UncategorizedForeign Exchange Compounding Proceedings Rules, 2024

Overview

The Ministry of Finance through its Department of Economic Affairs has released the Foreign Exchange (Compounding Proceedings) Rules, 2024 (“Rules”) through its Notification dated 12 September 2024.

These Rules are in supersession of the Foreign Exchange (Compounding Proceedings) Rules, 2000, except as respects things done or omitted to be done before such supersession.

The intent of the Rules is to streamline the process of compounding of proceedings as well as provide more clarity on what kinds of offences / cases would be eligible for compounding and which officer will have the authority to compound such a contravention.

We have discussed the major changes in the Rules as below.

Compounding Authorities

• An officer of the ED not below the rank of Deputy Director or Deputy Legal Advisor.  OR
• An officer of the Reserve Bank not below the rank of the Assistant General Manager.

Compounding authorities of the Reserve Bank

• An officer not below the rank of the Assistant General Manager of the Reserve Bank – For offences not exceeding Rs. 60 lakhs

• An officer not below the rank of the Deputy General Manager of the Reserve Bank – For offences not exceeding Rs. 2.5 crores.

• An officer not below the rank of the General Manager of the Reserve Bank – For offences not exceeding Rs. 5 crores.

• An officer not below the rank of the Chief General Manager of the Reserve Bank – For offences exceeding Rs. 5 crores.

It will not apply to any contravention committed within a period of 3 years from the date on which a similar contravention committed by a person was compounded under these rules.

After the expiry of a period of 3 years from the date on which the contravention was previously compounded, the second or subsequent contravention shall be deemed to be a first contravention.

Compounding authorities of ED

• An officer not below the rank of the Deputy Director of ED – For offences not exceeding Rs. 5 lakhs

• An officer not below the rank of the Additional Director of ED – For offences more than Rs. 5 lakhs but less than Rs. 10 lakhs.

• An officer not below the rank of the Special Director of ED – For offences more than Rs. 10 lakhs but less than Rs. 50 lakhs.

• An officer not below the rank of the Special Director along with the Deputy Legal Adviser of ED – For offences more than Rs. 50 lakhs but less than Rs. 1 crore.

• An officer not below the rank of the Director of Enforcement along with the Special Director – For offences more than Rs. 1 crore.

It will not apply to any contravention committed within a period of 3 years from the date on which a similar contravention committed by a person was compounded under these rules.

After the expiry of a period of 3 years from the date on which the contravention was previously compounded, the second or subsequent contravention shall be deemed to be a first contravention.

Discontinuation of Adjudication

Once the contravention is compounded before the adjudication starts, no inquiry or further inquiry shall be initiated or continued for such contravention against the person in relation to whom that contravention is so compounded.

Discharge on compounding of contravention

If the contravention is compounded after the complaint under Section 16(3) of FEMA, such compounding shall be brought to the notice of the relevant adjudicating authorities and on such notice, the person in relation to whom the contravention is so compounded shall be discharged.

Discharge on compounding of contravention

If the contravention is compounded after the complaint under Section 16(3) of FEMA, such compounding shall be brought to the notice of the relevant adjudicating authorities and on such notice, the person in relation to whom the contravention is so compounded shall be discharged.

Procedure for Compounding

• The compounding authority may, apart from the particulars provided in the prescribed Form, call for any information, record or any other documents relevant to the compounding proceeding to be placed before it.

• The compounding authority shall, on receipt of the application in the prescribed Form complete in all respects, shall provide an opportunity to be heard to the applicant, and pass compounding order as expeditiously as possible but not later than 180 days from the date of receipt of such application.

Contraventions not to be compounded in certain cases

• Where the amount involved is not quantifiable; or

• Where the provisions of section 37A of the FEMA are applicable; or

• Where the ED opines that the proceeding relates to a serious contravention suspected of money-laundering, terror financing or affecting the sovereignty and integrity of the nation; or

• Where the Adjudicating Authority has already passed an order imposing penalty under section 13 of FEMA; or

• Where the compounding authority is of the view that the contravention involved requires further investigation by the ED to ascertain the amount of contravention under section 13 of FEMA.

Payment of amount compounded

The amount for which the contravention is compounded shall be paid by demand draft or NEFT or RTGS or such other permissible electronic or online modes of payment, in favour of the compounding authority, within 15 days from the date of the compounding order for such contravention.

Consequences of failure in paying sum compounded

If the amount for the contravention so compounded is not paid within the specified time period, it shall be deemed that no application for compounding of any contravention was ever made under these rules, and the provisions of the Act for contravention shall apply to that person.

Continuation of pending proceedings

Any compounding application already pending before the compounding authority, when these rules are introduced, shall be governed by the provisions of the Foreign Exchange (Compounding Proceedings) Rules, 2000.