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September 2012

A. P. (DIR Series) Circular No. 11 dated 31st July, 2012

By Gaurang Gandhi, Chartered Accountant
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Foreign Exchange Management Act, 1999 (FEMA)- Compounding of Contraventions under FEMA, 1999.

This circular clarifies that, whenever a contravention is identified by RBI or brought to its notice the entity concerned by way of a reference other than through the prescribed application for compounding, RBI will continue to decide: –

(i) Whether a contravention is technical and/or minor in nature and, as such, can be dealt with by way of an administrative/cautionary advice;

(ii) Whether it is material and, hence, is required to be compounded, for which the necessary compounding procedure has to be followed; or

(iii) Whether the issues involved are sensitive/serious in nature and, therefore, need to be referred to the Directorate of Enforcement (DOE).

However, once a suo moto compounding application is filed, by the entity concerned, admitting the contravention, the same will not be considered as ‘technical’ or ‘minor’ in nature and the compounding process will be initiated.

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