Dealing with RBI has been never been an easy task but with the passage of time RBI has been putting lot of efforts to bridge the procedural gaps. RBI has been taking steps in this direction and a very good example of this is the consolidated Master Circular issued for each subject matter, annually or half yearly, whereby it compiles all the amendments done or circulars issued during the year, into one so as to give a convenient access to updated provisions on the subject and which has also served the base of this article.
On receipt of the application, the Compounding Authority shall review the application and may as well call for additional information, wherever required. In case, after verification the application by RBI is found to be complete in all respects then the contravention is admitted. The action initiated by the RBI on receipt of the application shall depend and be in accordance with the nature and gravity of the contravention. In case the application is found incomplete, then the contravention shall not be admitted and the said application will be returned along with the application money.
The manner in which a contravention shall be dealt shall depend on its nature.
Whether contravention under the Foreign Exchange Management Act (FEMA) is to be treated as technical and/ or minor or serious would be decided by the Reserve Bank on the merits of the case. The application will be disposed of keeping in view the procedure notified in this regard. Persons who have contravened the provisions of FEMA should not take upon themselves suo moto, or on the basis of external advice to decide whether a particular contravention is technical or minor in nature.
Technical or minor in nature: Can be dealt with by way of an administrative/ cautionary advice.
Material: Necessary compounding procedure has to be followed
Sensitive or Serious: Referred to the Directorate of Enforcement (DOE).
No similar contravention committed by the applicant within a period of three previous years. Any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention.
Contraventions where proper approvals or permission from the Government or any statutory authority is required, they shall not be compounded unless the required approvals are obtained from the concerned authorities.
(The total time taken for disposal of compounding cases shall be 180 days)
(Application fees shall be refunded in cases where the application is returned by the RBI on grounds of non- receipt of approvals, etc.)
The application in the prescribed format along with necessary documents and a demand draft for Rs. 5000/- (Rupees five thousand only) drawn in favour of the “Reserve Bank of India” should be sent to the Reserve Bank of India.
RBI seems to take a lenient view in the cases pertaining to the delay in reporting. Although the RBI conferred with the power under section 15(1) f Foreign Exchange Management Act, 1999, to impose a penalty up to three times of the amount involved, there has been rare case evidencing such heavy penalty.Some of the case laws have been cited below:
S. No.
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Particulars
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Regulation Contravened
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Contravention
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Penalty
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1. | JBM MA Automotive Private Limited |
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The RBI compounded the offence with a total amount of penalty of Rs.11, 79,360/- (Eleven Lakh Seventy Nine Thousand Three Hundred and Sixty). |
2. | M/S Xiaomi Communications And Logistics India Private Limited |
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The RBI compounded the offence with a total amount of penalty of Rs.2, 15,350 (Two Lakh Fifteen Thousand Three Hundred and Fifty. |
3. | Eastman Industries Limited |
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The matter was compounded by the RBI with a penalty of Rs.2,20,000/- (Two Lakh Twenty Thousand). |
What is the manner of calculation of the compounding amount?
RBI upon scrutiny of the compounding application received arrives at a compounding amount to be imposed on the basis of the nature and gravity of the contravention incurred. RBI has provided a guidance note in its Master Directions on compounding (https://m.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10190#9) wherein it has stipulated the formulae for calculation of compounding amount for certain common FEMA Contraventions.
However, the actual amount imposed by RBI may vary from case to case.
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