The Ministry of Finance vide Notification G.S.R. 566 (E). dated September 12, 2024, notified the Foreign Exchange (Compounding Proceedings) Rules, 2024 (Compounding Rules, 2024) relating to compounding of contraventions under the Foreign Exchange Management Act, 1999 (FEMA, 1999). In this backdrop, the Reserve Bank of India (RBI) has reviewed the earlier circulars and issued the Directions on Compounding of Contraventions under FEMA, 1999 (Compounding Directions).

 

Certain key changes introduced by the Compounding Directions include inter alia the following:

 

  • Application for Compounding:

 

An applicant may submit a compounding application, along with the relevant documents, physically or through PRAVAAH Portal of the Reserve Bank, either suo moto or based on a Memorandum of Contraventions issued by the Reserve Bank.

 

  • Certain Cases not Eligible for Compounding:

 

In respect of a contravention committed by any person (applicant) within a period of three years from the date on which a similar contravention was committed and the same was compounded, such contraventions will not be compounded, and the relevant provisions of the Act shall apply. Any contravention committed after the expiry of a period of three years from the date on which a similar contravention was previously compounded would be deemed to be a first contravention. Further, contraventions of serious nature viz. transactions suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation or where the contravener fails to pay the sum for which contravention was compounded within the specified period in terms of the compounding order, will be referred to the Directorate of Enforcement for further investigation and necessary action under FEMA, 1999.

 

  • Procedure for Compounding:

 

On receipt of an application, the Reserve Bank will examine the application based on the documents and submissions made in the application and assess whether contravention can be compounded in accordance with the Compounding Rules, 2024 and, if so, the sum involved in the contravention. Further, the compounding authority may call for any information, or any other documents relevant to the compounding proceedings. In case the contravener fails to submit the additional information/documents called for within the specified period, the application for compounding would be liable to be returned.

 

  • Issue of Compounding Order

 

The compounding authority will pass a compounding order after affording an opportunity of being heard to the applicant as expeditiously as possible and not later than 180 days from the date of receipt of such compounding application by the RBI and complete in all respects, 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.

 

For more details, kindly refer to the Compounding Directions issued by RBI, available by clicking on this link.

 

Authors & Contributors

Partner(s):

Vaibhav Kakkar

Snigdhaneel Satpathy

Sahil Arora

 

 

Associate(s):

Keshav Pareek

Ishaan Gupta

Shivani Pattnaik