The Government has, in consultation with the Reserve Bank of India,reviewed the procedures for compounding of contravention under Foreign Exchange Management Act (FEMA). The procedures have been reviewed to provide comfort to the citizens and corporate community by minimising transaction costs, while taking severe view of willful, malafide and fraudulent transactions. Accordingly, the responsibilities of administering compounding of contravention cases under FEMA have been vested with the Reserve Bank with exception of clause (a) of Section 3 of FEMA 1999 which deals essentially with hawala transactions. The Directorate of Enforcement would continue to deal with these cases.

Under FEMA, compounding of contravention allows the contravener to settle an offence through imposition of a monetary penalty without going in for litigation after the contravener acknowledges having committed the contravention. .

The Reserve Bank has since issued directions to the Authorised Dealers operationalising the revised procedures for compounding of contravention under FEMA. These procedures have been put on the RBI website ( www.rbi.org.in ). It may be noted that once a contravention has been compounded by the Compounding Authority, no proceeding or further proceeding will be initiated or continued, against the contravener.

An application for compounding in prescribed form with necessary fee may be submitted to the Compounding Authority (CA) either on being advised of a contravention under FEMA or suo moto on becoming aware of the contravention. The application may be made to The Compounding Authority, [Cell for Effective implementation of FEMA (CEFA)], Reserve Bank of India, Foreign Exchange Department, 11^th Floor, Central Office Building, S. B. Singh Road, Fort, Mumbai- 400 001.

On receipt of the application for compounding of contravention committed under FEMA 1999 (i.e. w.e.f. June 1, 2000), the compounding proceedings would be initiated in accordance with the compounding rules. This process would be concluded by the Compounding Authority within 180 days from the date of the receipt of the application for compounding. The compounding order would be passed after affording an opportunity to the contravener and all other concerned to be heard.

This procedure for compounding of contravention would be reviewed after six months and consider modification as needed.

Press Release : 2004-2005/800