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    Compounding of Contraventions under FEMA

    Introduction about Compounding

    Contravention is a breach of the provisions of the Foreign Exchange Management Act (FEMA), 1999 and rules/ regulations/ notification/ orders/ directions/ circulars issued there under. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking for remedy. The Reserve Bank is empowered to compound any contraventions as defined under section 13of FEMA, 1999 except the contravention under section 3(a), for a specified sum after offering an opportunity of personal hearing to the contravener. It is a voluntary process in which an individual or a corporate seeks compounding of an admitted contravention. 

    Persons eligible for compounding 

    Any person who contravenes any provision of the FEMA, 1999 [except section 3(a)] or contravenes 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, can apply for compounding to the RBI.

     

    Time limit to apply for compounding 

    Any contravention under section 13 may, on an application made by the person committing such contravention, be compounded within one hundred and eighty days from the date of receipt of application by the Director of Enforcement or such other officers of the Directorate of Enforcement and officers of the Reserve Bank.One can also make an application for compounding, voluntarily, on becoming aware of the contravention. 

    1. The guidance structure for calculating the amount to be imposed on compounding is as given below: 

     

    Type of contravention

    Formula

     

    1)

    Reporting Contraventions

    Fixed amount: Rs10,000/- (applied once for

     

    A) FEMA 20

    each  contravention  in  a  compounding

     

    i.

    Para 9(1)(A)

    application) +

     

    (Delay in reporting inward remittance for issue of

     

     

    shares)

    Variable amount as under:

    1. Paragraph 9(1)(B)

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

    Upto

    10 lakhs: 1,000 per year

    iii.

    Regulation 4

    Rs.10-40 lakhs: 2,500 per year

     

    (Taking on record transfer of shares by investee

    Rs.40-100 lakhs: 7,000 per year

    company, in the absence of certified from FC-TRS).

    Rs.1-10 crore: 50,000 per year

     

    iv.

     

    FCTRS (Reg. 10)

    Rs.10-100 Crore: 1,00,000 per year

    (Delay in submission of form FC-TRS on transfer of

    Above Rs.100 Crore: 2,00,000 per year

    shares from Resident to Non-Resident or Non-

     

     

     

     

    resident to resident).

    As above, subject to ceiling of Rs.2 lakhs. In

    v.  Part B of FC(GPR)

    case  of  Project  Office,  the  amount  of

    B) FEMA 3

    contravention shall be @10% of total project

    Non submission of ECB statements

    cost.

     

     

     

    C) FEMA 120

     

     

     

     

    N o n  r e p o r t i n g / d e l a y  i n  r e p o r t i n g  o f

     

     

     

     

    acquisition/setup  of  subsidiaries/step  down

     

     

     

     

    subsidiaries /changes in the shareholding pattern

     

     

     

     

    D) Any other reporting contraventions (except those

     

     

     

     

    in Row 2 below)

     

     

     

     

    E) Reporting contraventions by LO/BO/PO

     

     

     

     

     

     

     

     

    2)  AAC/ APR/ Share certificate delays

    Rs.10000/- per AAC/APR/FCGPR (B) Return

     

     

     

     

     

     

    In case of non-submission/ delayed submission of

    delayed.

     

     

    APR/ share certificates (FEMA 120) or AAC (FEMA 22)

     

     

     

     

    or FCGPR (B) Returns (FEMA 20)

    Delayed  receipt  of  share  certificate  –

     

     

     

     

    Rs.10000/- per year, the total amount being

     

     

     

     

    subject to ceiling of 300% of the amount

     

     

     

     

    invested.

     

     

    3)

     

    A) Allotment/Refunds

    Rs.30000/- + given percentage:

    Para 8 of FEMA 20/2000-RB (non-allotment of shares

    1styear

    :

    0.30%

    or allotment/ refund after the stipulated 180 days)

    1-2

    years

    :

    0.35%

     

     

     

     

    2-3

    years

    :

    0.40%

     

    B) LO/BO/PO

    3-4

    years

    :

    0.45%

    (Other than reporting contraventions)

    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).

     

     

     

     

     

     

     

     

     

       

     

    SBS Interns' Digest

     

     

     

    www.sbsandco.com/digest

     

     

     

     

     

     

     

     

     

    Type of contravention

    Formula

     

     

     

     

    4)  All  other  contraventions  except  Corporate

    Rs.50000/-

    +

    given

    percentage:

     

     

    Guarantees

    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%

     

     

     

     

     

     

     

     

    5) Issue of Corporate Guarantees

    Rs.500000/- +

    given

    percentage:

     

    1st

    year

     

    :

    0.050%

     

     

     

     

     

     

    Issue of corporate guarantees without UIN/ without

    1-2

    years

    :

    0.055%

     

    2-3

    years

    :

    0.060%

     

    permission  wherever  required  /open  ended

     

    3-4

    years

    :

    0.065%

     

    guarantees or any other contravention related to

     

    4-5

    years

    :

    0.070%

     

    issue of Corporate Guarantees.

     

    >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 increased.

     

     

     

     

     

     

     

     

     

     

     

     

    1. The above amounts are presently subject to the following conditions, i.e.
    2. the amount imposed should not exceed 300% of the amount of contravention 
    1. In case the amount of contravention is less than Rs. One lakh, the total amount imposed should not be more than amount of simple interest @5% p.a. calculated on the amount of contravention and for the period of the contravention in case of reporting contraventions and @10% p.a. in respect of all other contraventions. 
    • In case of paragraph 8 of Schedule Ito FEMA 20/2000 RB contraventions (Delay in issue of shares/refun of share application money beyond 180 days, mode of receipt of funds, etc.), the amount imposed will be further graded as under: 
    1. If the shares are allotted after 180 days without the prior approval of Reserve Bank, 1.25 times the amount calculated as per table above (subject to provisos at (i) & (ii) above). 
    1. If the shares are not allotted and the amount is refunded after 180 days with the Bank’s permission: 1.50 times the amount calculated as per table above (subject to provisos at (i) & (ii) above). 
    2. If the shares are not allotted and the amount is refunded after 180 days without the Bank’s permission: 1.75 times the amount calculated as per table above (subject to provisos at (i) & (ii) above).
    3. In cases where it is established that the contravenor has made undue gains, the amount thereof may be neutralized to a reasonable extent by adding the same to the compounding amount calculated as per chart. 
    1. If a party who has been compounded earlier applies for compounding again for similar contravention, the amount calculated as above may be enhanced by 50%. 
    • For calculating amount in respect of reporting contraventions under para I.1 above, the period of contravention may be considered proportionately {(approx. rounded off to next higher month ÷ 12) X amount for 1 year}. The total no. of days includes Sundays/holidays. 

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