Compounding of Contravention

Ms. JayantiReserve Bank of India

FED, Ahmedabad

What does it mean ?

• Compounding is settlement of an offence committed by the contravener through imposition of a monetary penalty without going in for litigation after the contravener acknowledges having committed the contravention.

• Compounding is not an investigation and adjudication process.

Detection of Contravention Source of Information

• Voluntary Disclosure• Correspondence/Complaints/Report/Statement from

ADs• Analysis of data in the department• Market Intelligence/Specific Information

collection/exception reports • Information from RBI Inspection system• Information from other sources e.g. complaints etc.• Exception reports/Technological support

Power of Ahmedabad Regional Office

Ahmedabad office has been delegated powers to Compound Contraventions under:

• Para 9(1)(A) of Schedule 1 to Notification No.FEMA-20/2000-RB dated May 3,2000

• Para 9(1)(B) of Schedule 1 to Notification No.FEMA-20/2000-RB dated May 3,2000

• Para 8 of Schedule 1 to Notification No. FEMA - 20/2000-RB dated May 3,2000

Identification of Contraventions

• By the Reserve Bank of India or • By the Contravener themselves.

Identification

An application for compounding of a contravention may be submitted to the Compounding Authority(CA) under FEMA either on being advised of a contravention through a memorandum or suo moto on being made or becoming aware of the contravention.

Compounding Process is divided into Two Parts

• Pre-requisites of Compounding

• Post compounding Procedure

Pre-requisites

• Issuance of letter to the company, known as a “Memorandum”.

• It is a letter issued to the company calling for compounding application.

A Memorandum• Indicates recent contraventions. • Provides an option to apply for Compounding. • Indicates the time limit to submit an application

(45 days from the receipt of Memorandum).

How to make a Compounding Application

An application for Compounding of Contraventions of para 8, 9(1)(A) and 9(1)(B) of Schedule 1 to Notification No.FEMA-20/2000-RB dated May 3, 2000 may be submitted as per A.P. (Dir Series) Circular No. 57 dated December 13, 2011 in a prescribed format.

Format of application

The Format of Application is appended to the Foreign Exchange (Compounding Proceedings) Rules, 2000 (Annex) and also attached with A.P. (DIR Series) Circular No. 56, dated June 28, 2010.

Form (To be filled in duplicate and shall be accompanied by

certified copy of the Memorandum issued)

1. Name of the applicant (in BLOCK LETTERS) 2. Full address of the applicant (including Phone and Fax

Number) 3. Whether the applicant is resident in India or resident

outside India [Please refer to Section 2(v) of the Act] 4. Name of the Adjudicating Authority before whom the

case is pending 5. Nature of the contravention [according to sub-section (1)

of Section 13]

Contd……….

6. Brief facts of the case 7. Details of fee for application of compounding 8. Any other information relevant to the case 9. I/We declare that the particulars given above are true

and correct to the best of my/our knowledge and belief and that I/We am/are willing to accept any direction/order of the Compounding Authority in connection with compounding of my/our case.

Dated: (Signature of the Applicant)

Documents to be enclosed with compounding application

• Dully filled in Annex – FDI – information by Applicant Company from the date of incorporation till date.

• Tables ‘A’ to ‘D’ with appropriate data.• Table A – Copies of FIRC with date stamp of receipt

of RBI • Table B – Copies of FC-GPR with date stamp of

receipt of RBI• Table C – Letter seeking refund/allotment of shares –

approval letter from RBI, A2 form.

Documents to be enclosed

• Copies of Balance Sheet during the period of receipt of share application money, of the period of allotment of shares as also latest audited balance sheet.

• Information regarding contravention • Nature of contravention• Reasons for the contravention

Contd…….

• An undertaking from the Applicant Company stating that they are not under investigation of any agency such as DOE, CBI etc.

• A copy of Memorandum of Association • The prescribed fee of Rs.5000/- by way of

Demand Draft drawn in favour of “Reserve Bank of India”, payable at Ahmedabad (for State of Gujarat).

