Executive Summary:
This circular, issued by the Reserve Bank of India, pertains to the compounding of contraventions under the Foreign Exchange Management Act (FEMA), 1999. It mandates public disclosure of compounding orders and guidelines on the amount imposed during compounding to ensure transparency. The circular is effective from May 26, 2016, with compounding orders passed on or after June 1, 2016, being subject to the new disclosure norms.
Key Points / Main Content:
Public Disclosure of Compounding Orders:
* Compounding orders passed on or after June 1, 2016, will be hosted on the RBI website (www.rbi.org.in).
* The website data will be updated monthly, including the applicant's name, amount imposed, and payment status.
* A new sub-paragraph 8.6 is added to the Master Direction on Compounding.
Public Disclosure of Guidelines on Amount Imposed:
* The guidance note for calculating the amount imposed will be published on the RBI website.
* The actual amount imposed may vary based on the case circumstances, as per paragraph 7.3 of the Master Direction.
* A new sub-paragraph 7.4 is inserted in the Master Direction on Compounding, with subsequent sub-paragraphs renumbered.
Computation Matrix for Contraventions:
Reporting Contraventions:
* Fixed amount of Rs. 10,000 applied once for each AFEMA contravention in a compounding application.
* Variable amounts are specified for different contraventions.
Delays
* Rs. 10,000 per AAC/APR/FCGPR for delays in share certificates/returns
Allotment/Refunds:
* Rs. 30,000 with percentage based on years for non-allotment of shares or allotment refund after the stipulated 180 days.
Other Contraventions:
* Rs. 50,000 with percentage based on years for all other contraventions except corporate guarantees.
Corporate Guarantees:
* Rs. 500,000 with percentage based on years for the issue of corporate guarantees without UIN.
Additional Provisions:
* The amount imposed should not exceed 300% of the contravention amount.
* If the contravention is less than Rs. 1 lakh, the amount should not exceed simple interest (5% p.a. for reporting, 10% p.a. for others).
* Grading for paragraph 8 of Schedule I to FEMA 2000 RB contraventions (allotment/refund).
* Enhancement of 50% for repeat similar contraventions.
Impact Analysis:
Authorised Dealer (Category I) Banks:
Impact: Must inform constituents and customers about the circular's contents.
Action Required: Bring the contents of this circular to the notice of their constituents and customers concerned.
Individuals and Corporate Community:
Impact: Increased transparency in compounding orders and the basis for determining penalties.
Action Required: Be aware of the public availability of compounding orders and guidelines.
Reserve Bank of India (Compounding Authorities):
Impact: Responsible for implementing the new disclosure requirements.
Action Required: Host compounding orders and guidelines on the RBI website and update monthly.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking sector and managing the country's monetary policy.
Mumbai, Maharashtra: The financial capital of India, and the location of the Reserve Bank of India's headquarters.
Foreign Exchange Management Act, 1999 (FEMA): An Act of the Parliament of India enacted to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Foreign Exchange Compounding Proceedings Rules, 2000: Rules pertaining to the compounding of contraventions under the Foreign Exchange Management Act, 1999.
Authorised Dealer Category I Banks: Banks authorized by the Reserve Bank of India to deal in foreign exchange.
FED Master Direction No.4/2015-16: Master Direction on Compounding of Contraventions under FEMA, 1999, issued by the Foreign Exchange Department (FED) of the Reserve Bank of India.
Foreign Exchange Management Current Account Transactions Rules, 2000 (FEMCAT): Rules governing current account transactions under the Foreign Exchange Management Act, 1999.
Shekhar Bhatnagar: Chief General Manager-in-Charge, Reserve Bank of India
RESERVE BANK OF INDIA
Mumbai - 400 001
RBI/2015-16/ 412 May 26, 2016
A.P. (DIR Series) Circular No.73
To
All Category - I Authorised Dealer Banks
Madam / Sir,
Foreign Exchange Management Act, 1999 (FEMA)
Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules) -
Compounding of Contraventions under FEMA, 1999
Attention of Authorised Dealers is invited to paragraph number 7 and 8 of the Master
Direction on Compounding of Contraventions under FEMA, 1999 issued vide FED Master
Direction No.4/2015-16 dated January 1, 2016.
2. In terms of the Foreign Exchange (Compounding Proceedings) Rules, 2000, effective
from June 1, 2000, Reserve Bank is empowered to compound contraventions relating to
rule 7, 8 and 9 of and the third schedule to the Foreign Exchange Management (Current
Account Transactions) (FEMCAT) Rules, 2000. With a view to providing comfort to
individuals and corporate community by minimizing transaction costs and the same time
taking a serious view of wilful, malafide and fraudulent transactions, the Reserve Bank
was, vide GSR 609 (E) dated September 13, 2004 empowered to compound all the
contraventions of Foreign Exchange Management Act, 1999 (FEMA) except section 3(a)
of FEMA.
3. To ensure more transparency and greater disclosure, it has now been decided as
hereunder:I. Public disclosure of Compounding Orders
For disseminating the information pertaining to compounding orders, it has been decided
to host the compounding orders passed on or after June 1, 2016 on the Bank’s website
(www.rbi.org.in). The data on the website will be updated at monthly intervals in the
following format:
Sr. No. Name of Applicant Amount imposed Whether the Download order
under the amount imposed
compounding order has been paid
Accordingly, a new sub-para no.8.6 is being added in the Master Direction on
Compounding.
