RBI Compliance

RBI Compounding Application Proposal

Section 13 of the FEMA Act states that if an individual violates any provision of the Act or any rule, notification, regulation, order, or direction issued while exercising the powers of the Act, or violates any condition subject to authorizations issued by the RBI, he will be fined up to three times the amount of the violation. This sum can be up to Rs 2 lakhs in cases when the amount is measurable. When the amount is not measurable or the violation is ongoing in nature, the penalty may be increased to Rs 5000 per day after the first day of discovery.

In the context of law, compounding means a cordial or amicable settlement that may lead to avoiding prosecution for a past offence. However, compounding is not regarded as an intrinsic right. It is only provided/delegated by the concerned Acts of law under which the said offence has been committed.

RBI Compounding Application Proposal

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Fundamental Concepts

Compounding of contraventions is permissible, as stated in Section 15 of the FEMA (Foreign Exchange Management Act) of 1999. It also authorizes the RBI (Reserve Bank of India) to compound in accordance with the terms of FEMA Section 13. However, if an application is submitted by the individual causing the violation, it will exclude contraventions under section 3(a).

Section 13 of the Act states that if an individual violates any provision of the Act or any rule, notification, regulation, order, or direction issued while exercising the powers of the Act, or violates any condition subject to authorizations issued by the RBI, he will be fined up to three times the amount of the violation. This sum is limited to a maximum of 2 lakhs when the amount is measurable. When the amount is not measurable or the violation is ongoing in nature, the penalty may be increased to Rs 5000 per day after the first day of discovery.

However, the Central Government has formulated the Foreign Exchange (Compounding Proceedings) Rules, 2000 by exercising the authorities provided by Section 46, as well as those conferred by Section 15, sub-section (1) of the FEMA. It applies to the compounded violations stated in Chapter IV of FEMA and takes effect on May 3, 2020.