Amendments to Compounding of Contraventions under FEMA, 1999: Key Updates for AD Category-I Banks
The Reserve Bank of India (RBI) has issued amendments to the existing guidelines on compounding of contraventions under the Foreign Exchange Management Act (FEMA), 1999, originally detailed in A.P. (DIR Series) Circular No. 17/2024-25 dated October 1, 2024. These amendments are particularly relevant to Authorised Dealer (AD) Category-I banks and aim to streamline the application and payment process, while improving efficiency in handling compounding cases.
A major change involves the deletion of Paragraph 5.4.II.v of the earlier circular. This paragraph had previously allowed the compounding amount to be linked to earlier compounding orders for similar contraventions. With the amendment, any such application will now be treated as a fresh application, and the compounding amount will be determined independently, without reference to previous orders. This move ensures a uniform and case-specific approach to determining compounding amounts.
Additionally, the RBI has observed procedural lapses during the compounding process. Some applicants have either made payments to the wrong office of the Reserve Bank or delayed the submission of their compounding applications after making the payment. These issues have caused difficulties in reconciling fees and processing delays. In response, the RBI has revised Part B of Annexure I of the circular to include more detailed information that applicants must provide when making payments electronically.
The additional information now required includes:
- The mobile number of the applicant or their authorised representative.
- The specific RBI office (Central Office, Regional Office, or FED CO Cell) where the payment was made.
- The mode of submission of the application, whether through the PRAVAAH portal or in physical form.
These enhancements are intended to facilitate better reconciliation of application fees and reduce turnaround times in processing applications.
In light of these updates, AD Category-I banks and authorised banks are advised to bring these revised guidelines to the notice of their clients and ensure adherence. The updated directions reflect the RBI’s ongoing efforts to enhance procedural clarity, improve regulatory compliance, and ensure a more efficient compounding framework under FEMA, 1999.