II. Public disclosure of guidelines on the amount imposed during compounding
As per provisions of section 13 of FEMA the amount imposed can be up to three times
the amount involved in the contravention. However, the amount imposed is calculated
based on guidance note given in the Annex. Now it has been decided to put the guidance
note on the Bank’s website for information of general public. It may, however, be noted
that the guidance note is meant only for the purpose of broadly indicating the basis on
which the amount to be imposed is derived by the compounding authorities in Reserve
Bank of India. The actual amount imposed may sometimes vary, depending on the
circumstances of the case taking into account the factors indicated in paragraph 7.3 of
the abovementioned Master Direction. This new provision is being inserted as sub-para
7.4 in the Master Direction on Compounding and the subsequent sub-paragraph
renumbered accordingly.
4. Authorised Dealers may bring the contents of this circular to the notice of their
constituents and customers concerned.
5. The directions contained in this circular have been issued under section 10 (4) and
11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999).
Yours faithfully,
(Shekhar Bhatnagar)
Chief General Manager-in-ChargeRESERVE BANK OF INDIA
Foreign Exchange Department Central Office
Cell for Effective Implementation of FEMA (CEFA)
Annex
Guidance Note on computation of the amount imposed under the Foreign
Exchange (Compounding Proceedings) Rules 2000
Ref : A.P. (DIR Series) Circular No. 73 dated May 26, 2016
I. Computation Matrix
Type of contravention Existing Formula
1]Reporting Contraventions Fixed amount : Rs10000/- (applied once for each
A)FEMA 20 contravention in a compounding application) +
Para 9(1)(A), 9(1)(B), part B of FC(GPR), FCTRS (Reg. Variable amount as under:
10)and taking on record FCTRS (Reg. 4) Upto 10 lakhs: 1000 per year
B)FEMA 3 Rs.10-40 lakhs: 2500 per year
Non submission of ECB statements Rs.40-100 lakhs: 7000 per year
C)FEMA 120 Rs.1-10 crore 50000 per year
Non reporting/delay in reporting of acquisition/setup of Rs.10 -100 Crore : 100000 per year
subsidiaries/step down subsidiaries /changes in the Above Rs.100 Crore : 200000 per year
shareholding pattern
D) Any other reporting contraventions (except
those in Row 2 below)
E)Reporting contraventions by LO/BO/PO As above, subject to ceiling of Rs.2 lakhs. In case
of Project Office, the amount imposed shall be
calculated on 10% of total project cost.
2]AAC/ APR/ Share certificate delays Rs.10000/- per AAC/APR/FCGPR (B) Return
In case of non-submission/ delayed submission of APR/ delayed.
share certificates (FEMA 120) or AAC (FEMA 22) or Delayed receipt of share certificate – Rs.10000/-
FCGPR (B) Returns (FEMA 20) per year, the total amount being subject to ceiling
of 300% of the amount invested.
3] Rs.30000/- + given percentage:
A]Allotment/Refunds
Para 8 of FEMA 20/2000-RB (non-allotment of shares 1st year : 0.30%
or allotment/ refund after the stipulated 180 days) 1-2 years : 0.35%
2-3 years : 0.40%
B]LO/BO/PO 3-4 years : 0.45%
(Other than reporting contraventions) 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).
4] All other contraventions except Corporate Rs.50000/- + given percentage:
Guarantees 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%
5] Issue of Corporate Guarantees without UIN/ Rs.500000/- + given percentage:2
Annex
Ref : A.P. (DIR Series) Circular No. 73 dated May 26, 2016
without permission wherever required /open ended 1st year : 0.050%
guarantees or any other contravention related to issue 1-2 years : 0.055%
of Corporate Guarantees. 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.
II.The above amounts are presently subject to the following provisos, viz.
(i) the amount imposed should not exceed 300% of the amount of contravention
(ii) In case the amount of contravention is less than Rs. One lakh, the total amount imposed should
not be more than amount of simple interest @5% p.a. calculated on the amount of
contravention and for the period of the contravention in case of reporting contraventions and
@10% p.a. in respect of all other contraventions.
(iii) In case of paragraph 8 of Schedule I to FEMA 20/2000 RB contraventions, the amount imposed
will be further graded as under:
a. If the shares are allotted after 180 days without the prior approval of Reserve Bank, 1.25
times the amount calculated as per table above (subject to provisos at (i) & (ii) above).
b. If the shares are not allotted and the amount is refunded after 180 days with the Bank’s
permission: 1.50 times the amount calculated as per table above (subject to provisos at (i)
& (ii) above).
c. If the shares are not allotted and the amount is refunded after 180 days without the Bank’s
permission: 1.75 times the amount calculated as per table above (subject to provisos at (i)
& (ii) above).
(iv) In cases where it is established that the contravenor has made undue gains, the amount thereof
may be neutralized to a reasonable extent by adding the same to the compounding amount
calculated as per chart.
(v) If a party who has been compounded earlier applies for compounding again for similar
contravention, the amount calculated as above may be enhanced by 50%.
III. For calculating amount in respect of reporting contraventions under para I.1 above, the period of
contravention may be considered proportionately {(approx. rounded off to next higher month ÷ 12) X
amount for 1 year}. The total no. of days does not exclude Sundays/holidays.
IV.Illustrations in respect of few sample cases are appended.