The Ministry of Finance on September 12, 2024 introduced the Foreign Exchange (Compounding Proceedings) Rules, 2024 (“2024 Rules”) to address the compounding of offenses under the Foreign Exchange Management Act, 1999 (“FEMA”). These new rules replace the previous Foreign Exchange (Compounding Proceedings) Rules, 2000 (“2000 Rules”), which provided a framework to voluntarily resolve certain FEMA violations by paying a penalty, thereby avoiding lengthy legal proceedings. While the 2024 Rules share the same purpose as the 2000 Rules, they introduce essential updates and provide enhanced clarity on the compounding framework.
In this update, we delve into the key differences between the 2000 Rules and the 2024 Rules.
| Sr. No. | Rule | 2000 Rules | 2024 Rules |
| 1. | Authorities of Reserve Bank to compound various contraventions | A person who contravenes any provision of FEMA, except clause (a) of Section 3, may approach the below mentioned authorities based on the sum involved in the contravention:
1. Up to INR 10 Lakhs: Assistant General Manager of the Reserve Bank of India;
2. INR 10 Lakhs to INR 40 Lakhs: Deputy General Manager of the Reserve Bank of India;
3. INR 40 Lakhs to INR 1 Crore: General Manager of the Reserve Bank of India;
4. More than INR 1 Crore: Chief General Manager of the Reserve Bank of India. |
A person who contravenes any provision of FEMA, except clause (a) of Section 3, may approach the below mentioned authorities based on the sum involved in the contravention:
1. Up to INR 60 Lakhs: an officer not below the rank of the Assistant General Manager of the Reserve Bank;
2. INR 60 Lakhs to INR 2.5 Crore: an officer not below the rank of the Deputy General Manager of the Reserve Bank; 3. INR 2.5 Crore to INR 5 Crore: an officer not below the rank of the General Manager of the Reserve Bank;
4. More than INR 5 Crore: an officer not below the rank of the Chief General Manager of the Reserve Bank. |
| 2. | Fees for compounding application | The fee for applying for compounding was INR 5,000, payable only via Demand Draft. | The application fee is now INR 10,000, plus goods and services tax (GST), payable via Demand Draft, or National Electronic Fund Transfer (NEFT), or other permissible electronic or online modes of payment. |
| 3. | Discontinuation of Adjudication | If a contravention was compounded before adjudication, no inquiry was allowed to be held for adjudication of such contravention against the person involved in the compounded contravention. | The 2024 rules have clarified that once a contravention has been compounded before adjudication, an inquiry cannot be initiated nor can be continued for adjudication of such contravention against the person involved in the compounded contravention. |
| 4. | Power of Compounding Officer | The Compounding Authority was authorized to call for any information, record or any other documents relevant to the compounding proceedings. | The Compounding Authority is authorized to call for any information, record or any other documents relevant to the compounding proceeding to be placed before it and, if necessary, require the applicant to take such action as may be necessary with respect to the transactions involved in the contravention. |
| 5. | Contraventions not to be compounded | In 2000 Rules there were only certain offences which were non compoundable, such as offences where the amount involved cannot be quantified or any subsequent offence within three years of the previously compounded offence or where the Enforcement Directorate is of the view that the proceeding relates to a serious contravention suspected of money-laundering, terror financing or affecting the sovereignty and integrity of the nation, the compounding authority shall not proceed with the matter and shall remit the case to the appropriate Adjudicating Authority for adjudicating contravention under section 13 of FEMA. | The 2024 Rules specify list of non-compoundable offences. No contravention shall be compounded:
1. Where the amount involved is not quantifiable;
2. Where the provisions of Section 37A of FEMA are applicable;
3. Where the Directorate of Enforcement is of the view that the proceeding relates to a serious contravention suspected of money-laundering, terror financing or affecting the sovereignty and integrity of the nation, the compounding authority shall not proceed with the matter and shall remit the case to the appropriate Adjudicating Authority for adjudicating contravention under section 13 of FEMA;
4. Where the Adjudicating Authority has already imposed a penalty under Section 13 of FEMA;
5. Where the Compounding Authority is of the view that the contravention involved requires further investigation by the Directorate of Enforcement to ascertain the amount of contravention under Section 13 of FEMA. |
For more information about the aforesaid developments you may write to us at: solutions@bridgeheadlaw.com.
Karan Narvekar | Partner
Missba Zariwala | Associate
Views expressed are personal to the authors and do not constitute as legal advice.
