There are various laws in India and amended time to time for the benefits of stakeholders. As a result most of the people by mistake contravene various provisions of law. So Government has provided compounding of offence under FEMA to make default good. A person suo-moto accepts its contravention and apply for compounding of offence.
DELEGATION OF POWER TO COMPOUND BY RESERVE BANK
If any person contravenes any provisions of Foreign Exchange Management Act, 1999 except clause (a) of Section 3 of that Act,
|Ten lakhs rupees or below||By the Assistant General Manager of RBI|
|More than rupees ten lakhs but less than rupees forty lakhs||By the Deputy General Manager of RBI|
|Rupees forty lakhs or more but less than rupees hundred lakhs||By the General Manager of RBI|
|Rupees one hundred lakhs or more||By the Chief General Manager of RBI|
CONTRAVENTION FOR WHICH POWER DELEGATED TO REGIONAL OFFICES
Following Contravention are compounded by Regional Offices:
Kochi and Panaji Regional offices can compound the abovementioned contraventions for amount of contravention below Rupees one hundred lakh (Rs.1,00,00,000). The contraventions for amounts of Rupees one hundred lakh (Rs. 1,00,00,000/-) or more under the jurisdiction of Panaji and Kochi Regional Offices with respect to all the delegated powers shall henceforth be compounded at Mumbai RO and Thiruvananthapuram RO respectively.
AUTHORISATION TO COMPOUND THE CONTRAVENTIONS BY FED CO CELL
Following Contravention are compounded by FED CO Cell
> Contraventions relating to acquisition and transfer of immovable property outside India
> Contraventions relating to acquisition and transfer of immovable property in India
> Contraventions relating to establishment in India of Branch office, Liaison Office or Project office
> Contraventions falling under Foreign Exchange Management (Deposit) Regulations, 2000
The powers to compound the abovementioned contraventions have been delegated to FED, CO Cell, New Delhi without any limit on the amount of contravention.
PROCUDURE OF COMPOUNDING
Application shall be submitted to authority along with fees of Rs. 5,000 by way of demand draft along with following documents:
√ Application in the prescribed format and furnished the details as per Annex-II relating to Foreign Direct Investment, External Commercial Borrowings, Overseas Direct Investment and Branch Office / Liaison Office
√ a copy of the Memorandum of Association
√ latest audited balance sheet
√ undertaking as per Annex III that they are not under any enquiry/investigation/adjudication by any agency such as Directorate of Enforcement, CBI etc as on the date of the application
√ 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
√ The Compounding Authority may call for any information, record or any other documents relevant to the compounding proceedings.
√ If fails to submit the additional information/documents within time period, the application for compounding will be liable for rejection.
PRE CONDITION FOR COMPOUNDING PROCESS
The applicant shall confirm in the undertaking required to be furnished as per Annex III along with the compounding application that they have not filed any appeal under section 17 or section 19 of FEMA, 1999.
COMPUTATION OF PENALTY
The guidance note for calculating the amount to be imposed is as below:
|Type of contravention||Existing Formula|
|1] Reporting Contraventions
A) FEMA 20
Para 9(1)(A), 9(1)(B), part B of FC(GPR), FCTRS (Reg. 10) and taking on record FCTRS (Reg. 4)
B) FEMA 3
Non submission of ECB statements
C) FEMA 120
Non reporting/delay in reporting of acquisition/setup of subsidiaries/step down subsidiaries /changes in the shareholding pattern
D) Any other reporting contraventions (except those in Row 2 below)
|Fixed amount : Rs10000/- (applied once for each contravention in a compounding application) +
Variable amount as under:
|Reporting contraventions by LO/BO/PO||As above, subject to ceiling of Rs.2 lakhs. In case of Project Office, the amount imposed shall be calculated on 10% of total project cost.|
|AAC/ APR/ Share certificate delays
In case of non-submission/ delayed submission of APR/ share certificates
|Rs.10,000/- per AAC/APR/FCGPR (B) /FLA Return delayed.
Delayed receipt of share certificate – Rs.10000/- per year, the total amount being subject to ceiling of 300% of the amount invested.
Para 8 of FEMA 20/2000-RB (non-allotment of shares or allotment/ refund after the stipulated 180 days)
(Other than reporting contraventions)
|Rs.30000/- + given percentage:
1st year : 0.30%
1-2 years : 0.35%
2-3 years : 0.40%
3-4 years : 0.45%
4-5 years : 0.50%
>5 years : 0.75%
(For project offices the amount of contravention shall be deemed to be 10% of the cost of project).
|All other contraventions except Corporate Guarantees but including all contraventions of FEMA 20(R)/2017-RB dated November 07, 2017 other than FLA Returns||Rs.50000/- + given percentage:
1st year : 0.50%
1-2 years : 0.55%
2-3 years : 0.60%
3-4 years : 0.65%
4-5 years : 0.70%
>5 years : 0.75%
|Issue of Corporate Guarantees without UIN/ without permission wherever required /open ended guarantees or any other contravention related to issue of Corporate Guarantees.||Rs.500000/- + given percentage:
1st year : 0.050%
1-2 years : 0.055%
2-3 years : 0.060%
3-4 years : 0.065%
4-5 years : 0.070%
>5 years : 0.075% In case the contravention includes issue of guarantees for raising loans which are invested back into India, the amount imposed may be trebled.
The above amounts are subject to the following provisions:
TIME LINE FOR COMPOUNDING ORDER
The Compounding Authority shall dispose off the matter within 180 days from the date of application.
TIME LINE FOR PAYMENT OF COMPOUNDING PENALTY
The sum for which the contravention is compounded shall be paid within 15 days from the date of the order of compounding of such contravention.
In case of failure to pay the sum compounded within the time, it shall be deemed that the contravener had never made an application for compounding of any contravention.
About the Author: Author CS Manish Kumar is partner of MSD & Associates, a company secretaries firm based in New Delhi. CS Manish Kumar advice RBI related Matters and foreign companies in opening up of Liaison/ Branch Office in India and complying with various corporate laws applicable to foreign companies while set up a business in India. For any query email at [email protected] or Contact +91-9315760696/ +91-8375877464
Declaration: This write up is intended to start academic discussion and sharing knowledge. It is not intended to be a professional advice therefore Author accepts no responsibility whatsoever and will not be liable for any losses, claims or damages which may arise because of the contents of this write up.