{"id":32115,"date":"2021-06-23T11:30:35","date_gmt":"2021-06-23T06:00:35","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=32115"},"modified":"2021-06-23T11:30:37","modified_gmt":"2021-06-23T06:00:37","slug":"compounding-of-offenses-under-fema","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/compounding-of-offenses-under-fema\/","title":{"rendered":"A Complete Briefing on Compounding of Offenses under FEMA"},"content":{"rendered":"\n<p class=\"has-drop-cap\">With the array of laws and ever-evolving corporate milieu, the individual often ends up violating the various provisions under the law. Hence, the Indian Government has introduced the compounding of offenses under <a href=\"https:\/\/corpbiz.io\/fema-compliance\"><strong>FEMA<\/strong><\/a> which allows person to voluntarily accept the violation &amp; apply for compounding of offenses to achieve redressal of the same without encountering the tedious process of litigation. In this write-up, we will reveal every detail regarding the compounding of offenses under FEMA. <\/p>\n\n\n\n<p>The\nprimary provisions regulating the compounding are listed below:<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/compounding-of-offenses-under-fema\/#Laws_that_regulates_compounding_of_offenses_under_FEMA\" >Laws that regulates compounding of offenses under FEMA<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/compounding-of-offenses-under-fema\/#Contraventions\" >Contraventions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/compounding-of-offenses-under-fema\/#Offences_Eligible_for_Compounding_Delegation_of_Power\" >Offences Eligible for Compounding (Delegation of Power)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/compounding-of-offenses-under-fema\/#Offences_that_can_be_compounded_by_Reserve_Banks_regional_offices\" >Offences that\ncan be compounded by Reserve Bank\u2019s regional offices<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/compounding-of-offenses-under-fema\/#Offences_that_can_be_compounded_by_Reserve_Banks_central_office\" >Offences that\ncan be compounded by Reserve Bank\u2019s central office<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/compounding-of-offenses-under-fema\/#Process_relating_to_Compounding\" >Process\nrelating to Compounding<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/compounding-of-offenses-under-fema\/#Time_Limit_for_Completion\" >Time Limit\nfor Completion<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/compounding-of-offenses-under-fema\/#Penalties_exist_under_Compounding\" >Penalties\nexist under Compounding<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/corpbiz.io\/learning\/compounding-of-offenses-under-fema\/#Time_span_for_the_Payment_of_Penalty_for_Compounding\" >Time span for the Payment of Penalty for Compounding<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Laws_that_regulates_compounding_of_offenses_under_FEMA\"><\/span>Laws that regulates compounding of offenses under FEMA<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>The given laws encompass the compounding of offenses under FEMA:<\/strong><\/em><\/p>\n\n\n\n<ul><li>Section 13 of FEMA talks about the penalties regarding violations that are compounded.<\/li><li>Section 14 of FEMA Enforcement of the order of adjudication Authority.<\/li><li>Section 15 of FEMA 1999 talks about the powers to compound violations and enables the Compounding Authority to compound the violations.<\/li><li>Master Direction \u2013 Reporting under FEMA,1999 (Updated as of April 04, 2019)<\/li><li>Master Direction- Compounding of violations under FEMA, 1999 (Updated as of April 04, 2019)<\/li><li>Foreign Exchange (Compounding Proceedings) Rules, 2000\u00a0(the Rules) as subject to periodic amendments, underpin the fundamental framework for the compounding process.<\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/nbfc-compliance-under-fema\/\">A Complete Overview on NBFC Compliance under FEMA <\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Contraventions\"><\/span>Contraventions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Contraventions denote the violations of norms of<\/em><\/strong><\/p>\n\n\n\n<ul><li>Foreign Exchange and Management Act, 1999<\/li><li>Norms cited under FEMA<\/li><li>Notification, regulations, directions are issued under FEMA.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Offences_Eligible_for_Compounding_Delegation_of_Power\"><\/span>Offences Eligible for Compounding (Delegation of Power)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Reserve\nbank reserves the rights of compounding all the sections under FEMA except\nSection 3(a), which can be compounded by DoE, i.e. Directorate of Enforcement.<\/p>\n\n\n\n<p>If any individual breaches any norms of FEMA, 1999 (42 of 1999) except clause (a) of Section 3, then the same shall be compounded as manifested below:<\/p>\n\n\n\n<table class=\"table table-bordered\"><tbody><tr><td>\n  <strong><em>S.NO.<\/em><\/strong>\n  <\/td><td>\n  <strong><em>Amount involved in the Violation (INR)<\/em><\/strong>\n  <\/td><td>\n  <strong><em>Eligible &nbsp;RBI personal <\/em><\/strong>\n  <\/td><\/tr><tr><td>\n  1.