Compounding Authority and Their Underlying Pecuniary Jurisdiction under FEMA

The Ministry of Finance notified Foreign Exchange (Compounding Proceedings) Rules, 2024 (“Rules”) on September 12, 2024, which supersedes the erstwhile rules laid out in the year 2000. The provisions came into effect on 12.09.2024. Key changes incorporated within the Rules are mentioned below:

KEY CHANGES:-

1. Compounding authority and their underlying pecuniary jurisdiction:

The Rules modified the limits provided to compounding authorities to compound various contraventions mentioned therein. The authorities and their respective pecuniary limits for compounding cases of contravention are provided as follows:

• Case where the sum involved in such contravention does not exceed sixty lakh rupees, an officer not below the rank of the Assistant General Manager of the Reserve Bank;
• Case where the sum involved in such contravention does not exceed two and a half crore rupees, an officer not below the rank of the Deputy General Manager of the Reserve Bank;
• Case where the sum involved in such contravention does not exceed five crore rupees, an officer not below the rank of the General Manager of the Reserve Bank; and
• Case where the sum involved in such contravention is above five crore rupees, an officer not below the rank of the Chief General Manager of the Reserve Bank

2. New Rule 9- Contravention not to be compounded in certain cases:

A new Rule 9 has been incorporated which lists down the cases where contravention cannot be compounded.

• where the amount involved is not quantifiable;
• where the provisions of section 37A of the Act are applicable;
• 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;
• where the Adjudicating Authority has already passed an order imposing penalty;
• Where the compounding authority believes the contravention involved requires further investigation by the Directorate of Enforcement to ascertain the amount of contravention.

3. Payment System:

The Rules now allowed the payment of the amount compounded to be done electronically or through online mode within 15 days from the date of compounding order of such contravention.

4. Prospective effect:

The Rules shall not be applied retrospectively i.e. any compounding application pending before 12.09.2024, will be governed by the provisions of Foreign Exchange (Compounding Proceedings) Rules, 2000.

5. Fees for filing application:

The Rules further modified/increased the fees for filing the application forms under Rules 4 and 5 (application before compounding authorities of Reserve Bank and Directorate of Enforcement respectively) from Rs. 5000/- to Rs. 10000/-.