CS Mohit Singh Kharayat

INTRODUCTION

As per the Black’s Law Dictionary, to “Compound” means “to settle a matter by a money payment, in lieu of other liability.” This meaning clearly defines the concept of Compounding as a mechanism that provides the offender an opportunity to avoid prosecution from the offence committed by him after paying off monitory payment.

Compounding of an offense in the context of law means an amicable settlement for the purpose of preventing prosecution for an offense, however, Compounding is not an inherent right but provided/delegated by the respective Act under which the offence has been committed.

BASIC CONCEPTS

1. As far as Foreign Exchange Management Act, 1999 (FEMA), the provisions of section 15, permit compounding of contraventions and empowers the Reserve Bank of India (RBI) to compound any contravention as defined under section 13 of the FEMA, except contraventions under section 3 (a) of FEMA, on an application made by the person committing such contravention.

Further, where a contravention has been compounded as above, there cannot be any further proceeding, initiating or continuing, as the case may be, in respect of the contravention so compounded.

2. The provisions of Section 13, provides that if any person contravenes any provision of FEMA, or any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention, where the amount is quantifiable or up to Rupees Two lakhs, where the amount is not directly quantifiable and where the contravention is a continuing one, further penalty which may extend to Rupees Five thousand for every day after the first day during which the contravention continues.

3. Whereas, in exercise of the powers conferred by section 46 read with sub-section (1) of section 15 of FEMA, the Central Government had made the Foreign Exchange (Compounding Proceedings) Rules, 2000 relating to compounding contraventions under chapter IV of FEMA which were effective from 03.05.2000.

POWER TO COMPOUND

If any person contravenes any provisions of FEMA except clause (a) of Section 3 of that Act then the following authorities under RBI shall have power to entertain the Compounding application on the basis of monetary limits, which are as follows:

S. No.Monetary LimitManager of RBI
1Rs. Ten Lakh or lessAssistant General Manager
2more than Rs. Ten Lakh but less than Rupees Forty LakhDeputy General Manager
3Rs. Fourty Lakh or more but less than Rs Hundred LakhGeneral Manager
4Rs. One Hundred Lakh or moreChief General Manager

*Provided that no contravention shall be compounded unless the amount involved in such contravention is quantifiable.

Delegation of Powers to Regional Offices

As a measure of customer service and in order to facilitate the operational convenience, compounding powers have been delegated to the Regional Offices of the Reserve Bank of India to compound the following contraventions of FEMA, 1999.

1. Delay in reporting inward remittance received for issue of shares.

2. Delay in filing form FC(GPR) after issue of shares.

3. Delay in issue of shares/refund of share application money beyond 180 days, mode of receipt of funds, etc.

4. Violation of pricing guidelines for issue of shares.

5. Issue of ineligible instruments such as non-convertible debentures, partly paid shares, shares with optionality clause, etc.

6. Issue of shares without approval of RBI or FIPB respectively, wherever required.

7. Delay in submission of form FC-TRS on transfer of shares from Resident to Non-Resident.

8. Delay in submission of form FC-TRS on transfer of shares from Non-Resident to Resident

9. Taking on record transfer of shares by investee company, in the absence of certified from FC-TRS.

PRE-REQUISITE FOR COMPOUNDING PROCESS

Following are pre-requisites those needs to be consider before applying for Compounding applying with RBI:

1. No compounding of similar offence can be done upto three years from the date on which a similar contravention was compounded by the applicant. However, any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention.

2. Contraventions relating to any transaction where proper approvals or permission from the Government or any 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 concerned authorities.

3. Cases of contravention, such as, those having a money laundering angle, national security concerns and/or involving serious infringements of the regulatory framework or where the contravener fails to pay the sum for which contravention was compounded within the specified period in terms of the compounding order, then such offence shall not be dealt by RBI rather be referred to the Directorate of Enforcement for further investigation.

 PROCEDURE OF COMPOUNDING

1. All applications in the prescribed format and other mentioned documents for compounding to submitted along with the prescribed fee of Rs.5000/- by way of a demand draft drawn in favour of “Reserve Bank of India” and payable at the concerned Regional Office and by way of a demand draft drawn in favor of “Reserve Bank of India” and payable at Mumbai for cases submitted to the Compounding Authority.

2. On receipt of the application for compounding, the Reserve Bank shall examine the application based on the documents and submissions made in the application and assess whether contravention is quantifiable and, if so, the amount of contravention.

3. In case the application has to be returned where required approvals are not obtained from the authorities concerned or in case of incomplete application or for any other reason, the application fees of Rs.5000/- received along with the application will be returned.

4. Then after entertaining the Compounding application will be disposed off by the authority within 180 days from the date of receipt of the completed application for compounding.

*The applicants are advised to give notice of, if any, in the address/ contact details of the applicant during the pendency of the compounding application with Reserve Bank.

QUANTITY OF PENALTY

The RBI is guided by the provisions of section 13 of FEMA, whereby it is said that the amount imposed can be up to three times the amount involved in the contravention. However, the amount imposed is calculated on the basis of guidance note which is given in circuler A.P. (DIR Series) Circular No. 73 dated May 26, 2016 and which is also available on the RBI’s website for information of general public. However, the guidance note is only for the purpose of indicating the basis on which the amount to be imposed is derived by the compounding authorities. The actual amount imposed may sometimes vary, depending on the circumstances of the case taking into account the factors:

A. the amount of gain of unfair advantage, wherever quantifiable, made as a result of the contravention;

B. the amount of loss caused to any authority/ agency/ exchequer as a result of the contravention;

C. economic benefits accruing to the contravener from delayed compliance or compliance avoided;

D. the repetitive nature of the contravention, the track record and/or history of non-compliance of the contravener;

E. contravener’s conduct in undertaking the transaction and in disclosure of full facts in the application and submissions made during the personal hearing; and any other factor as considered relevant and appropriate.

Recent Development:

1. Public disclosure of Compounding Orders

For disseminating the information pertaining to compounding orders, it has been decided to host the compounding orders passed on or after June 1, 2016 on the Bank’s website (www.rbi.org.in). The data on the website will be updated at monthly intervals.

2. Public disclosure of guidelines on the amount imposed during compounding

Now it has been decided to put the guidance note on the Bank’s website for information of general public, which has already been discussed earlier.

CONCLUSION

Dealing with RBI has been never been an easy task but with the passage of time RBI has been putting lot of efforts to bridge this connotation and now a day’s every step of RBI is in this direction. A very good example is the consolidated Master Circular for each subject matter, issued annually or half yearly, whereby it complies up all the alterations done or circulars issued during the year, into one so as to give the concerned persons an easy access and comfort while dealing with it and which has also served the base of this article.

(Author can be reached at +91- 8447879875 or on pcs.mohitsingh@outlook.com)

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