CA Kamal Garg
Along with the application in the prescribed format, the applicant may also furnish the details as per the enclosed Annexes relating to Foreign Direct Investment, External Commercial Borrowings, Overseas Direct Investment and Branch Office / Liaison Office, as applicable, along with an undertaking that they are not under investigation of any agency such as DOE, CBI, etc., a copy of the Memorandum of Association and latest audited balance sheet while applying for compounding of contraventions under FEMA, 1999;
All applications for compounding whether on the advice of the Regional Office concerned or suo moto, relating to the specified contraventions above and up to the amount of contravention stated therein, may be submitted by the companies falling under the jurisdiction of the aforesaid Regional Offices directly to the Regional Office concerned, together with the prescribed fee by way of a demand draft drawn in favour of “Reserve Bank of India” and payable at the concerned Regional Office;
On receipt of the application for compounding, the proceedings would be concluded and order issued by the CA within 180 days from the date of the receipt of the application for compounding. The time limit for this purpose would be reckoned from the date of receipt of the completed application for compounding by the Reserve Bank. The CA may call for any information, record or any other documents relevant to the compounding proceedings and will hold the proceedings. The Compounding Order will be passed by the CA after affording the contravener and others concerned, an opportunity of being heard;
The application will be examined based on the documents and submissions made in the application, in terms of sub rule (1) of rule (4) of the Foreign Exchange (Compounding Proceedings) Rules, 2000 and assess whether the contravention is compoundable and if so, the amount of contravention is accordingly quantified;
The nature of contravention is ascertained keeping in view, inter alia, the following indicative points :
a. whether the contravention is technical and/or minor in nature and needs only an administrative cautionary advice;
b. whether the contravention is serious in nature and warrants compounding of the contravention; and
c. whether the contravention, prima facie, involves money-laundering, national and security concerns involving serious infringement of the regulatory framework.
However, the Reserve Bank reserves the right to classify the contraventions as stated above and neither the contravener nor others have any right to classify any contravention as technical suo moto.
The CA may call for any additional information, record or any other document relevant to the compounding proceedings. Such additional information/documents are required to be submitted within the period as may be specified by the CA and the application may be rejected if such information/documents are not submitted within the prescribed time;
Where there is sufficient cause for further investigation, the Reserve Bank may refer the matter to the Directorate of Enforcement for further investigation and necessary action under FEMA, 1999, as deemed fit or to the Anti- Money Laundering Authority instituted under the Prevention of Money Laundering Act (PMLA), 2002 or to any other agencies, as deemed fit. Such applications will be disposed of by returning the application to the applicant.
Scope and Manner of Compounding:
The CA will form an opinion on the basis of the application, together with the documents submitted and on the basis of submissions made during the personal hearing on the nature of the contravention;
The application for compounding will be disposed of on merits, upon consideration of the records and submissions and at the absolute discretion of the CA. The following factors, which are only indicative, may be taken into consideration for the purpose of passing the Compounding Order and for arriving at the quantum of sum on payment of which contravention shall be compounded:
(i) the amount of gain of unfair advantage, wherever quantifiable, made as a result of the contravention;
(ii) the amount of loss caused to any authority/agency/exchequer as a result of the contravention;
(iii) economic benefits accruing to the contravener from delayed compliance or compliance avoided;
(iv) the repetitive nature of the contravention, the track record and/or history of noncompliance of the contravener;
(v) contravener’s conduct in undertaking the transaction and disclosure of full facts in the application and submissions made during the personal hearing; and
(vi) any other factor considered relevant and appropriate.
Issue of the Compounding Order:
An opportunity for personal hearing is given to the applicant for further submission of documents in person in support of the application within a specified period. If the contravener or its authorized representative fails to appear in person or make any submissions before the CA for personal hearing, the CA may proceed with the processing of the compounding application on the basis of information and documents available in the application for compounding.
The Compounding Authority will pass a compounding order 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, if any.
Where the compounding of any contravention is made after making of a complaint under sub-section (3) of section 16 of FEMA, 1999 as the case may be, one copy of the compounding order made under sub rule (2) of Rule 8 of Foreign Exchange (Compounding Proceedings) Rules, 2000 will be provided to the applicant (the contravener) and also to the Adjudicating Authority.
Complied by FCA Kamal Garg. He is the member of ICAI. He is engaged in IFRS – Audit and Advisory, FEMA, Valuation and XBRL Services. He can be approached at firstname.lastname@example.org.