Final Application

Application, along with prescribed fee of Rs.5000/- , relevant facts and supporting documents to be submitted to,

“The Compounding Authority Reserve Bank of India

Foreign Exchange Department La-Gajjar Chambers, Ashram Road

Ahmedabad - 380 009.”

Process of Compounding

After the receipt of Compounding Application detailed Scrutiny of application is done

General Irregularities observed during the scrutiny of Compounding Applications

• The application is forwarded on a plain paper with a demand draft for Rs.5000/- with no other documents enclosed with the application.

• The validity of D/D is only three months. • The refund details are not informed at all.• An undertaking is not enclosed.• Current Authorised capital is not indicated.

Irregularities Contd……..

• The incomplete tables are enclosed.• Refund, if any, is not supported with proper

documentation.• Reporting at Reserve Bank’s other regional

offices resulting in duplication of reporting as well as UINs.

Irregularities Contd…..

• Total amount received and amount of shares issued is individually mentioned but total not indicated in the table which invariably indicates the difference.

• The documents are not arranged systematically• Not in sequential order • No index • No co-relation could be established between the

amount of inflow and issue of shares

Post scrutiny procedure

• Advising the company to submit any required/additional details/ documents etc.

• Presenting the cases to the Compounding Authorities.

• Arranging personal hearing with Compounding Authorities.

• Attending to company’s queries. • If the contravener does not want to present

himself for hearing, he may advise the same in writing.

Time Frame to complete compounding process

On receipt of application for compounding,

the proceedings would be concluded by issuing Compounding order issued by the Compounding Authority within 180 days from the date of receipt of the said application.

Post compounding Procedure

• The sum for which the contravention has been compounded shall be paid within fifteen days from the date of the order of compounding.

• The payment towards the sum for which contravention has been compounded shall be paid by Demand Draft in favour of the Compounding Authority i.e ‘Reserve Bank of India’ and payable at Ahmedabad.

Can compounding be avoided ?

• Yes it can …… The compounding process is based on delay in

• reporting of inward remittance – 30 days• issuance of shares – 180 days• refund of excess share application – 180 days• submission of form FC–GPR – 30 days

Regularization of reporting etc. to avoid compounding

• Reporting of inward remittances through Authorised Dealer banks, within 30 days with dully filled in Annex II, FIRC, KYC with accurate information regarding remitter or amount in INR, date of receipt of fund, mode of receipt of fund through normal banking channel, NRE/FCNR account, non-interest bearing Escrow account (in INR)

• Issuance of equities within 180 days. • Refund of excess/un-utilised fund within 180 days – • Intimation of refund in form A2 only.

……….avoid compounding

• Submission of Form FC-GPR • through Authorised Dealer banks in 30 days• Duly filled in Form FC-GPR, in a prescribed format • FCGPR with original CS, CA Certificate• CA certificate with DCF method for valuation of shares.• Route - Govt route (approval route)/Automatic route • Address of the company, Name & phone Number of

contact person• NIC code from the list of year 1987 (original list & not

revised). • Activity of the company• Date of incorporation of the company

……….avoid compounding

• Amount of shares• Premium details, if any• Post share issue pattern• % of share allotted.• Declaration with duly authenticated & stamped

cancellations.• Signature of the director or C/S- Name & contact

number• Date of FC-GPR• Written communication with AD banks

References

• Foreign Exchange (Compounding Proceedings) Rules, 2000.

• Notification No.FEMA-20/2000-RB dated May 3,2000.• A.P. (DIR Series) Circular No. 56, dated June 28, 2010.• A.P. (Dir Series) Circular No. 57 dated December 13,

2011. • Master Circular on Compounding of Contraventions

under FEMA, 1999. Master Circular No.9/2012-13(Updated as on September 18, 2012) dated July 2, 2012

• Press Release dated January 18, 2013.

Further details …

www.rbi.org.in Notification

FEMA Various Notifications A.P.(DIR Series) Circulars FAQs Various Forms Any other queries may be addressed to

fedahmedabad@rbi.org.in

Thank You