Compounding means voluntarily admitting contravention of FEMA, pleading guilty and seeking redressal, while Contravention is the breach of provisions of FEMA. One can go for compounding after contravention. As per general perception, RBI is the compounding authority under the FEM and that perception is substantially correct. However, here we are exploring the power of Enforcement Directorate for compounding under FEMA:
Power of Officers of ED with respect to the contravention under Section 3 (a) for the amount as mentioned below:
When to making application: Application can be made when the person becomes aware of contravention, on suo moto or otherwise.
Application for Compounding: Application in the prescribed format along with relevant documents must be addressed to:
Directorate of Enforcement, New Delhi along with DD for the fees of Rs. 5000/-
Process of Compounding:
(i) On receipt of application and documents, the ED may call for any information, record or any other documents relevant to the compounding proceedings.
(ii) There is no need for personal appearance, unless specifically asked for by the ED. It is advised to authorise someone, may be CA or lawyer who is aware of law as well as contraventions.
(iii) The whole process is to be completed by ED within 180 days from the date of receipt of application complete in all respects.
(iv) Compounding order shall state the provisions of law as well as the alleged contravention. It will also state the sum to be payable within 15 days of the date of order through DD. Further, the order shall be signed, sealed, and dated by the ED.
(v) After the payment, ED will issue a certificate/letter that the Applicant has complied with Order of ED.
Conditions for Compounding:
Factors for adjudicating the sum payable under Order: The ED may take into consideration the following factors:
Computation of amount imposed: Under FEMA, the penalty can be huge upto 3 times of the amount involved in case of quantifiable contravention. However, there is a guidance note provided by RBI for public and the amount is calculated as per this note.
In conclusion, it is advised to come clean with the suo moto application for compounding of any contravention and give complete details and documents and co-operate with ED.
In case you have any concern and queries or need any support in compliance/FEMA/ED you may like to contact us.
Abhinarayan Mishra, FCA, FCS; Managing Partner, KPAM & Associates, Chartered Accountants, Dwarka, New Delhi; 9910744992, firstname.lastname@example.org