Oct 30, 2024Notification of FEMA Compounding Proceedings Rules
On September 12, 2024, the RBI has released the Foreign Exchange Management (Compounding Proceedings) Rules, 2024 (‘Rules’) in supersession of the Foreign Exchange (Compounding Proceedings) Rules, 2000. The new Rules focus on streamlining and expediting the process of compounding applications, introduction of digital payment options and simplification of provisions to eliminate ambiguity, all aimed towards the larger initiative of promoting ‘ease of doing business’ in India. Set out below is a brief overview of the Rules:
i. Compounding Authorities: The Rules designate an officer of the Directorate of Enforcement (‘DOE’) or an officer of the RBI, as the case may be, as primary compounding authorities. Further, certain classes of contraventions require compounding only by certain classes of officers.
A contravention of any provision of FEMA (except Section 3(a) which states that a person will not deal in or transfer any foreign exchange or foreign security to any person who is not an authorized person), may be compounded by the following officers of the RBI:
| Sum involved in the contravention | Ranking of Compounding Officer |
| Not exceeding INR 60 lakhs (approx. USD 71,000) | Officer not below the rank of Assistant General Manager |
| More than INR 60 lakhs (approx. USD 71,000) but not exceeding INR 2.5 crore (approx. USD 300,000) | Officer not below the rank of Deputy General Manager |
| More than INR 2.5 crore (approx. USD 300,000) but not exceeding INR 5 crore (approx. USD 600,000) | Officer not below the rank of General Manager |
| More than INR 5 crore (approx. USD 600,000) | Officer not below the rank of Chief General Manager |
If any person deals in or transfers any foreign exchange or foreign security to any unauthorised person, such person will be compounded by the following officers of the DOE:
| Sum involved in the contravention | Ranking of Compounding Officer |
| Not exceeding INR 5 lakh (approx. USD 6,000) | Officer of the rank of Deputy Director |
| More than INR 5 lakh (approx. USD 6,000) but less than INR 10 lakh (approx. USD 12,000) | Officer of the rank of Additional Director |
| Equal to or more than INR 10 lakh (approx. USD 12,000) but less than INR 50 lakh (approx. USD 60,000) | Officer of the rank of Special Director |
| Equal to or more than INR 50 lakh (approx. USD 60,000) but less than INR 1 crore (approx. USD 120,000) | Officer of the rank of Special Director along with Deputy Legal Adviser |
| Equal to or more than INR 1 crore (approx. USD 120,000) | Officer of the rank of Director of Enforcement along with Special Director |
In both the abovementioned cases, the categorization of ranking vis-à-vis quantum of contravention will not apply to a contravention made within a period of three years from the date on which a similar contravention was already compounded under the Rules. However, any subsequent contravention committed after the expiry of three years will be treated as a first contravention itself.
ii. Procedure for Compounding: Every compounding application should be made in the form prescribed under the Rules along with payment of INR 10,000 (approx. USD 120) and applicable taxes, if any. This can be paid through real time gross settlement (‘RTGS’), national electronic funds transfer (‘NEFT’) or other permissible online payment modes (whereas previously it was mandatory to make such payment only through a demand draft). The compounding authority may, in addition to the form, also call for any additional information, records or documentation relevant to the compounding proceedings to be placed before it.
iii. Non-compoundable Contraventions: The following contraventions will not be compoundable:
a. where the sum of the contravention is not quantifiable;
b. where the provisions of Section 37A (Special provisions related to assets held outside India in contravention of Section 4) of FEMA are applicable;
c. where DOE suspects that the proceeding relates to a contravention suspected of money-laundering, terror-financing or affecting the sovereignty of the nation;
d. where the adjudicating authority has already passed an order imposing penalty for such contravention; or
e. where the compounding authority is of the view that the contravention involved requires further investigation by DOE to ascertain the amount of contravention under Section 13 (Penalties) of FEMA.