In the year 2000, the Government of India established a scheme for setting up of business zones...
Compounding of offences is where an individual agrees to not report an offence or convict the offender in the future. Compounding of offences is done for exchange of consideration such as promise, money or property. However, there are many circumstances in the business world where individuals commit mistakes which lead to strict punishments. For such purposes, the Government of India have brought out compounding of offences to make a compromise for such punishments. All the laws in India have specific sections which deal with compounding of offences.
Foreign exchange law is governed by the Foreign Exchange Management Act, 1999 (FEMA). The primary authority for regulating foreign exchange in India is the Reserve Bank of India. Apart from FEMA law, the RBI has brought out various notifications and circulars amending specific regulations dealing with Foreign Exchange matters in India.
Under the FEMA act, section 15 deals with the power to compound an offence or a contravention. Any individual or entity that commits any offence under FEMA can compound the offence by making an application for compounding of offences under FEMA. The application for compounding of offences must be made to the Director of Enforcement or any other officer of the Directorate of enforcement. Apart from this an application for compounding an offence can be made to the RBI. An offence will be compounded within 180 days of receiving the application.
When an application for compounding an offence has been made no proceeding or further proceeding can be initiated against the individual offender in respect of the same offence. For compounding an offence an individual offender has to first accept that the offence is committed. Then an application for compounding an offence can be made.
There are specific timelines for compounding of offences under FEMA. The authority for compounding of offences has been delegated to the RBI. Various regional offices have the power of compounding offences. An offence which is committed by an individual or entity would be classified into the following groups based on the amount which the contravention.
The following table depicts the offences based on the amount:
|Sl No||Amount Involved in the Contravention||Authority for Compounding of Offences|
|1||For an amount up to Rupees 10 Lakhs or Below||The concerned authority for compounding the offence is the Assistant General Manager of the RBI.|
|2||For an amount which is more than Rupees 10 Lakh but less than Rupees 45 Lakhs||The concerned authority for compounding the offence is the Deputy General Manager of the RBI.|
|3||For an amount which is more than Rupees 45 Lakhs but less than 1 Crore||The concerned authority for compounding the offence is the General Manager of the RBI.|
|4||For amounts more than Rupees 1 Crore.||The Chief General Manager of the RBI is the concerned authority for compounding the offence.|
Due to plethora of offences under FEMA, the offences are classified and segregated to different regional offices based on the nature and complexity. These offences can be compounded at the respective regional office by making an application.
The following table represents the compliance required under the Foreign Exchange Management Act.
|Sl No||Compliance under FEMA||Offence/ Contravention|
|1||Investment in the form of Foreign Direct Investment (FDI) by subscription in the shares and securities||Any form of delay in reporting of inward remittance.|
|2||Investment in the form of Foreign Direct Investment by subscription in the shares and securities||Any form of delay in filing the FORM FC GPR after shares have been issued.|
|3||Annual Returns submitted by companies to RBI for receiving FDI. This must be carried out by all Indian Companies that have received FDI in the current or previous financial year.||Any form of delay in filing the annual return for any Foreign Assets and Liabilities (FLA).|
|4||Investment in form of FDI and shares has not been allotted to the investor.||Delay in providing refund for the shares/ share application money within a period of 180 days.|
|5||Investment in FDI.||Contravening the pricing guidelines related to the issue of shares.|
|6||Indian companies are not allowed to receive NCD (Non Convertible Debentures), Partly Paid Up Shares or Shares which come with an optionality clause under the FDI regime.||Companies receiving such instruments are non compliant with the foreign exchange regulations.|
|7||Sector Caps for Specific Investments.||Not Seeking Approval from the RBI.|
|8||Investment in an Indian Entity through the transfer of shares||Delay in Submission of FCTRS form. This would be applicable when shares are transferred from a non resident to a resident.|
The regional offices of Panaji and Kochi can carry out compounding of offences for the above. This would be applicable where the amount related to contravention of the offence is less than Rupees 1 Crore. For amounts more than 1 Crore, they would be delegated to regional offices that have more authority. Contravention for amounts more than 1 Crore would be directed to the Cell for Effective Implementation of the FEMA (CEFA), under the Foreign Exchange Department of the RBI, Mumbai.
Compounding of offences for owning immovable property and setting up of foreign offices in India are dealt under a separate division of the RBI. The Foreign Exchange Division (FED) of the RBI has the authority to compound offences. The following would be compoundable by the FED, CO Cell New Delhi:
Under the provisions of FEMA, the penalty for contravention of any offence is up to three times the amount subject to contravention. However, the amount for compounding an offence would be determined by the authority such as the RBI. Such amount is quantifiable.
Upon receiving the application, the compounding officer would provide a judgement against the application. The judgement must be provided within 180 days of the compounding application. Time can be counted from the day the application is submitted to the RBI.
The applicant can also make a personal representation. If the applicant wants to appear personally then the RBI would direct the applicant to submit the application directly to the compounding officer for the judgement.
The applicant has to either appoint a legal expert or a consultant dealing in compounding matters. If the representative is not able to appear on behalf of the applicant then the judgement would be provided on the available documentation with the authority.
The officer providing the judgement would exercise all powers under FEMA. First the details of the penalty carried out would be mentioned by the officer and a copy of the compounding order would also be provided to the applicant. This would be as per sub rule (2) of Rule 8 of Foreign Exchange (Compounding Proceedings) Rules, 2000. Apart from this a copy of the compounding order will also be present with the adjudicating officer.
Compounding means to reduce the crime by paying some form of compromise to the other party. Therefore the individual carrying out a contravention would make an application for compounding the contravention under FEMA. If the adjudicating officer has allowed the order for compounding the offence, then the individual would require paying the adjudicating officer and the authority.
The amount for compounding would be paid through a demand draft in favour of the RBI. This payment must be made within 15 days from the compounding order. The mode of payment and manner in which the demand draft is drawn would be provided in the compounding order.
An order which is passed by the authority is absolute. The individual paying the compounding penalty is not absolved or relinquished from paying the compounding amount after the order is passed. The individual has to compulsorily pay the compounding fee to the authority.
If the amount is not paid within the prescribed period under the Foreign Exchange (Compounding Proceedings) Rules 2000, then the status of the application would be void. The status would be deemed as if the applicant has not made an application for compounding an offence. When the sum is paid a certificate for compounding would be provided by the RBI.