\n  <\/td><td>\n  Less than or equal to 10 lakhs\n  <\/td><td>\n  Assistant General Manager\n  <\/td><\/tr><tr><td>\n  2.\n  <\/td><td>\n  &lt;10 lakhs&gt;40 Lakhs\n  <\/td><td>\n  Deputy General Manager\n  <\/td><\/tr><tr><td>\n  3.\n  <\/td><td>\n  More than or equivalent to 40 lakhs&nbsp; but less than 100 lakhs\n  <\/td><td>\n  General Manager\n  <\/td><\/tr><tr><td>\n  4.\n  <\/td><td>\n  More than or equivalent to 100 lakhs&nbsp; \n  <\/td><td>\n  Chief General Manager\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Offences_that_can_be_compounded_by_Reserve_Banks_regional_offices\"><\/span>Offences that\ncan be compounded by Reserve Bank\u2019s regional offices<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Here are the offenses are can be\nsubjected to compounding for Reserve Bank\u2019s regional offices<\/p>\n\n\n\n<ul><li>Delay w.r.t reporting inward remittance got for the issue of shares.<\/li><li>Delay w.r.t filing form, viz FC(GPR) after issuing of shares.<\/li><li>Delay w.r.t filing the yearly return on Foreign Liabilities and Assets (aka FLA).<\/li><li>Delay w.r.t issue of shares\/refund of share application money beyond sixty days, mode relating to the receipt of funds, etc.<\/li><li>Contravention of pricing norms relating to issue\/transfer of shares.<\/li><li>Issue of ineligible instruments.<\/li><li>Issue of shares without the prior consent of Reserve Bank of India or      Government, wherever required.<\/li><li>Delay w.r.t submission of the form, viz FC-TRS relating to the transfer of shares from Resident to Non-Resident.<\/li><li>Getting funds in India via foreign nationals or taking on shares\u2019 record transfer by investee firm.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Offences_that_can_be_compounded_by_Reserve_Banks_central_office\"><\/span>Offences that\ncan be compounded by Reserve Bank\u2019s central office<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Here are the offenses eligible\nfor compounding by Reserve Bank\u2019s central office<\/p>\n\n\n\n<ul><li>Contraventions w.r.t acquisition &amp; transfer of immovable property outside India<\/li><li>Contraventions w.r.t to acquisition &amp; transfer of immovable property in India<\/li><li>Contraventions w.r.t to the establishment in India of Branch office, project office or Liaison office<\/li><li>Contraventions that comes under Foreign Exchange Management (Deposit) Regulations, 2000<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Process_relating_to_Compounding\"><\/span>Process\nrelating to Compounding<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>i. An application needs to be\nfurnished before the compounding authority along with the DD of INR 5000\/-\nalong with the following:<\/p>\n\n\n\n<ul><li>Compounding application: As per the format cited in Annexure-II under the Foreign Exchange (Compounding Proceedings) Rules, 2000.<\/li><li>Application\u2019s details: In case of violation regarding the FDI, Commercial borrowing, branch office\/liaison office, the applicants should submit details in view of Annexure III under the Foreign Exchange (Compounding Proceedings) Rules, 2000.<\/li><li>Undertaking: An undertaking declaring that the applicant doesn\u2019t encounter any scrutiny from agencies like DoE and CBI in the past.<\/li><li>Copy of MOA.<\/li><li>Latest Audited Balance Sheet<\/li><\/ul>\n\n\n\n<p>ii. The application will be\nsubjected to compounding based on documents &amp; submission made.&nbsp;&nbsp;<\/p>\n\n\n\n<p>iii. The compounding authority\nmay intimate the applicant for further information, record, or other documents.<\/p>\n\n\n\n<p>iv. In case the defaulter fails\nto give the requested information called within the predetermined timeline, the\napplication may confront rejection.<\/p>\n\n\n\n<p>v. Disposal of compounding\napplication will be made via issuance of compounding order, but where there is\na reasonable ground for further scrutiny, the Reserve bank may forward the\nmatter to DoE.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Time_Limit_for_Completion\"><\/span>Time Limit\nfor Completion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The application for compounding filed with the <em><strong>RBI<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Reserve_Bank_of_India\"><em><strong>[1]<\/strong><\/em><\/a><\/sup> for compounding of contravention is required to be disposed off by RBI within 180 days of the receipt of the application.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Penalties_exist_under_Compounding\"><\/span>Penalties\nexist under Compounding<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The computing framework for estimating the amount to be levied on compounding is shown in the table below:<\/p>\n\n\n\n<table class=\"table table-bordered\"><tbody><tr><td>\n  <strong><em>Form of contravention<\/em><\/strong>\n  <\/td><td>\n  <strong><em>Formula for the computation of compounding <\/em><\/strong>\n  <\/td><\/tr><tr><td>\n  1] Reporting Contraventions<br>\n  A) FEMA 20<br>\n  Para 9(1)(A), 9(1)(B), FCTRS (Reg. 10) &amp; taking on record FCTRS (Reg.