Compounding rules eased to speed up FEMA cases

The finance ministry on Thursday raised the monetary limits of contraventions that can be compounded by relevant officers under the Foreign Exchange Management Act (FEMA) and introduced electronic payment options for aggrieved parties, as it sought to simplify various provisions to fast-track settlements of cases.

Notifying the Foreign Exchange (Compounding Proceedings) Rules, 2024, the ministry said cases involving contraventions up to ₹60 lakh can be handled by an assistant general manager of the Reserve Bank of India (RBI), against up to ₹ 10 lakh earlier.

The limits for deputy general managers, general managers and chief general managers of RBI have been raised multiple times to ₹2.5 crore, ₹5 crore and more than ₹5 crore, respectively.

At the Directorate of Enforcement (ED) level, compounding cases of contraventions up to ₹5 lakh can be handled by a deputy director, up to ₹10 lakh by additional director, up to ₹50 lakh by special director and Rs 1 crore or more by the director.

The revised limits will leave the senior officers of both the RBI and the ED with fewer but more important cases and enable hundreds of their juniors to take up the bulk of applications, experts said, exuding optimism about fast clearances of both pending and fresh cases.

“Additionally, consolidated compounding form and online payment for application would help in easing the process,” said Neha Agarwal, partner at Deloitte.The revised rules also empower compounding authorities to refer matters to the ED where they believe these require further investigation, she said.Experts said the revamp of the rules after more than two decades seems to suggest that the compounding of offences is going to be a norm now rather than an exception.

The move follows finance minister Nirmala Sitharaman‘s budget announcement to simplify rules and regulations for foreign investments.

The rules have been finalised after comprehensive consultation with the RBI, the finance ministry said.

“With these rules, a lot of legacy matters like IDPMS (Import Data Processing and Monitoring System) mismatch, or other cases about payment remittance from outside India, can now be closed,” said Manavendra Mishra, partner at Khaitan & Co. “Especially cases where amounts are minimal or cases where high-net-worth individuals who have proceedings only because their names appeared in some databases and are facing inquiries, can be closed.”

Anjali Malhotra, partner (regulatory) at Nangia Andersen India, said: “This revamped structure reflects the evolution of both the regulatory environment and payment systems, providing more streamlined and efficient processes for stakeholders involved.”