Ease of Business: RBI digitizes process of Compounding under FEMA, 1999
The Ministry of Finance (the Ministry) on September 12, 2024 had notified Foreign Exchange (Compounding Proceedings) Rules, 2024. The Ministry vide the Rules had updated limits expanding the authority of RBI officers to decide on compounding application, revised compounding application fees providing electronic mode for payment of fees.
The Reserve Bank of India (RBI) for implementation of the mentioned Rules on October 1, 2024 vide A.P.(DIR Series) Circular No. 17/2024-25 has issued directions for compounding of contraventions under FEMA, 1999. RBI with the directions has provided for ease in the process of compounding.
The Process of compounding would be as follows:
STEP 1: CHECKING OF PRE REQUISITES:
The applicant may check whether it is eligible for compounding of contravention under FEMA, 1999. The Directions provides for the following cases not be eligible for compounding i.e.
a. Where similar contravention has been compounded and a period of 3 years has not been completed from the date of compounding such contravention.
The applicant may in its records or through the summary of orders available at https://rbi.org.in/scripts/InfoContravention.aspx may check if similar contravention has been compounded during the previous 3 years.
b. Pendency of requisite administrative action on the side of applicant:
The directions provide indicative list of such administrative actions such as obtaining requisite approvals from RBI/ GOI, unwinding transaction, repatriating receivables due, compliance with pricing guidelines or reporting requirements, any other such corrective actions which may be required to be completed before submitting the compounding application.
STEP 2: CREATION OF USER ON PRAVAAH PORTAL:
The Directions issued by RBI have introduced online submission of compounding application through PRAVAAH portal. The applicant shall be required to create requisite user on the portal for submission of online portal. Detailed guidelines and FAQs for the portal are available at https://pravaah.rbi.org.in/pravaah/#/
The option of physical submission of compounding application shall still be available with the applicant till further directions from RBI.
STEP 3: PAYMENT OF COMPOUNDING FEES:
The applicant had to submit the compounding fees by way of demand draft prior to the directions, the applicant shall now have an option for payment of fees by online mode. The directions have provided for the requisite details for enabling payment of application fees and penalty for compounding of contraventions which was revised to Rs. 10,000/- plus GST at the rate 18% vide Rules prescribed by the ministry.
The option of payment of application fees/ penalty vide demand draft shall still be available with the applicants.
STEP 4: INTIMATION OF PAYMENT VIA EMAIL TO RBI:
Once the payment is made through electronic mode – the same is to be intimated to the RBI via e mail at the earliest but not later than 2 hours from the time of payment.
STEP 5: SUBMISSION OF COMPOUNDING APPLICATION:
The Directions have provided for submission of application along with requisite annexures online through Pravaah Portal. Unique ID shall be generated on the portal for future tracking of application.
The applicant shall also have an option to submit compounding application along with requisite annexures (the e mail communication to RBI for payment of compounding fees may form part of the compounding application) with the respective RBI regional office or central office in physical form.[i]
STEP 6: REVIEW BY THE CONCERNED COMPOUNDING AUTHORITY/ SUBMISSION OF ADDITIONAL DOCUMENT OR CLARIFICATION
The RBI may review the application and request additional documentation or clarification as necessary for its processing.
For applications submitted via the Pravaah portal, applicants may monitor the status or check for any additional requirements raised by the RBI using the Unique ID generated during submission. Any required responses or documents can be uploaded directly on the portal.
In the case of physical submission of a compounding application, the RBI will communicate any additional requirements to the designated contact person via email, based on the contact details provided in the application. Responses should be submitted via email and followed by a physical submission to the relevant RBI office.
STEP 7: CONFIRMATION ON THE CONTRAVENTION SOUGHT TO BE COMPOUNDED
The designated RBI officer will share details of the contravention observed and proposed for compounding. Once the applicant and the authority reach an agreement, the RBI will offer the applicant the option to attend a hearing, either in person or through virtual mode. Alternatively, the applicant may choose to waive the hearing option if no further submissions are required.
STEP 8: ISSUE COMPOUNDING ORDER:
The RBI will issue the compounding order, which will be shared via email for physical submissions or uploaded on the Pravaah portal against the unique ID for online submissions.
STEP 9: PAYMENT OF COMPOUNDING PENALTY:
The applicant is required to make the payment of the compounding penalty if any within 15 days from the date of the order and is required to arrange for the submission of the acknowledgement of compounding penalty payment to the concerned RBI office. Payment can be made via demand draft or through an online payment method.
In case of electronic mode – an intimation of the payment must be provided to the concerned RBI office within 2 hours of the payment in the format as provided in the directions.
STEP 10: CERTIFICATE TO BE ISSUED BY THE AUTHORITY
On realization of the sum for which contravention was compounded, a certificate shall be issued by the Reserve Bank subject to the specified conditions, if any, in the order.
The Rules issued by the ministry followed by the Directions issued by RBI aim to facilitate and implement the ease of regularisation. RBI has been working towards digitisation of procedures and records, which shall benefit both the regulator and applicant.
While online platform for compounding shall provide ease to the applicant it shall also enable transparency in the time involved at various stages of application and effective disposal.
[i] Contraventions to be compounded by RBI Regional offices include:
1. Contravention under Notification No. FEMA 20/2000-RB dated May 3, 2000,
2. Notification No. FEMA 20(R)/2017-RB dated November 07, 2017,
3. FEM (Non–Debt Instruments) Rules, 2019 dated October 17, 2019,
4. Notification No. FEMA 395/2019-RB dated October 17, 2019
Contraventions to be compounded by RBI Central office: Contraventions of Rules and/or Regulations related to Liaison/ Branch/ Project office (LO/ BO/ PO), Non-Resident Foreign Account (NRFAD) and Immovable Property (IP)
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