• What does that mean ?
• In general sense, compounding means settling matters by a payment of penalty decide by authority. It is “doing the default good”. It is an speedy recovery process and to reduce burden of punishment on the defaulter party.

• What are the compounding  to RBI  ?
• Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal. The Reserve Bank is empowered to compound any contraventions as defined under section 13¹ of FEMA, 1999 except the contravention under section 3(a)² ibid, for a specified sum after offering an opportunity of personal hearing to the contravener. It is a voluntary process in which an individual or a corporate seeks compounding of an admitted contravention..

• When one should apply for compounding?
• When a person is made aware of the contravention of the provisions of FEMA, 1999 by the Reserve Bank or any other statutory authority or the auditors or by any other means, she/he may apply for compounding. One can also make an application for compounding, suo moto, on becoming aware of the contravention

• Cases will not be compounded by RBI ?
• Serious Contravention suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation, such cases will not be compounded by the Reserve Bank. 

• Power to compound by RBI ?
•  If any person contravenes any provisions of Foreign Exchange Management Act, 1999 (42 of 1999) except clause (a) of Section 3 of that Act.
  • in case where the sum involved in such contravention is ten lakhs rupees or below, by the Assistant General Manager of the Reserve Bank of India;
  • in case where the sum involved in such contravention is more than rupees ten lakhs but less than rupees forty lakhs, by the Deputy General Manager of Reserve Bank of India;
  • in case where the sum involved in the contravention is rupees forty lakhs or more but less than rupees hundred lakhs by the General Manager of Reserve Bank of India;
  • in case the sum involved in such contravention is rupees one hundred lakhs or more, by the Chief General Manager of the Reserve Bank of India;

Provided further that no contravention shall be compounded unless the amount involved in such contravention is quantifiable.

• Where to go for compounding under FEMA?
• The compounding powers have been delegated to the Regional Offices of the Reserve Bank of India to compound the following contraventions of FEMA 20(R)/2017-RB:

• What action RBI will take after submitting application ?
• The Reserve Bank makes a scrutiny of the application to verify whether the required details and documents furnished by the applicant are prima-facie in order.
• Applications with incomplete details or where the contravention is not admitted will be returned to the applicant.
• On the admission of applications, the Reserve Bank will examine and decide if the contravention is technical, material or sensitive in nature.
• If technical, the applicant will be issued a cautionary advice.
•  If the contravention is material, it will be compounded by imposing an amount after giving an opportunity to the contravener to appear before the compounding authority for a personal hearing.
• If the contravention is sensitive in nature requiring further investigations, the same would be referred to the Directorate of Enforcement (DoE) for further investigation/ action.

• What is Technical, Material or Sensitive the Case is ?

–     Whether contravention under the Foreign Exchange Management Act (FEMA) is to be treated as technical and/ or minor or serious would be decided by the Reserve Bank on the merits of the case. The application will be disposed of keeping in view the procedure notified in this regard.

Persons who have contravened the provisions of FEMA should not take upon themselves suo moto, or on the basis of external advice to decide whether a particular contravention is technical or minor in nature and, hence, no compounding application need be submitted to the Reserve Bank. If such applications for compounding are not made, the person concerned shall expose himself/herself to such action under the provisions of FEMA as the authorities may deem appropriate.

The persons concerned should, therefore, in their own interest submit their applications for compounding of contravention under FEMA to the Reserve Bank at the earliest opportunity.

• Time limit after compounding has been submitted to RBI ?
• In terms of Section 15 of the FEMA 1999, any contravention under section 13 of FEMA 1999 may, on an application made by the person committing such contravention, be compounded within one hundred and eighty days from the date of receipt of application by the officers of the Reserve Bank as may be authorized in this behalf by the Central Government in such manner as may be prescribed.

• How Compounding comes to conclusion ?
• The Compounding Authority passes an order indicating details of the contravention and the provisions of FEMA, 1999 that have been contravened. The sum payable for compounding the contravention is indicated in the compounding order. The contravention is compounded by payment of the amount imposed.

For more detailed Information, please refer “Master Direction- Compounding of Contravention under FEMA ,1999”

https://m.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10190

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