Attention of Authorised dealers is invited to the Foreign Exchange (Compounding Proceedings) Rules, 2000 published by the Government of India vide G.S. R.No. 383 (E) dated 3^rd May 2000 as amended vide G.S.R. No. 443 (E) dated 2^nd November 2002 (copy enclosed). In terms of these rules Reserve Bank was empowered to compound contravention under the provisions of following sections of FEMA, 1999.

1. Section 7 (Export of goods and services),
2. Section 8 (Realisation and repatriation of foreign exchange),
3. Section 9 (Exemption from realisation and repatriation of foreign exchange in certain cases),
4. Third Schedule to the Foreign Exchange Management (Current Account Transactions) Rules, 2000.

The provisions of Section 15 of FEMA, 1999 permit compounding of contraventions and empower the Compounding Authority to compound any contravention as defined under Section 13 of the Act on application made by the person committing such contravention either before or after the institution of Adjudication Proceedings.

2. With a view to provide comfort to the citizens and corporate community by minimizing transaction costs, while taking severe view of willful, malafide and fraudulent transactions, it has been decided to put in place the procedures for compounding of contravention under FEMA. The Government of India has, therefore, in consultation with Reserve Bank placed the responsibilities of administering compounding of cases with the Reserve Bank, except under Section 3 (a) of FEMA.

3. Accordingly, the Government has notified amendment to the Foreign Exchange (Compounding Proceedings) Rules, 2000 vide G.S.R. No. 609 (E) dated September 13, 2004. A copy of the said rules is given in Annex -I. As a result of the amendment, the compounding powers of Reserve Bank and Directorate of Enforcement respectively, have been modified as under:

1. Reserve Bank has been empowered to compound the contraventions of all the Sections of FEMA 1999 except clause (a) of Section 3 of the Act ibid.
2. Directorate of Enforcement would continue to exercise powers of compounding under clause (a) of Section 3 of FEMA (dealing essentially with Hawala transactions).

4. For effective implementation of compounding process under FEMA, the Reserve Bank has framed the procedures for compounding of contravention as detailed in the Annex -II. Once a contravention has been compounded by the Compounding Authority, no proceeding or further proceeding will be initiated or continued, as the case may be, against the contravener.

6. The process and procedures for Compounding under the revised Compounding Rules may be reviewed after six months.

7. Authorised Dealers may bring the contents of this circular to the notice of their constituents and customers concerned.

8. The directions contained in this circular have been issued under sections 10 (4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law.

[A.P.(DIR Series) Circular No.31

dated February 1, 2005]

Notification No. G.S.R.383(E) dated 3rd May 2000

In exercise of the powers conferred by section 46 read with sub-section (1) of section 15 of the Foreign Exchange Management Act, 1999 (42 of 1999) the Central Government hereby makes the following rules relating to compounding contraventions under chapter IV of the said Act, namely:-

(1) These rules may be called the Foreign Exchange (Compounding Proceedings) Rules 2000.

(2) They shall come into force on the 1st day of June, 2000.

 2. Definitions - In these rules, unless the context otherwise requires -

  (a) 'Act' means the Foreign Exchange Management Act, 1999 (42 of 1999);

  (b) 'authorised officer' means an officer authorised under sub-rule (1) of rule 3;

  (c) 'applicant' means a person who makes an application under section 15 (1) of the Act to the compounding authority;

  (d) 'Compounding Order' means an order issued under sub-section (1) of Section 15 of the Act;

  (e) 'Form' means a form appended to these rules;

  (f) 'section' means a section of the Act;

  (g) all other words and expressions used in these rules and not defined but defined in the Act, shall have the meaning respectively assigned to them in the Act.

3. (1) 'Compounding Authority' means the persons authorised by the Central Government under sub-section (1) of section 15 of the Act, namely;

    (a) an officer of the Enforcement Directorate not below the rank of Deputy Director or Deputy Legal Adviser (DLA).

    (b) An officer of the Reserve Bank of India not below the rank of the Assistant General Manager.

4. Power of Reserve Bank to compound contravention -

¹ [(1) If any Person contravenes any provisions of Foreign Exchange Management Act,1999 (42 of 1999) except clause (a) of Section 3 of the Act.]

    (a) in case where the sum involved in such contravention is five lakhs rupees or below, by the Assistant General Manager of the Reserve Bank of India;

    (b) in case where the sum involved in such contravention is more than rupees five lakhs but less than rupees twenty lakhs, by the Deputy General Manager of Reserve Bank of India ;

    (c) in case where the sum involved in the contravention is rupees twenty lakhs or more but less than rupees fifty lakhs by the General Manager of Reserve Bank of India;

    (d) in case the sum involved in such contravention is rupees fifty lakhs or more, by the Chief General Manager of the Reserve Bank of India;

      Provided further that no contravention shall be compounded unless the amount involved in such contravention is quantifiable.

  (2) Nothing contained in sub-section (1) shall apply to a contravention committed by any person within a period of three years from the date on which a similar contravention committed by him was compounded under these rules.

    Explanation: For the purposes of this rule, any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention.

  (3) Every officer specified under sub-rule (1) of rule 4 of the Reserve Bank of India shall exercise the powers to compound any contravention subject to the direction, control and supervision of the Governor of the Reserve Bank of India.

  (4) Every application for compounding any contravention under this rule shall be made in Form to the Reserve Bank of India, Exchange Control Department, Central Office, Mumbai along with a fee of Rs. 5000/- by Demand Draft in favour of compounding authority.

5. The Power of Enforcement Directorate to compound contraventions -

²[(1) If any Person contravenes provisions of Section 3(a) of Foreign Exchange Management Act. ]

 Form
(See Rule 4 or 5)