What is Compounding of offences?
Compounding is a process where the applicant committing any offence or contravention of any
provision of the act file an application to the compounding authority that he has committed
an offence, so that the authority can oversee the case, levy the penalty and provide the
compounding order to make him free from the offences.
Application for Compounding of offences can be made only after completing all the compliances
relating to the contravention made and also after obtaining all the approvals form the
concerned authorities, if any.
Fees required for Compounding
- The applications for compounding of offence under FEMA must be submitted together with
the prescribed fee of Rs.5000/- Payable by way of a demand draft.
- The demand draft must be drawn in favour of “Reserve Bank of India” and payable at the
concerned Regional Office
- In cases where the application for compounding are submitted to the Compounding
Authority, [Cell for Effective implementation of FEMA (CEFA)],the demand draft shall be
drawn in favour of “Reserve Bank of India” and payable at Mumbai
Documents required for Compounding
- The application for Compounding shall be made in Annex-1 as prescribed by the Reserve
Bank of India
- The applicant shall also furnish the details relating to Foreign Direct Investment,
External Commercial Borrowings, Overseas Direct Investment and Branch Office or Liaison
Office, as applicable on a case to case basis as per the Annex –II as prescribed by the
Reserve Bank of India
- Memorandum of Association of the Entity
- Latest Audited Balance Sheet of the Entity
- An undertaking in the Prescribed format relating to non existence of any enquiry or
investigation against the entity / Applicant
- The details relating to the bank account as per the prescribed format shall also be
furnished along with the application
Process to be followed for compounding of offences
- The following process shall be followed for compounding of offences under FEMA:
- The Applicant first of all shall complete all the compliances before making the
Application for Compounding of offences.
- Then, the Applicant must make an application for compounding in the prescribed format
along with the documents as prescribed by the Reserve Bank of India.
- On receipt of the Application the reserve Bank of india shall assess that whether the
contravention is quantifiable and, if so, the amount of contravention.
- The reserve Bank of india, then after verification of application call for the
additional information and documents as the RBI may considers fit on a case to case
basis and in case the applicant failed to submit the additional information and
documents, then RBI shall reject the application for compounding
- Then, the Compounding Authority may offer an appearance to the applicant or his
authorised representative or provide an opportunity of being heard in relation to the
compounding of offence to make his averments.
- Finally after assessing the whole case the Reserve Bank of india shall pass an order of
compounding.
Time limit for disposal of Application for Compounding
- The Reserve Bank of india shall dispose the application for compounding as expeditiously
as possible but not later than 180 days from the date of application for Compounding.
- The time limit for Compounding of Application would be reckoned from the date of receipt
of the completed application for compounding by the Reserve Bank of India
Validity of Compounding order
- The applicant who has obtained a compounding order in respect of any offence convicted
under FEMA, then if the applicant will commit any other contravention within a period of
three years of receipt of compounding order, then that Contravention shall not be
compoundable.
- But, if the offence is committed after the period of 3 years then that Contravention
could be compounded.
Consequences of Incomplete Compounding Application
Where the Reserve Bank of india considers that the Application made for compounding is
incomplete for any reason or in case where the required approvals from the concerned
authorities are not obtained, then the Compounding application shall be returned and the
application fees of Rs.5000/-received along with the application will be returned by
crediting the same to the applicant’s account through NEFT as per the ECS mandate and
details as provided at the time of making compounding application.
What are the considerations for passing Compounding order
The following are the indicative factors, that may be taken into consideration by the reserve
bank of india for the purpose adjudging the quantum of sum on payment of which contravention
shall be compounded and also in passing the compounding order:
- economic benefits accruing to the contravener from delayed compliance or compliance
avoided;
- the amount of gain of unfair advantage, wherever quantifiable, made as a result of the
contravention;
- the repetitive nature of the contravention, the track record and/or history of
non-compliance of the contravener;
- contravener’s conduct in undertaking the transaction and in disclosure of full facts in
the application and submissions made during the personal hearing; and any other factor
as considered relevant and appropriate
the amount of loss caused to any authority/ agency/ exchequer as a result of the
contravention
How Rajput Jain and Associates can Assist
We offer all kinds of Consultancy and Compliances Services in relation to Compounding of
offences under FEMA. We have empanelled various experts to provide the expert advisory and
Compliances services for Compounding of offences under FEMA.
The services that we offer includes the following:
- Completing all the relevant compliances before compounding application
- Drafting of documents for submission to RBI
- Making application to RBI for compounding of offences
- Advising on matters relating to compounding of offences
- Liaisoning with AD Bank and RBI in relation to Compounding of offences