Its ED (and not RBI) who compounds the contraventions occurring in foreign exchange dealings or transfers.

Key Takeaways:

1. Compounding under FEMA involves voluntarily admitting contravention of FEMA, pleading guilty, and seeking redressal.

2. The Enforcement Directorate (ED) has the power to compound contraventions under Section 15 of FEMA, along with the Reserve Bank of India (RBI).

3. The compounding application can be made when the person becomes aware of the contravention, on suo moto, or otherwise.

4. The application for compounding must be addressed to the Director, Directorate of Enforcement, New Delhi, along with the prescribed fee.

5. The ED may consider various factors for adjudicating the sum payable under the compounding order, including the amount of gain or unfair advantage, loss caused to the government, and the repetitive nature of the contravention.

6. The penalty under FEMA can be substantial, up to three times the amount involved in quantifiable contraventions.

7. There is no provision for appeal against the compounding order of ED or for a request for reduction of the amount imposed or extension for payment of amount.

Synopsis:

Here is a detailed breakdown of the key points mentioned above:

1. Authority for Compounding: Rule 4 of FEMA (Compounding Proceedings) Rules, 2000, along with GSR 609 (E,) dated 13-09-2014, specifies that the RBI can compound all matters except Section 3 (a) of FEMA.

Section 3 (a) of FEMA prohibits dealing in or transferring any foreign exchange or foreign security to any person not being an authorized person.

Section 15 of FEMA allows the Enforcement Directorate to compound contraventions under Section 13, along with the RBI, as authorized by the Central Government.

Rule 5 states that any offense under Section 3 (a) can be compounded by the Enforcement Directorate.

In short, ED is the authority to compound contraventions occurring in foreign exchange dealings or transfers.

2. Power of Officers of ED: Here are the power of various Enforcement Directorate (ED) officers with respect to contraventions under Section 3 (a) based on the amount involved. You'll note that ED officers' powers are

divided according to contravention amount.

• Deputy Director - Upto ₹5lac.
• Additional Director - Between ₹5lac and ₹10lac
• Special Director - Between ₹10lac and ₹50lac
• Special Director with Deputy Legal advisor - Between ₹50lac and ₹1crore
• Director with Special Director - ₹1crore and above.

3. Application Process: You should address the compounding application in the prescribed format along with relevant documents to the Director, Directorate of Enforcement, New Delhi, along with DD of ₹5000.

4. Process of Compounding: The process involves the ED calling for information, records, or other relevant documents, and the completion of the entire process within 180 days from the date of receipt of the application. You don't have to visit personally unless ED specially asks for it. Finally, ED will pass the compounding order stating the payable sum. You must deposit a DD of sum payable within 15 days of the order date.

5. Conditions for Compounding:

• You can file only one compounding application within 3 years of the date of contravention.
• You can file for compounding of transactions not permitted under FEMA after taking post-facto approvals.
• You can't file for compounding of serious contravention of money laundering, terror financing, or sovereignty and integrity of India.
• You should quantify the contravention amount.

6. Factors for Adjudicating the Sum Payable: The Enforcement Directorate may consider various factors for adjudicating the sum payable under the compounding order, including the amount of gain or unfair advantage, loss caused to the government, and the repetitive nature of the contravention, contravener's behaviour.

7. Computation of Amount Imposed: Under FEMA, the penalty can be substantial, up to three times the amount involved in quantifiable contraventions. You will find one RBI guidance note describing the penalty computation manner. The document mentions the guidance note provided by RBI for the public and the calculation of the amount as per this note.

8. Conclusion: The document advises coming clean with a suo moto application for compounding of any contravention, providing complete details and documents, and cooperating with the ED.

FAQ:

Q1: What is the process of compounding under FEMA?

A1: The process involves making an application to the Enforcement Directorate, providing relevant documents, and cooperating with the ED during the proceedings. The ED may consider various factors described above for adjudicating the sum payable under the compounding order.

Q2: Can contraventions under FEMA be compounded by the Enforcement Directorate?

A2: Yes, contraventions under Section 13 of FEMA may be compounded by the Enforcement Directorate, as authorized by the Central Government, along with the RBI.

Q3: Are there any conditions for compounding under FEMA?

A3: Yes, there are conditions such as allowing only one compounding within three years of the date of contravention and the non-possibility of compounding in cases of serious contraventions affecting money laundering, terror financing, or sovereignty and integrity of India.