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.
- The guidance structure for calculating the amount to be imposed on compounding is as given below:
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Type of contravention |
Formula |
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1) |
Reporting Contraventions |
Fixed amount: Rs10,000/- (applied once for |
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A) FEMA 20 |
each contravention in a compounding |
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i. |
Para 9(1)(A) |
application) + |
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(Delay in reporting inward remittance for issue of |
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shares) |
Variable amount as under: |
- Paragraph 9(1)(B)
(Delay in filing form FC(GPR) after issue of shares) |
Upto |
10 lakhs: 1,000 per year |
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iii. |
Regulation 4 |
Rs.10-40 lakhs: 2,500 per year |
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(Taking on record transfer of shares by investee |
Rs.40-100 lakhs: 7,000 per year |
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company, in the absence of certified from FC-TRS). |
Rs.1-10 crore: 50,000 per year |
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iv. |
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FCTRS (Reg. 10) |
Rs.10-100 Crore: 1,00,000 per year |
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(Delay in submission of form FC-TRS on transfer of |
Above Rs.100 Crore: 2,00,000 per year |
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shares from Resident to Non-Resident or Non- |
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resident to resident). |
As above, subject to ceiling of Rs.2 lakhs. In |
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v. Part B of FC(GPR) |
case of Project Office, the amount of |
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B) FEMA 3 |
contravention shall be @10% of total project |
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Non submission of ECB statements |
cost. |
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C) FEMA 120 |
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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 |
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acquisition/setup of subsidiaries/step down |
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subsidiaries /changes in the shareholding pattern |
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D) Any other reporting contraventions (except those |
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in Row 2 below) |
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E) Reporting contraventions by LO/BO/PO |
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2) AAC/ APR/ Share certificate delays |
Rs.10000/- per AAC/APR/FCGPR (B) Return |
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In case of non-submission/ delayed submission of |
delayed. |
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APR/ share certificates (FEMA 120) or AAC (FEMA 22) |
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or FCGPR (B) Returns (FEMA 20) |
Delayed receipt of share certificate – |
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Rs.10000/- per year, the total amount being |
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subject to ceiling of 300% of the amount |
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invested. |
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3) |
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A) Allotment/Refunds |
Rs.30000/- + given percentage: |
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Para 8 of FEMA 20/2000-RB (non-allotment of shares |
1styear |
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0.30% |
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or allotment/ refund after the stipulated 180 days) |
1-2 |
years |
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0.35% |
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2-3 |
years |
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0.40% |
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B) LO/BO/PO |
3-4 |
years |
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0.45% |
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(Other than reporting contraventions) |
4-5 |
years |
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0.50% |
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>5 |
years |
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0.75% |
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(For project offices the amount of |
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contravention shall be deemed to be 10% of |
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the cost of project). |
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SBS Interns' Digest |
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www.sbsandco.com/digest |
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Type of contravention |
Formula |
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4) All other contraventions except Corporate |
Rs.50000/- |
+ |
given |
percentage: |
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Guarantees |
1st |
year |
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0.50% |
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1-2 |
years |
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0.55% |
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2-3 |
years |
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0.60% |
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3-4 |
years |
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0.65% |
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4-5 |
years |
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0.70% |
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> 5 |
years |
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0.75% |
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5) Issue of Corporate Guarantees |
Rs.500000/- + |
given |
percentage: |
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1st |
year |
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0.050% |
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Issue of corporate guarantees without UIN/ without |
1-2 |
years |
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0.055% |
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2-3 |
years |
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0.060% |
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permission wherever required /open ended |
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3-4 |
years |
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0.065% |
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guarantees or any other contravention related to |
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4-5 |
years |
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0.070% |
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issue of Corporate Guarantees. |
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>5 years : 0.075% |
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In case the contravention includes issue of |
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guarantees for raising loans which are |
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invested back into India, the amount imposed |
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may be increased. |
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- The above amounts are presently subject to the following conditions, i.e.
- the amount imposed should not exceed 300% of the amount of contravention
- 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:
- 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).
- 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).
- 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).
- 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.
- 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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