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Proposal for RBI Compounding Application

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As per the Foreign Exchange Management Act, 1999 Reserve Bank of India is empowered to compound certain contravention under Foreign Exchange Management Act 1999 (FEMA 1999). To understand compounding, we have to understand the concept of contraventions.

The contravention is a breach of any or all of the following:
Provisions of FEMA, 1999
Rule made under FEMA
Directions
Regulations
As compounding is not defined under the Act or Rules made thereunder, it can be stated as under:

A compounding means a process of voluntarily accepting or admitting the contravention, pleading guilty, and seeking apology & redressal.

Compounding Process:
Submission of Application

An application is to be submitted along with the following details as may be required, to the Compounding Authority, or authority as may be prescribed depending upon the amount or nature of the contravention.

Details of Investment
Details External Commercial Borrowing
Details Overseas Direct Investment
Memorandum of Association
Latest Audited Financial Statement
Undertaking that the applicant is not under investigation of any agency such as DOE or CBI
Details of Bank Account
Passing Compounding Order

The following factors are to be considered while granting compounding order:

Amount of loss caused to any authority or agency due to such contravention.
The amount of gain or unfair advantage as a result of contravention.
Economic benefits accruing to the contravener from delayed or avoided compliance.
Track record or history of contravener.
contravener’s conduct in undertaking the transaction.
Calling for Additional Documents / Information
The compounding Authority may call for any additional documents or information as may be required depending upon case to case. In the event of failure of presenting further information, the application is liable to be rejected.
Examination by RBI
On receipt of Application, RBI must examine the application along with other documents and submissions to assess whether the contravention can be expressed in quantity if so then amount of contravention.
Payment of Compounding Fees
On the basis of above given factor Compounding charges / fees are decided and ordered the contravener to pay such amount as a fine.
Payment of Fees
An application fee of Rs. 5000/- should be paid along with the Application Form. Such fees should be paid by way of demand draft in favor of the Reserve Bank of India.
Opportunity of Being Heard
Person presenting Application for Compounding is given an opportunity to present his version of truth.
Issuance of Certificate
On payment compounding fees compounding authority issues certificate of payment of a penalty.
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