cdi compounding & contravention - epitomesolutions.inestv.in/icai/21072017/ppt.pdf · for...

7/21/2017

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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA(SET UP BY AN ACT OF PARLIAMENT)

‘WEBCAST

Foreign Exchange Management Act

C di

WEBCAST on

Compounding& Contravention

By CA Mayur B. Nayak 1

CONTRAVENTION - MEANING

“Contravention is a breach of the provisions of the Foreign Exchange Management Act (FEMA) 1999 and Management Act (FEMA), 1999 and

rules/ regulations/ notification/ orders/ directions/ circulars issued there under”

Technical ContraventionMaterial ContraventionMaterial ContraventionSensitive Contravention

Type of contravention to be Decided by the Reserve Bank on the merits of the case. 2

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STATUTORY PROVISIONS- Section 13 and Section 15 of

FEMA, 1999

- Foreign Exchange (Compounding Proceedings) Rules, 2000 dated May 3, 2000 as amended from time to time.

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COMPOUNDING-MEANING

- Term not defined under FEMA, Rules and RegulationsRegulations

- Webster’s Dictionary- “to agree for a consideration not to prosecute an offence”

- Black’s Law Dictionary- “to settle by a money payment”payment

“Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal.”

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COMPOUNDING APPLICATION

- Who can apply for compounding?

- When should one apply for compounding?

- Are any fees required to be paid for ki di ?seeking compounding?

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FOREIGN EXCHANGE (COMPOUNDING PROCEEDINGS) RULES, 2000

Name & Address & Residential StatusName of the Adjudicating Authority before whom the case is pending – DOE/DRI etc.Nature of contravention: Provision of FEMA ContravenedBrief facts of the case :

Parties InvolvedDate of the transactionAmount of the transaction How the FEMA provisions were contravened while undertaking the transactionWhether contravention relates only to requirement for submission of returns/reports/statements What is the duration of contraventionEarlier contravention (s)

Application Fee-Rs. 5000/- by Demand Draft in favor of Reserve Bank of India

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SECTION 15-POWER TO COMPOUND CONTRAVENTIONS

If any person contravenes any provisions of Foreign Exchange Management Act, 1999 (42 of 1999) except that in sec 3(a) i.e. dealing in or transfer any foreign exchange or foreign security to any person not being an authorized person.then on an application made to RBI, compounding shall be done;

By Reserve BankBy Regional OfficesBy Foreign Exchange Department, Central Office Cell (FED, CO Cell)

(Application to be decided within 180 days)7


Amount involved in the Power to Compound the Amount involved in the Contravention

Power to Compound the contravention with

Upto 10 lakhs Assistant General Manager –RBI

10lakhs to 40 lakhs Deputy General Manager –RBI

40Lakhs to 100Lakhs General Manager – RBI40Lakhs to 100Lakhs General Manager RBI

Above 100Lakhs Chief General Manager - RBI

No contravention shall be compounded unless the amount involved in such contravention is “quantifiable”

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If any person contravenes the provisions of sec y p p3(a) of FEMA i.e. dealing in or transfer any foreign exchange or foreign security to any person not being an authorized person.then compounding shall be done by;

Th E f t Di t tThe Enforcement Directorate

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Amount involved in the Contravention u/s 3(a)

Power to Compound the contravention with

Up to 5 lakhs Deputy Director –Directorate of enforcement

5lakhs to 10 lakhs Additional Director –Directorate of enforcement

10Lakhs to 50Lakhs Special Director –Directorate of enforcement

50Lakhs to 100Lakhs Special Director with deputy 50Lakhs to 100Lakhs Special Director with deputy legal advisor – Directorate

of enforcementAbove 100Lakhs Director of enforcement

with Special Director

No contravention shall be compounded unless the amount involved in such contravention is “quantifiable” 10

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COMPOUNDING PROVISIONS

Compounding shall not be applicable in cases where:

Similar contravention was committed by him within 3 years and it was already compounded then.

The required approvals from the concerned th iti t bt i dauthorities are not obtained

In case of sensitive contraventions, where contravener fails to pay the sum for which the contravention was compounded within the specified time. 11

SECTION 13- PENALTIES

Any person, contravening any provisions, Any person, contravening any provisions, rules, regulation, notification, direction or order issued under FEMA

Penalty leviable:If amount is quantifiable – 3 times the sum involvedIf amount is not quantifiable Up to Rs 2 lakhIf amount is not quantifiable – Up to Rs. 2 lakhContinuing Contravention – Further Rs. 5000 every day the

contravention continues

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FACTORS CONSIDERED FOR ADJUDGING THE QUANTUM OF SUM PAYABLE

- Amount of gain of unfair advantageg g- Amount of loss caused to any

authority etc.- Economic benefits- Track record of the contravener

Disclos re of f ll facts- Disclosure of full facts

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SECTION 13- PENALTIES

Thus, As per provisions of section 13 of FEMA the amount imposed can be up to three times the amount involved up to three times the amount involved in the contravention. However, the amount imposed is calculated based on a computation matrix and the amount of penalty varies based on the nature of the contravention and the amount involved in it.