\n  4)B) FEMA 3<br>\n  Non submission relating to ECB statements C) FEMA 120<br>\n  Second\/subsequent remittance without availing &nbsp;of UIN shall be encompassed under Item 5\n  below). Non-reporting\/delay pertaining to acquisition\u2019s reporting \/\n  subsidiaries\u2019 set up\/step down subsidiaries \/ratification in the shareholding\n  pattern D) Any other reporting contravention (other than listed in Item 2\n  below)\n  <\/td><td>\n  Fixed amount : INR 10000\/- (applied once for\n  each contravention in a compounding application) + Variable amount as under:<br>\n  Upto 10 lakhs: 1000 per year<br>\n  INR10-40 lakhs: 2500 per year<br>\n  INR40-100 lakhs: 7000 per year<br>\n  INR1-10 crore : 50000 per year<br>\n  INR10 -100 Crore : 100000 per year<br>\n  Above INR100 Crore : 200000 per year\n  <\/td><\/tr><tr><td>\n  E) Reporting contraventions by BO\/LO\/PO\n  <\/td><td>\n  As above, expose to ceiling worth INR2\n  lakhs. In case of Project Office, the contravention\u2019s amount shall be @10% of\n  total project cost.\n  <\/td><\/tr><tr><td>\n  <strong><em>2] APR\/ AAC\/ Share certificate delays<\/em><\/strong><br>\n  In case of deferred\/ non-submission submission of APR\/ share certificates\n  (FEMA 120) or FCGPR (B) Returns (FEMA 20) or AAC (FEMA 22) or FLA Returns\n  (FEMA 20 (R))\n  <\/td><td>\n  INR10000\/- per APR\/AAC\/FCGPR (B) Return\n  delayed.\n  Deferred receipt related to share\n  certificate \u2013 INR .10000\/year, the total amount being subject to 300% of\n  ceiling of the amount invested.\n  <\/td><\/tr><tr><td>\n  3]<br>\n  A]&nbsp;Allotment\/Refunds<br>\n  Para 8 under FEMA 20\/2000-RB (non-allotment of shares or allotment\/ refund post\n  stipulated 180 days)B]&nbsp;LO\/BO\/PO<br>\n  (Other than reporting contraventions)\n  <\/td><td>\n  INR30000\/- + given percentage:<br>\n  1st year : 0.30%<br>\n  1-2 years : 0.35%<br>\n  2-3 years : 0.40%<br>\n  3-4 years : 0.45%<br>\n  4-5 years : 0.50%<br>\n  &gt;5 years : 0.75%<br>\n  (For project offices- &nbsp;the\n  contravention\u2019s amount shall be considered to be 10% of the project\u2019s cost).\n  <\/td><\/tr><tr><td>\n  4] All other contraventions apart from Corporate\n  Guarantees but covering &nbsp;all\n  contraventions of&nbsp;FEMA 20(R)\/2017-RB, dated Nov 07, 2017&nbsp;other than\n  FLA Returns\n  <\/td><td>\n  INR50000\/- + given percentage:<br>\n  1st year : 0.50%<br>\n  1-2 years : 0.55%<br>\n  2-3 years : 0.60%<br>\n  3-4 years : 0.65%<br>\n  4-5 years : 0.70%<br>\n  &gt; 5 years : 0.75%\n  <\/td><\/tr><tr><td>\n  5] Issue of Corporate Guarantees&nbsp;in\n  absence of UIN\/ permission wherever required \/open ended guarantees or any\n  other violation regarding the issue of Corporate Guarantees.\n  <\/td><td>\n  INR500000\/- + given percentage:<br>\n  1st year : 0.050%<br>\n  1-2 years : 0.055%<br>\n  2-3 years : 0.060%<br>\n  3-4 years : 0.065%<br>\n  4-5 years : 0.070%<br>\n  &gt;5 years : 0.075%In case the contravention covers &nbsp;issue of guarantees for availing loans which\n  are invested back into India, the amount levied may be trebled.\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Time_span_for_the_Payment_of_Penalty_for_Compounding\"><\/span>Time span for the Payment of Penalty for Compounding <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The defaulter needs to pay the contravention\npenalty within 15 days from the date of order. Any non-conformity to such a\nrequirement will compel the Reserve Bank of India to forward the case to the\nDirectorate of Enforcement (aka DoE) for necessary action. <\/p>\n\n\n\n<p>In case you want further clarification on the topic, i.e. compounding of offenses under FEMA, then ping us by dropping the queries in the comment box. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/fema-compliance-checklist-for-startups-from-fdi-standpoint\/\">FEMA Compliance Checklist for Startups from FDI standpoint <\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>With the array of laws and ever-evolving corporate milieu, the individual often ends up violating the various provisions under the law. Hence, the Indian Government has introduced the compounding of offenses under FEMA which allows person to voluntarily accept the violation &amp; apply for compounding of offenses to achieve redressal of the same without encountering [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":32120,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[844],"tags":[1827],"acf":{"service_id":"112"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":4827,"readingTime":5,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/32115"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=32115"}],"version-history":[{"count":10,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/32115\/revisions"}],"predecessor-version":[{"id":32126,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/32115\/revisions\/32126"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/32120"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=32115"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=32115"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=32115"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}