Ans. Contravention is a breach of the provisions of the Foreign Exchange Management Act (FEMA), 1999 and rules/ regulations/ notification/ orders/ directions/ circulars issued there under. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal. The Reserve Bank is empowered to compound any contravention as defined under section 13 of FEMA, 1999 except the contravention under section 3(a)¹ ibid, for a specified sum after offering an opportunity of personal hearing to the contravener. It is a voluntary process in which an individual or a corporate seeks compounding of an admitted contravention. It provides comfort to any person who contravenes any provisions of FEMA, 1999 by minimizing transaction costs. Willful, malafide and fraudulent transactions are, however, viewed seriously, which will not be compounded by the Reserve Bank. Further, in terms of the proviso to rule 8 (2) of Foreign Exchange (Compounding Proceedings) Rules, 2000, inserted vide GOI notification dated February 20, 2017, if the Directorate of Enforcement (DoE) is of the view that the compounding proceeding relates to a serious contravention suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation, such cases will not be compounded by the Reserve Bank. Also, the cases attracting the special provisions under section 37(A) of the FEMA, 1999 - relating to assets held outside India in contravention of section 4, shall not be eligible for compounding by the Reserve Bank.

Ans. Any person who contravenes any provision of the FEMA, 1999 [except section 3(a)] or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act or contravenes any condition subject to which an authorization is issued by the Reserve Bank, can apply for compounding to the Reserve Bank. Applications seeking compounding of contraventions under section 3(a) of FEMA, 1999 may be submitted to the Directorate of Enforcement.

Ans. When a person is made aware of the contravention of the provisions of FEMA, 1999 by the Reserve Bank or any other statutory authority or the auditors or by any other means, she/he may apply for compounding. One can also make an application for compounding, suo mo-to, on becoming aware of the contravention.

Ans. The documents/formats listed in the FED Master Direction No. 18/2015-16 titled ‘Master Direction – Reporting under Foreign Exchange Management Act, 1999’ dated January 01, 2016 (Updated as on September 18, 2019) can be used for applying for compounding. The above Master Direction can be downloaded from the Reserve Bank’s website by clicking on the link /en/web/rbi/-/notifications/master-direction-reporting-under-foreign-exchange-management-act-1999-updated-as-on-may-12-2023-lt-span-gt-10202 and the documents as applicable therein should be submitted along with the application.

Ans. Yes. 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 while sending the request for compounding.

Ans. Along with the application in the prescribed format, the applicant may also furnish the details as per the Annexes- relating to Foreign Direct Investment, External Commercial Borrowings, Overseas Direct Investment and Branch Office / Liaison Office, as applicable, (annexes available in the FED Master Direction No. 18/2015-16 as mentioned in answer to Q. 4 above) along with an undertaking that they are not under investigation of any agency such as DoE, CBI, etc., duly filled ECS mandate form, a cancelled cheque copy, a copy of the Memorandum of Association and latest audited balance sheet while applying for compounding of contraventions under FEMA, 1999. Application submitted to the Reserve Bank must contain contact details i.e, name of the applicant / authorised official or representative of the applicant, telephone/ mobile number and email ID.

Ans. Kindly refer to paragraphs 3 and 4 of ‘Master Direction- Compounding of Contraventions under FEMA, 1999’ dated January 01, 2016 (updated as on January 4, 2021). The above Master Direction can be downloaded from the Reserve Bank’s website by clicking on the link /en/web/rbi/-/notifications/master-direction-compounding-of-contraventions-under-fema-1999-updated-as-on-may-24-2022-10190

Ans. No. All requisite approvals should be obtained and compliances should be completed before seeking compounding of contravention. Compounding can be done only after all the necessary administrative action is complete, by way of obtaining post-facto approvals or unwinding the transactions in cases where such transactions are not permissible under FEMA, 1999. Copies of approvals and other compliances should be enclosed along with the application.

Ans. Cases involving serious contravention suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation are categorized as sensitive contraventions.

Ans. It is not mandatory to attend/opt for the personal hearing. In case a person opts not to attend the personal hearing he//she may indicate his/her 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, as the amount imposed is calculated based on the Guidance note on computation matrix as contained in the Master Direction on compounding of contraventions under FEMA.