchange (Compounding Proceedings) Rules,
2000 (Annexed).

• The application for compounding has to be submitted together with relevant facts
and supporting documents and a copy of the memorandum, wherever applicable.

• Prescribed fee of Rs.5000/- is payable by way of a demand draft drawn in favour of
“Reserve Bank of India” and payable at the centre where the application shall be
processed/was processed and the compounding order was issued.

• The application may be submitted with 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 or as advised in the
memorandum issued by the office of the Reserve Bank.

• The applicant must indicate the following information about the
authorized person of the entity who would be handling the
complete process of the compounding :

 • Name and Designation of the authorised person for the contravener

 • Telephone/Fax/Email of the authorized person.
 • Details of the contravener e.g. date of incorporation, ownership pattern,
activity, transaction etc. may be provided.( In column-6 of the Form (Brief facts of
the case).

• The contravener/applicant shall specify the details of the contraventions sought to be
compounded in column-5 [according to sub-section (1) of Section 13] explicitly and expressly i.e.
the provision of the FEMA, or Rule, Regulation, Direction or order issued in exercise of the powers
under the FEMA, or condition subject to which an authorization was issued by the Reserve Bank.

• The contravener/applicant shall also specify / describe in the application the details/facts (e.g.
date, amount (in Indian Rupees), parties involved etc.) of the transaction for which the

contravention has occurred.

• Incomplete applications shall be liable to rejection by the Reserve Bank and appropriate action for
the contravention of the FEMA shall be taken accordingly.

• The gravity and nature of the contravention would be assessed by the compounding authority on
the basis of information/document submitted together with the application.

• Non-submission of relevant information/document during the processing of the compounding
application would be considered as willful and intentional suppression of the material fact and the
compounding application would be liable for rejection and appropriate action for contravention
under the FEMA.

• Communications and orders issued under the compounding process shall be served on the
authorised person in any of the following manners, which are to say by fax/Courier/Registered
Post by sending it to the address/information given in the compounding application.

• The sum for which the contravention is compounded as specified in the order of compounding 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.

• On realization of the sum for which contravention is compounded a certificate is issued by the
Reserve Bank subject to the specified conditions, if any, in the order.

• 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.

• 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. The order of CA
has to be speaking order and an opportunity of being heard is required to be given to the
applicant. The application once made cannot be withdrawn.

Non Compliance in Foreign Direct Investment in India

Non Compliance in Overseas Investment

Non Compliance in External Commercial Borrowings

Non compliance in Export /import obligations

Others

Amount involved
in
Contravention????
?????

FIPB/RBI????????
Procedural
Defaults ?????

Already admitting of
Offence

.
Thanks


sudhag999@gmail.com
Sudha@taxpertpro.com
07738892291 || 9769033172
www.taxpertpro.com

Componding under Fema

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