Comparative Analysis of FEMA Compounding Rules (2000 vs 2024)

Comparative Table

Feature	FEMA Compounding Rules, 2000	FEMA Compounding Rules, 2024
Notification	G.S.R. 383(E), dated 3 May 2000	G.S.R. 566(E), dated 12 September 2024
Effective Date	1 June 2000	Date of Gazette publication (12.09.2024)
Compounding Authorities	RBI (AGM+), ED (Deputy Director+)	Same, but hierarchy & jurisdiction revised
Jurisdictional Limit for RBI	Up to ₹1 crore (CGM-level)	Up to ₹5 crore+ (CGM-level)
Jurisdictional Limit for ED	Up to ₹1 crore+ (Director + Special Director)	Structured limits retained; explicit roles defined
Application Fee	₹5,000	₹10,000 + GST, payable via DD/NEFT/RTGS
Application Format	Physical form annexed	Revised format with detailed annexures and ECS mandate
Processing Timeline	180 days	180 days (retained) with stricter tracking
Repeat Contravention Window	3 years	3 years (clarified as rolling window)
Non-Compoundable Offences	Non-quantifiable, certain violations under Section 3(a)	Also excludes Section 37A cases, sovereignty-impacting contraventions
Post-compounding Enforcement	No adjudication post-compounding	Same, but includes discharge provisions and notification to adjudicating authority
Payment Mode	Demand Draft only	Multiple options: DD, NEFT, RTGS, online payment
Oversight	Governor of RBI/Director of ED	Same, with enhanced documentation & supervision

India’s foreign exchange regulatory landscape under the Foreign Exchange Management Act (FEMA), 1999 has been witnessing continued modernization. One of the significant pillars of FEMA compliance and enforcement is the compounding mechanism, which allows for regularization of contraventions without litigation. Over time, the rules governing this mechanism have evolved. The recently notified Foreign Exchange (Compounding Proceedings) Rules, 2024, which supersede the 2000 Rules, provide a refreshed and more robust framework.

Foreign Exchange (Compounding Proceedings) Rules, 2000

Overview

The FEMA Compounding Proceedings Rules, 2000 provide a framework for voluntary regularization of contraventions under the Foreign Exchange Management Act, 1999 (FEMA), without resorting to formal adjudication or litigation. These rules empower the Reserve Bank of India (RBI) and the Directorate of Enforcement (ED) to compound certain contraventions in a structured, time-bound, and non-adversarial manner.

Key Provisions and Structure

1. Commencement & Scope

Came into effect on 1st June 2000.
Applicable to compoundable contraventions under FEMA, excluding those involving money laundering, terror financing, or impacting sovereignty.

2. Definitions

Clarifies terms like “Act”, “Compounding Authority”, “Applicant”, and “Form”.
Aligns definitions with FEMA.

3. Compounding Authorities

RBI: Officers not below the rank of Assistant General Manager.
ED: Officers not below the rank of Deputy Director or Deputy Legal Adviser.

4. RBI’s Power to Compound

Applicable to all contraventions except Section 3(a) of FEMA.
Monetary thresholds for compounding authority:
- Up to ₹10 lakh: Assistant General Manager.
- ₹10–40 lakh: Deputy General Manager.
- ₹40–100 lakh: General Manager.
- Above ₹100 lakh: Chief General Manager.
Contraventions must be quantifiable to be eligible.

5. ED’s Power to Compound

Applicable specifically to contraventions of Section 3(a) (dealing with unauthorized dealing in foreign exchange, foreign security, etc.).
Compounding authority and limits:
- Up to ₹5 lakh: Deputy Director.
- ₹5–10 lakh: Additional Director.
- ₹10–50 lakh: Special Director.
- ₹50 lakh–1 crore: Special Director + Deputy Legal Adviser.
- Above ₹1 crore: Director + Special Director.
Similar eligibility condition: only quantifiable contraventions allowed.

Application Process

Application to be submitted in the prescribed Form.
Fee of ₹5,000 via Demand Draft to the appropriate authority.
RBI applications: To the Exchange Control Department, Mumbai.
ED applications: To the Director, Directorate of Enforcement, New Delhi.

