It is considered infringement when a breach of the Foreign Exchange Management Act, 1999, or the regulations that accompany it, occurs. Under Section 13 of the Foreign Exchange Management Act, 1999, compounding refers to admitting a contravention and seeking redress. In addition, it applies to sections that are not compatible with the Reserve Bank of India. When you contravene, you can minimize your penalties by admitting your mistake and incurring fewer transaction costs. However, the RBI will not compound serious offences.
Who Can Apply for Compounding?
Suppose a person violates any provision of FEMA, 1999, or any regulations that come along with it. Those who violate the provisions of the FEMA, 1999 Act may apply for compounding to the Reserve Bank. In the case of a compounding application, it will have to be submitted to the Directorate of Enforcement if the violation falls under section 3(a) of the FEMA, 1999 Act.
The Application Form Must Contain the Following Details?
There is no restriction on the type of compounding a person may seek to obtain by applying to the Reserve Bank of India or by a statutory authority once the applicant has been notified by the Reserve Bank of India or by a statutory authority to make a formal application with an amount of ₹5000.
Compounding Application to RBI: Submit Documents
Applicants must submit an application and provide their contact information, authorized representatives’ details, email addresses, and mobile numbers, along with any other requested documentation.
When compounding, the following documents must be submitted:
- Provide a list of all foreign direct investments, overseas direct investments, external commercial borrowings, and branch offices/liaison offices as per Annex II
- The Memorandum of Association in certified form
- Your newly audited balance sheet must be submitted along with proof that you are not being investigated or investigated by any jurisdictions or agencies like the CBI
- The RBI must be informed of any such situation before compounding orders are issued if it arises post-filing the application.
It is imperative that you provide all the details and documents that are required to complete the compounding process in order to avoid returning and terminating the process. Upon submission of the compounding application, it will be processed once the application has been completed, all the necessary information has been provided, and a demand draft of 5000 has been submitted again.
When a serious violation or contravention occurs, such as terror financing, money laundering, or anything that compromises the nation’s sovereignty, the directorate of investigation is immediately notified for further investigation. Payment for the infringement must be made within a specified period of time by the applicant.
As a result, if the applicant commits any similar violation within three years of passing the compounding order, they may not be eligible for a second one. A subsequent violation after this window of time will be handled according to the terms of the FEMA, 1999.
Process of Compounding
RBI will take your application seriously when you apply for compounding.
It may be necessary to provide more information or records to the Compounding Authority in order to make sure you have handled everything correctly.
Compounding orders and infringement payments are based on the following factors:
- Contraventions that result in unfair advantages
- By committing a contravention, any authority suffers loss
- Avoiding compliance to benefit economically
- Contraventions that occur repeatedly
- Compounding application submission by contravener
Do Violations and Compounding Breaches Mean the Same Thing?
There is a term that refers to a violation of the provisions of the Foreign Exchange Management Act (FEMA), 1999, and any rules, regulations, notifications, orders, or directions that are issued under that act. It refers to committing a violation, pledging guilty to the offense, and seeking redress as a result of the violation. The goal of compounding is to obtain redress and to voluntarily acknowledge that the violation had taken place. In accordance with section 131 of the FEMA, 1999, the Reserve Bank is authorized to compound any violation which is found to have been committed, for a specified sum, after providing the violator with an opportunity for a personal hearing.
It is only possible to compound after an infraction has been acknowledged under Section 3(a)2 of the same act if the infraction was a violation of that section. The process can be pursued voluntarily by either an individual or a corporation. By reducing the costs associated with conducting business, it makes it easier for anyone who violates the provisions of FEMA 1999 [except section 3(a)].
In addition, in accordance with the proviso that has been added to Rule 8(2), the Reserve Bank will have little tolerance for transactions which are made with ill intention, malice, or fraudulent intent, but they will not compound the problem if they occur.