Compounding of offences under FEMA
Reserve Bank of
India (RBI) has been active in case of any
non-compliance under Foreign Exchange Management Act, 1999 [hereinafter
referred as “FEMA”]. RBI vide
notification[1]
have introduced the concept of payment of Late Submission Fee (LSF) for any
delays in reporting of Foreign Direct Investment (FDI). The LSF is for
reporting delays in FDI only. For other contraventions under FEMA, to make
default good compounding is the only recourse.
With following FAQs let us understand compounding of
offences under FEMA:
1.
What is Compounding of Offence?
§
Compounding refers to
the process of voluntarily admitting the contravention, pleading guilty and
pursuing redressal.
2.
What does Contravention Means?
§
Contravention is a
breach of the provisions of the FEMA and prescribed rules/regulations issued
thereunder.
3.
Who has the power to Compound?
§
Section 15 of FEMA
provides that RBI/ officers of RBI and the Director of Enforcement/officers of
the Directorate of Enforcement has the power to compound any
contraventions u/s 13 within 180 days
from the date of receipt of compounding application.
4.
Which contraventions can be compounded?
§
Any contraventions
under FEMA except dealing in/ transferring any foreign exchange or foreign security to any
person not being an authorised person can be
compounded. (section
3(a) of FEMA).
5.
Who is liable for payment of penalty under compounding?
§
Any person who, at the
time the contravention was committed, was in charge of, and was responsible to,
the company for the conduct of the business of the Company and the Company.
§ For the purpose of this, company refers any body corporate and includes a firm or
other association of individuals.
6.
What is the maximum amount of penalty?
§
Where the amount
involved is quantifiable- Up to thrice
the sum involved in such contravention
§
Where the amount
involved is not quantifiable- Up to Rs.2
lakhs
§
Where such contravention
is a continuing one- Further penalty
which may extend to Rs.5,000 for every day after the first day during which the
contravention continues.
7.
What is the process for compounding?
§
Any person who
contravenes any provision of the FEMA can apply for compounding to the RBI by
making application along with the prescribed documents and payment of
prescribed fees (As of now the compounding fees is Rs. 5,000 only).
§
On receipt of the
application along with prescribed fees for compounding, RBI shall examine the
application and whether contravention is quantifiable and if so, the amount of
contravention.
§
RBI may call for any
information, record or any other additional documents & if applicant fails
to submit then the compounding application shall be liable for rejection.
§
After this, RBI calls
upon personal hearing. In case a person opts not to attend the personal hearing
he may indicate his preference in writing. The application would be disposed of
on the basis of documents submitted to the Compounding Authority. It may be
noted that appearing for or opting out of the personal hearing does not have
any bearing whatsoever on the amount imposed in the compounding order
§
On the basis of all
the details submitted, RBI will levy penalty on the applicant as per guidance
note provided in Master Directions.
8.
How much amount of penalty is levied?
Master directions provides guidance note for the amount of
penalty to be levied. The same is detailed here below:
|
Overseas Direct
Investment (ODI)
|
Formula
|
|
Non
reporting/delay in reporting of acquisition/setup of subsidiaries/step down
subsidiaries /changes in the shareholding pattern
|
Fixed amount : Rs10000/- (applied once for each contravention in
a compounding application) +
Variable amount as under:
|
|
Annual Performance
Report (APR)/Share certificate delays
In case of non-submission/
delayed submission of APR/ share certificates
|
Rs.10000/- per APR delayed.
Delayed receipt
of share certificate –Rs.10000/- per year, the total amount being subject
to ceiling of 300% of the amount invested.
|
|
Corporate Guarantee
Issue of Corporate Guarantees without Unique Identification Number
(UIN)/without permission wherever required /open ended guarantees or any
other contravention related to issue of Corporate Guarantees.
|
Rs.500000/- + given percentage:
1st year : 0.050%
1-2 years : 0.055%
2-3 years : 0.060%
3-4 years : 0.065%
4-5 years : 0.070%
>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 trebled.
|
|
External Commercial
Borrowings (ECB)
|
|
|
Non submission of ECB statements or any other reporting contraventions
|
Fixed amount : Rs10000/- (applied once for each contravention in
a compounding application) +
Variable amount as under:
|
|
Liaison Office/Branch Office/Project
Office (LO/BO/PO)
|
|
|
Reporting contraventions
|
Fixed amount : Rs10000/- (applied once for each contravention in
a compounding application) +
Variable amount as under:
Subject to
ceiling of Rs.2 lakhs. In case of PO, the amount imposed shall be calculated
on 10% of total project cost.
|
|
2] Annual Activity
Certificate(AAC) delays
In case of non-submission/ delayed submission of AAC
|
Rs.10000/- per AAC Return delayed.
|
|
Non-Reporting contraventions
|
Rs.30000/- + given percentage:
1st year : 0.30%
1-2 years : 0.35%
2-3 years : 0.40%
3-4 years : 0.45%
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).
|
|
Foreign Direct
Investment (FDI )
|
Contraventions before 7th November, 2017 ( Non
reporting/Delay in reporting)
|
[2]Contraventions after 7th
November, 2017 (Non reporting)
|
|
Reporting
inward remittance for issue of shares.(ARF)
|
Fixed amount : Rs10000/- (applied once for each contravention in
a compounding application) +
Variable amount as under:
|
Rs.50000/- + given percentage:
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%
|
|
Reporting
of Allotment (Form FC-GPR
|
||
|
Reporting
of transfer of shares from Resident to Non-Resident and Non- Resident to
Resident. (form FC-TRS)
|
||
|
Non-allotment of shares or allotment/ refund after the stipulated 180
days
|
Rs.30000/- + given percentage:
1st year : 0.30%
1-2 years : 0.35%
2-3 years : 0.40%
3-4 years : 0.45%
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).
|
|
|
In case of
non-submission/ delayed submission of FCGPR (B) / FLA Return
|
Rs.10000/- per FCGPR(B) /FLA Return delayed
|
Rs.10000/- per
FCGPR(B) /FLA Return delayed
|
[1]
Notification No. FEMA 20(R)/ 2017-RB dated 7th November, 2017
[2] As
per Master Direction on Reporting under Foreign Exchange Management Act, 1999
(Updated as on March 16, 2018) , Late Submission Fees (LSF) will be
applicable for reporting delays only and such LSF shall be applicable for the
transactions undertaken on or after November 7, 2017
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