Mangala S Shenoy

Manager, Foreign Exchange Department

Reserve Bank of India, Hyderabad
A voluntary process by which an entity
committing a contravention can make an
application and seek regularization by
admitting the contraventions under FEMA
on payment of the amount imposed.
RBI is empowered to compound all
contraventions of FEMA except clause
(a) of section 3 of the Act, dealing
essentially with hawala transactions.
 Foreign Exchange (Compounding
Proceedings) Rules, 2000 (the Rules), as
amended from time to time, lays down
the basic framework for the
compounding process.
 Procedure for Compounding is
prescribed in FED Master Direction
No.4/2015-16 dated January 01,2016
updated as on December 20, 2017.
 Compounding is guided by FEMA
Notification No. FEMA 20/2000-RB
dated May 03, 2000 as amended from
time to time
 RBI has issued Foreign Exchange
Management (Transfer or Issue of
Security by a person Resident Outside
India) Regulations 2017 vide
notification 20(R)/2017 RB dated
November 07, 2017 in supersession to
FEMA Notification No. 20.
FEMA Regulation Brief Description of contravention
Regulation 13.1(1) Delay in reporting inward remittance received for issue
of shares
Regulation 13.1(2) Delay in filing form FC(GPR) after issue of shares
Regulation 13.1(3) Delay in filing the Annual Return on Foreign Liabilities
and Assets (FLA)
Paragraph 2 of Schedule 1 Delay in issue of shares/refund of share application
money beyond 60 days, mode of receipt of funds etc.
Regulation 11 Violation of pricing guidelines for issue/transfer of
shares
Regulation 2(v) read with Issue of ineligible instruments
Regulation 5
Regulation 16.B Issue of shares without approval of RBI or Government,
wherever required
Regulation 13.1(4) Delay in submission of form FC-TRS on transfer of
shares from Resident to Non-resident or vice-versa
Regulation 4 Receiving investment in India from non-resident or
taking on record transfer of shares by investee company
 Voluntary Disclosure
 AD Correspondence
 Market Intelligence
 RBI Scrutiny at the time of reporting, seeking
approvals for refund etc.
 Media
 Technical
 Material
 sensitive
If a transaction is without proper approval of
the concerned Government/Statutory
authority under the relevant laws/regulations
as envisaged under FEMA it may be treated
as material even though it is technical
otherwise,
Undertaking of an activity which is abinitio
not permitted. Aspects considered being the
amount, intent, national importance, security,
nexus to money laundering etc. Any activity
undertaken with malafide/wilful or
fraudulent intent.
The concerned entity is advised suitably
regarding the option available to them for
compounding if they so desire. In case
they don’t respond, the case would be
directly referred to DoE for investigation
under section 37 of the Act.
The approvals or permissions from the
Government or any statutory authority need
to be obtained before compounding the
contravention(s) of the entity.
All administrative compliances such as
filing of ARF/FCGPRs etc. are reported as
per requirement and approvals of
Government or statutory authority are
obtained.
Power of Reserve Bank to compound has
been defined in Rule 4 i.e., the power of
AGM to CGM/RD
Rule 5 says no contravention shall be
compounded unless the amount involved
in such contravention is quantifiable
As per the provisions of Section 13 the
amount imposed can be upto three times the
amount involved, however the amount
imposed is calculated based on the guidance
note on computation of matrix.
 Paragraph 9(1)(A)
 Paragraph 9(1)(B)
 Paragraph 8
 Paragraph 9(2)
 Paragraph 5
 Paragraph 5(i)
 Regulation 2(ii) read with Regulation 5(1)
 Paragraph 2 or 3
 Regulation 10(A)(b)(i) and 10B(2) read
with Paragraph 10
 Regulation 4 of Schedule 1 to FEMA 20
 FEMA: Acquisition of immovable
property outside India
 FEMA 21: Acquisition of immovable
property in India
 FEMA 22: Establishment of LO,PO,BO
 FEMA 5: Foreign exchange deposit
regulations
All other contraventions will be
compounded by CEFA(Cell for
effective implementation of FEMA).
 Order issued not later than 180 days from the date
of receipt based averments made in the
application as well as submissions made in the
personal hearing.
 Appearing for personal hearing is not mandatory.
However, RBI would encourage the applicant(the
directors etc.) to appear personally rather than
being represented by consultants
 Appearing for personal hearing does not have any
bearing whatsoever on the amount imposed in the
order.
1. By way of DD in favour of Reserve
Bank of India within 15 days from the
date of the order.
2. Certificate of receipt of compounded
amount is issued on realization.
If the compounded amount is not paid
within the time specified in the
compounding order, it shall be deemed
that the contravener had never made an
application was never made application
for compounding of any contraventions
under these Rules.
No, the provisions do not confer any right
after an order is passed to withdraw or
hold the order as void or request for
review of the order
To ensure transparency and
greater disclosure compounding
orders issued after June 01, 2016
are uploaded on the RBI website
at monthly intervals.