According to section 13 of the FEMA Act, a person who violates any provision contained in the Act or any rule, notification, regulation, order, or direction issued in the exercise of their powers under the Act will be penalized up to three times the amount of a violation that he has committed. As well as this, he will be liable for an amount up to three times more than what he has incurred. There is a maximum limit on this amount of Rs 2 lakhs, whenever that amount is quantifiable. The penalty may be extended to Rs 5000 per day after the discovery of such a contravention, in cases where the amount involved cannot be quantified or it is continuous in nature after the first day after such a contravention is discovered.
As far as the law is concerned, compounding refers to a cordial or amicable settlement that may prevent prosecution for a past offence. However, compounding is not considered an inherent right. The relevant legislation that has been used to commit the offence only provides or delegated it.
- Compounding of contraventions is permitted under Section 15 of the FEMA (Foreign Exchange Management Act) 1999. As per Section 13 of FEMA, the RBI is also empowered to compound loans. However, if an application is made by the person committing the violation, it will exclude contraventions under section 3(a). Furthermore, where such contravention has been compounded, it will not be possible to proceed, continue or initiate further proceedings with regard to it.
- In accordance with Section 13 of the Act, an individual who violates any provisions of the Act, any rules, notifications, regulations, orders, or directions issued while exercising the powers of the Act, or any conditions subject to RBI authorizations, is subject to a penalty up to thrice that amount. Whenever there is a quantifiable amount, this amount can be up to 2 lakhs. It may be applicable to a penalty of Rs 5000 per day after the discovery of such a contravention if the amount cannot be quantified or is continuous in nature.
- Nevertheless, the Central Government has framed the Foreign Exchange (Compounding Proceedings) Rules, 2000, in exercise of the powers conferred by Section 46 and Section 15, sub-section (1) of the FEMA. The law has been in effect since 03.05.2020 and pertains to common compounding contraventions.
Documents Required for RBI Application
Please see our checklist below for some basic documents
- The RBI has sent us a memo
- RBI filed all FIRC and FDI reports
- Item 2 of the Board’s resolutions
- RBI and ROC have received FCGPR and allotment
- If there have been any previous compounding offenses
- Cases in litigation
Procedure for RBI Compounding Application
- Compounding applications need to be prepared and submitted to RBI’s regional offices for processing
- Paying the penalty with RBI after receiving the order
Click Here: Rbi Compounding Application
1.Is it mandatory to file the RBI Compounding Application?
There is a possibility that RBI may not approve the forms filed, if you have received a Memorandum from them regarding the delayed reporting. And unless the application has been filed, then the RBI will not approve the forms filed.
2. What is the best time to submit a compounding application?
It is possible for a person to apply for compounding if they have been informed by the Reserve Bank or any other statutory body or auditors that there has been a violation of the FEMA, 1999 provisions. This disclosure can be made by the Reserve Bank, which is one of the statutory authorities. Following knowledge of the violation, one may also submit a request for compounding under the suo moto procedure.
3.What Are the Steps Involved in Submitting an Application for Rbi Compounding?
A compounding application can be submitted by following the instructions regarding reporting and other forms. In addition, the documents referenced in the Master Direction should be included in the application as well; you can download them from the Reserve Bank‘s website by clicking the link https://www.rbi.org.in/scripts/FS Notification.aspx?fn=5&fnn=2764.