6. Disqualification for Repeat Offenders

Contraventions within 3 years of a previously compounded offence are not compoundable again.
After 3 years, a new contravention is treated as a first-time offence.

7. No Adjudication After Compounding

If a contravention is compounded before adjudication, no formal inquiry under Section 16 is held.
If compounded after a complaint is filed, adjudicating authority is notified and the case is closed.

8. Procedure for Compounding

Authorities may summon records, documents, or information.
Must offer an opportunity of hearing.
Compounding must be completed within 180 days.
ED can reject proceedings involving:
- Suspicion of money laundering or terror financing.
- Threat to sovereignty or national integrity.

9. Payment of Compounded Sum

Amount specified in the compounding order must be paid within 15 days via Demand Draft.

10. Default in Payment

Failure to pay within 15 days renders the application void.
Standard enforcement provisions under FEMA will apply.

11. Pending Appeals

No compounding is allowed if an appeal is pending under Sections 17 or 19 of FEMA.

12. Structure of the Compounding Order

Must specify violated provisions, contravention details, and be signed/sealed.
One copy is issued to the applicant and adjudicating authority.

Foreign Exchange (Compounding Proceedings) Rules, 2024

The Foreign Exchange (Compounding Proceedings) Rules, 2024 supersede the 2000 rules and provide a comprehensive framework for the compounding of contraventions under the Foreign Exchange Management Act (FEMA), 1999. These rules aim to enhance procedural clarity, strengthen digital governance, and align enforcement with evolving regulatory needs.

Legal Basis

Issued under: Section 15(1) read with Section 46(2)(b) of FEMA, 1999.
Supersedes: FEMA Compounding Rules, 2000, except for actions already completed or pending before the supersession date.

Key Definitions

Act: Refers to FEMA, 1999.
Compounding Authority: Authorised officer under Rule 3.
Applicant: Person who files a compounding application.
Compounding Order: Written order to regularize a contravention.
Prescribed Form: Detailed application form annexed with the rules.

Compounding Authorities

1. Reserve Bank of India (RBI) – for all FEMA contraventions except Section 3(a):

Amount Involved	Designated Officer
Up to ₹60 lakh	Assistant General Manager
Up to ₹2.5 crore	Deputy General Manager
Up to ₹5 crore	General Manager
Above ₹5 crore	Chief General Manager

2. Directorate of Enforcement (ED) – for contraventions of Section 3(a):

Amount Involved	Designated Officer
≤ ₹5 lakh	Deputy Director
₹5–10 lakh	Additional Director
₹10–50 lakh	Special Director
₹50 lakh–1 crore	Special Director + Deputy Legal Adviser
> ₹1 crore	Director + Special Director

Application Process

Applications must be submitted in the prescribed form.
Fee: ₹10,000 + GST via Demand Draft, NEFT, RTGS, or other online methods.
RBI applications: Filed with the Foreign Exchange Department, RBI.
ED applications: Filed with the Director, Directorate of Enforcement, New Delhi.

Key Procedures

Timeline: Compounding order must be issued within 180 days of receipt of a complete application.
Hearing: Applicant must be given an opportunity of being heard.
Disclosure: Prior contraventions within the last 3 years will disqualify from compounding (rolling period rule).
Non-Compoundable Offences:

Unquantifiable contraventions.
Matters under Section 37A.
Involvement of money laundering, terrorism financing, or threats to sovereignty.
Already adjudicated matters.
Cases requiring further investigation.

Payment of Compounded Sum

Must be paid within 15 days of compounding order via accepted digital channels.
Failure to pay will void the application, and FEMA’s enforcement provisions will resume.

Content of Compounding Order

Must mention violated section, rule, or direction and nature of contravention.
Signed and sealed by the compounding authority.
Copies to be provided to both the applicant and adjudicating authority.

Pending Applications

Applications filed before the commencement of these rules will continue under the 2000 regime.

Annexed Form Highlights

The application form includes:

Applicant and entity details.
PAN, GSTIN, ECS mandate.
Previous contraventions and compounding details.
Specifics of contravention under FEMA.
Undertaking to notify any ED investigations.

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