In today’s Corporate world, good governance means to comply with each and every provision of corporate laws. Non compliance would hence, result in penalties by way of fine or penalties with imprisonment. Corporate offences are classified into two categories namely civil and criminal offences. It has been further classified into another two categories namely Compoundable and Non compoundable offence. Thus, in order to avoid litigation compounding of offences is the best way.
According to section 441, of the companies act, 2013 : The provisions relating to compounding of offences under Companies Act, 2013 (“the Act”) are set forth under Section 441 of Act, which is not yet enforced. “The offences, which are punishable with fine,can only be compounded either by Regional Director (hereinafter called “RD”) or by the National Company Law Tribunal (hereinafter called NCLT). In other words, the offences, which are punishable with imprisonment only or imprisonment and fine, cannot be compounded”.
Basic Concepts of Compounding of Offences under FEMA
According to the provisions of Foreign Exchange Management Act, 1999 (FEMA) under section 15 it gives power of compounding of contraventions and empowers the Reserve Bank of India (RBI) to compound i.e. levy a monetary fine on any offence or any contravention as defined under section 13 of the FEMA, except contraventions under section 3 (a) of FEMA, which relates to an application made by the person committing such contravention or offence.
However, where any contravention or offence has been compounded as above, there can not be any further proceeding, initiating or continuing under litigation, as the case may be, in respect of the contravention so compounded.
As per the provisions of section 13, if any individual contravenes or violates any rules and regulations of FEMA , or nay provision, notification or any order issued in order to exercise powers under the act or any breach of condition subject to which consent is issued by the RBI, the individual upon adjudication would be liable to a penalty of payment of fine which may go up to three times the amount involved in such contravention or violation only where the amount involved can be quantified or is up to Rs. 2 lakhs. In cases where the amount involved is not quantifiable and the violation is on continuous basis, the penalty levied will be Rs. 5,000each day after the first day till the violation continues.
Power to Compound
If any individual violates any provisions of Foreign Exchange Management Act, 1999 (FEMA), excluding clause (a) of section 3 then the authorities under the RBI would have the power to enforce the compounding application on the basis of the limits of monetary fine to be imposed as follows:
- the Assistant General Manager can entertain the compounding application up to Rs. 10 lakhs or less
- The deputy general manager can entertain the compounding application for more than Rs. 10 lakhs but less than Rs. 40 lakhs.
- The General Manager can entertain the compounding application for Rs. 40 lakhs or more buy up to Rs. 100 lakhs.
- The Tire Chief General Manager can entertain the compounding application for more than Rs. 100Lakhs
A Delegation of Powers to Regional Offices
For operational convenience and functioning, compounding powers are delegated to the Regional Offices of the RBI to compound the following contraventions of FEMA, 1999.
- Late reporting inward remittance received for issue of shares.
- Late filing form FC (GPR) after the issue of shares.
- Late issue of shares/refund of share application money beyond 180 days, mode of receipt of funds, etc.
- Contravention of pricing guidelines for issue of shares.
- Issuing of ineligible instruments such as non-convertible debentures, partly paid shares, shares with optionality clause, etc.
- Issuing shares without RBI’s approval or FIPB respectively, wherever required.
- Late submission of form FC-TRS on the transfer of shares from Resident to Non-Resident.
- Late submission of form FC-TRS on the transfer of shares from Non-Resident to Resident
- Record transfer of shares by Investee Company, in the absence of certified from FC-TRS.
Types of contravention/violation can be considered under Compounding for Offences under FEMA?
The type of contravention/violation is determined to keep in view the following indicative points:
- contravention is technical and/or minor in nature and needs only an administrative advice;
- contravention is serious in nature and warrants compounding of the contravention; and
- contravention prima facie, involves money laundering, national and security concerns involving serious infringement of the regulatory framework.
Procedure of Compounding of Offences under FEMA
Who can apply?
Any person who contravenes any provision of the FEMA, 1999 [except section 3(a)] or contravenes/violates any rule, regulation, notification, direction or order issued in exercise of the powers under this Act or contravenes any condition related to which a consent is issued by the Reserve Bank, can apply for compounding to the RBI.
Any applications looking for compounding of contraventions under section 3(a) of FEMA, 1999 can be submitted to Directorate of Enforcement.
When to apply?
- On receiving the Notice
When an individual is given notice of the contravention of the provisions of FEMA, 1999 by the RBI or FIPB or any other statutory authority.
- Suo Moto –
An individual can also make an application for compounding, suo moto, on becoming aware of the contravention.
- Due diligence under FEMA
What is the Procedure for Compounding Offences under FEMA?
Step 1
The applications along with the prescribed documents have to be submitted with a fee of Rs. 5,000/- by way of a demand draft drawn in favor of “Reserve Bank of India” and payable at the concerned Regional and payable at Mumbai to the Compounding Authority.
Step 2:
The application submitted will be given to RBI and the will examine it and conclude that the violation is quantifiable or not and what is the amount if quantifiable.
Step 3:
In case where the application form is incomplete or any such other reason like approvals of authorities not received, the form along with the fees will be returned.
Step 4:
The application will be disposed of within 180 days .
* The applicants are advised to give notice of, if any, in the address/ contact details of the applicant during the pendency of the compounding application with RBI
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