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CONTRAVENTIONS – COMPUTATION MATRIX

1. Reporting Contraventions:

A) FEMA 20 : Transfer or issue of security by a person resident outside India

B) FEMA 3 : External Commercial Borrowings- Non submission of ECB statements

C) FEMA 120 : Overseas Investments by Indians

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C) FEMA 120 : Overseas Investments by Indians- Non reporting, or- delay in reporting of acquisition/setup of

subsidiaries/step down subsidiaries /changes in the shareholding pattern


Amount of contravention Variable amount (Rs.)

Fixed amount : Rs. 10,000 +

(Rs.)( )

Upto 10 lakhs 1000 per year10lakhs to 40 lakhs 2500 per year

40Lakhs to 100Lakhs 7000 per year1crore to 10crore 50,000 per year

10crore to 100crore 1,00,000 per yearAbove 100crore 2,00,000 per year

For LO/BO/PO : As per the above table, subject to ceiling of Rs.2 lakhs. In case of Project Office, the amount imposed shall be calculated on 10% of total project cost.

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Type of Contravention Amount Compoundedyp p

2. Non Submission/ Delayed Submission of -

APR (FEMA 120)AAC (FEMA 22)

FCGPR (B) Returns (FEMA 20)FLA Return* (FEMA 20)

Rs.10000/- per AAC/APR/FLA/FCGPR (B)

Return delayed.

Rs.10000/- per year, the total Share Certificates (FEMA 120) amount being subject to

300% of the amount invested.

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*Inserted vide AP (DIR Series) Circular No. 29 dated February 02, 2017.


3. A) Allotments/ Refunds : Non-allotment of shares or allotment/

f d ft th ti l t d 180 drefund after the stipulated 180 daysB) LO/BO/PO (Other than Reporting Contraventions)

No. of Years Variable percentage (% of amount of contravention)

1st Year 0.30%1 to 2 years 0 35%


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1 to 2 years 0.35%2 to 3 years 0.40%3 to 4 years 0.45%4 to 5 years 0.50%

More than 5 years 0.75%

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In case of allotment & refund of shares, the amount imposed will be further bifurcated as under:

• Shares allotted after 180days without approval of RBI

1.25 times amount calculated as

per table

• Shares not allotted and amount refunded after 180days with bank’s permission

1.5 timesamount calculated as

per table

For project offices the amount of contravention shall be deemed to be 10% of the cost of project

• Shares not allotted and amount refunded after 180days without bank’s permission

1.75 timesamount calculated as

per table

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CONTRAVENTIONS – COMPUTATION MATRIX4. Issue of Corporate Guarantee :

- Without UIN/ Permission wherever required Without UIN/ Permission wherever required - open ended guarantees or any other contravention

related to issue of Corporate Guarantees.

Fixed amount : Rs. 5,00,000 +


1st Year 0.050%

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1 to 2 years 0.055%2 to 3 years 0.060%3 to 4 years 0.065%4 to 5 years 0.070%


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5. All Other Contraventions



1st Year 0.50%1 to 2 years 0.55%

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2 to 3 years 0.60%3 to 4 years 0.65%4 to 5 years 0.70%


The amount imposed should not however exceed 300% of the amount of contravention

COMPOUNDING ORDER

- Should be passed by the Compounding Authority within 180days from the date of receipt of compounding application.

- The applicant shall be given an opportunity of being heard.

- The applicant can also opt for personal hearing for compounding.

- The order shall specify the provisions of FEMA under which the contravention FEMA under which the contravention has taken place.

- The compounding orders passed on or after June 1, 2016 shall be hosted on RBI’s website.

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PAYMENT OF THE AMOUNT FOR WHICH COMPOUNDING IS DONE

- The sum for which the contravention is d d ill b ifi d i th compounded will be specified in the

compounding order.

- The sum shall be paid by way of Demand Draft in favour of the “Reserve Bank of India” within 15 days from the date of the order

- RBI shall issue a certificate to the contravener in regard of the compounding on realisation of the specified sum.

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REPORTING

The Forms prescribed under FEMA for reporting of compounding of any contravention are:

The format of the application The format of the application. The details of irregularities whether relating to Foreign Direct Investment, External Commercial Borrowings, Overseas Direct Investment and Branch Office/ Liaison Office, as applicable. Undertaking that the applicant is not under investigation of any agency such as DOE, CBI, etc. in order to complete the compounding process within the time frame compounding process within the time frame Mandate and details of their bank account.

In case the application has to be returned for any reason, the application fees of Rs.5000/- received along with the

application fees is also refunded to the applicant’s account through NEFT requiring the obtaining of a mandate. 24

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MISCELLANEOUS PROVISIONS

- The contravener has no right to withdraw or hold the compounding order void or request a review of the order, once it is passed.

- The RBI may also impose on any authorized person a penalty for contravening any direction given by the Reserve Bank under this Act or failing to file any return as directed by the Reserve Bank.

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