Compounding of contraventions under FEMA
The changes in Compounding rules notified by the Government
of India vide Notification No. G.S.R. No. 609 (E) dated September 13, 2004 in
the Foreign Exchange (Compounding Proceedings) Rules, 2000 are quite important
and historic.
Hitherto the Reserve Bank of India was empowered to compound
contravention under the provisions of following sections of FEMA, 1999.
-
Section 7 (Export of goods and services),
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Section 8 (Realisation and repatriation of foreign
exchange),
-
Section 9 (Exemption from realisation and repatriation of
foreign exchange in certain cases),
-
Third Schedule to the Foreign Exchange Management (Current
Account Transactions) Rules, 2000.
1"With a view to provide comfort to the
citizens and corporate community by minimizing transaction costs, while taking
severe view of wilful, mala fide and fraudulent transactions, the Government of
India has placed the major responsibilities of administering compounding with
the Reserve Bank of India, except under section 3(a) of FEMA (dealing
essentially with Hawala transactions)."
Section 3 contains provisions relating to ‘Dealing in foreign
exchange, etc.’
Section 3(a) states as follows:
"3. Save as otherwise provided in this Act, rules or
regulations made thereunder, or with the general or special permission of the
Reserve Bank, no person shall: –
-
deal in or transfer any foreign exchange or foreign
security to any person not being an authorized person."
Thus now, the modified compounding powers stand as under:
-
Reserve Bank has been empowered to compound the
contraventions of all the sections of FEMA 1999 except clause (a) of section 3
of the Act ibid.
-
Directorate of Enforcement would continue to exercise
powers of compounding under clause (a) of Section 3 of FEMA.
RBI has set up a Compounding Authority. The application for
compounding has to be filed with The Compounding Authority, [Cell for
effective implementation of FEMA (CEFA)], Foreign Exchange
Department, 11th Floor, Central Office Building, S. B. Singh Road, Fort, Mumbai
– 400 001.
The Compounding Authority shall dispose of the matter within
180 days from the date of the receipt of the application. Once the Compounding
Authority has compounded a contravention, no proceeding or further proceeding
will be initiated or continued, as the case may be, against the contravener.
The amended "Foreign Exchange (Compounding Proceedings)
Rules, 2000" Notified vide G.S.R. No. 609 (E) dated September 13, 2004 contains
various definitions and other provisions relating to powers of Reserve Bank to
compound contravention of any provisions of FEMA 1999 except section 3(a) of the
Act, (compounding of which is entrusted to the Enforcement Directorate), the
procedure for compounding, payment of amount compounded and consequences of
failure to pay such amount, non-compounding in a case where an appeal has been
filed, contents of the order of Compounding Authority and supplying the copies
to the applicant and the Adjudicating Authority as the case may be. The form in
which the applicant has to apply for compounding the contravention has also been
given along with the abovementioned amended Rules. Refer Annexure I to A.P. (Dir
Series) Circular No. 31 dated February 1, 2005 for text of amended "Foreign
Exchange (Compounding Proceedings) Rules, 2000".
Reserve Bank has also prescribed the procedures for
compounding of contravention vide A.P. (Dir Series) Circular No. 31 dated
February 1, 2005. Refer Annexure II to the said Circular for the text of the
Compounding Process.
Conclusion
Earlier, since the powers of compounding the contraventions
vested with the Directorate of Enforcement, lot of hardships were being faced by
the contraveners and the procedure was burdensome. However, henceforth most of
the powers being transferred to RBI, the procedures shall get simplified and
hardships may get reduced.
