FEMA –A summary of Compounding Orders

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Foreign Exchange Management Act (FEMA/ Act), 1999 provides for compounding
of contraventions done under the Act.

Any contravention of the Act, any rules, regulations, notification, orders, directions,
circulars issued thereunder can be compounded. Compounding is the voluntarily
admitting the contravention, pleading guilty and seeking redressal.

The Reserve Bank has the power to compound any contravention under the Act under
section 13 of the Act except the contraventions mentioned under section 3(a). It
compounds the contravention for a specified sum after offering an opportunity of personal
hearing to the applicant.

However, RBI views the wilful, malafide and fraudulent transactions seriously and does
not compound. Further, in terms of the proviso to rule 8 (2) of Foreign Exchange
(Compounding Proceedings) Rules, 2000 inserted vide GOI notification dated February
20, 2017, if the Enforcement Directorate is of the view that the compounding proceeding
relates to a serious contravention suspected of money laundering, terror financing or
affecting sovereignty and integrity of the nation, such cases will not be compounded by
the Reserve Bank.

Any individual or corporate, who contravenes any provision of the FEMA, 1999 [except
section 3(a)] or contravenes any rule, regulation, notification, direction or order issued,
may apply for compounding. The compounding may be applied suo moto or on making
aware of the contravention by RBI, or any other authority or by any other means.

Once the application is made for compounding with requisite documents and fee, the
Compounding Authority gives an opportunity of personal hearing, which is optional to
attend. The Compounding Authority passes an order indicating details of the
contravention and the provisions of FEMA, 1999 that have been contravened. The sum
payable for compounding the contravention is indicated in the compounding order. The
contravention is compounded by payment of the amount imposed.

Compounding orders passed on or after June 1, 2016 are be published on the RBI’s
website on monthly basis. The link to download the Compounding Orders is –
https://m.rbi.org.in/scripts/Compoundingorders.aspx

Below are summery of some of the recent compounding orders. This has been compiled
to give an idea about the type of contraventions generally committed by individuals/
corporates and being compounded by the Compounding Authority of RBI. The
compounding orders are in public domain and can be downloaded from the link as given
in the above para.

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Compounding Nature and Brief of Relevant provision Amount
Order No. and contravention under FEMA imposed
date under
Compounding

CA No. NDL (i) Delay in reporting An Indian company ₹ 42,350

358/2018 Date- foreign inward issuing shares or
3/05/2019 remittance received for convertible debentures
issue of shares, and in accordance with
(ii) Delay in filing Form these Regulations
FC-GPR after issue of should report to the
shares. Reserve Bank of India
as per the prescribed
Brief- The applicant procedure not later
company had reported than 30 days from the
the remittances date of receipt of the
amounting to Rs. amount of
138,00,000 received consideration
from its foreign investor, Paragraph 9(1)(A) of
Dubai, on three Schedule 1 to FEMA
occasions with delay 20/2000-RB (the
ranging from 8 months provision is not
and 24 days to 1 year applicable now).
beyond the prescribed
period, (The reporting of An Indian company
remittance in ARF within issuing shares or
30 days is done away convertible debentures
with now) or warrants in
accordance with these
The applicant had Regulations shall
reported the allotment of submit through AD
shares to its foreign bank to the Regional
investor on three Office concerned of the
occasions with delay Reserve Bank under
ranging from 8 months whose jurisdiction the
and 25 days to 11 Registered office of the
months and 23 days company operates, not
beyond the prescribed later than 30 days from
period. the date of issue of
shares or convertible
debentures or
warrants, a report in
Form FC-GPR together
with documents
prescribed therein.

Paragraph 9(1)(B) of
Schedule 1 to FEMA
20/2000-RB

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C.A. BGL Delay in allotment of if the shares are not ₹ 31,500
306/2018 shares to the foreign issued within 180 days
dated- investors, persons from the date of receipt
30/10/2018 resident outside India, of the inward
beyond 180 days of remittance, the amount
receipt of the inward of consideration so
remittances. received shall be
Brief- The company had refunded or shares to
received inward be issued to the person
remittances of concerned, provided
Rs. the Reserve Bank may,
4,96,321.58, and Rs. on an application made
3,678.84, amounting to to it and for sufficient
Rs. 5,00,000.42, from reasons permit to issue
the foreign investor in shares or refund the
USA, on April 05, 2016, amount of
and October 13, 2016, consideration received
respectively. towards issue of
security.
Company allotted 50,000 Paragraph 8 of
equity shares for a total Schedule 1 to
consideration of Notification No. FEMA
Rs.5,00,000.00, on May 20/ 2000-RB, read
26, 2017, to the foreign with A.P. (DIR Series)
investor, beyond 180 Circular No.20 dated
days from the date of December 14, 2007.
receipt of inward
remittances, with prior (Now the time limit is
approval of Reserve 60 days for allotment
Bank of India, and 15 days from the
60 days for refund,
from the date of the
remittance).

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CA No. Divestment with write off
4868/2019 without fair value.
Date- Brief-The applicant
11/07/2019 company had set up a
WOS abroad and
invested in the share
capital of the WOS. As
the business was not
successful, the WOS
was wound up with write
off without arriving at the
valuation of the shares.
The Indian party can ₹ 54,764
transfer shares held in
an overseas entity, to
another Indian Party or
to a person resident
outside India, any
security held by it in a
JV or WOS outside
India subject to the
condition that- if the
shares are not listed on
a stock exchange and
the shares are
disinvested by a private
arrangement, the share
price is not less than
the value certified by a
CA/CPA as the fair
value of the shares
based on the latest
audited financial
statements of the
JV/WOS.
Regulation 15(i) and
16((1)(iii) of Foreign
Exchange
Management
(Transfer or issue of
any Foreign Security)
Regulations, 2004,
notified vide
Notification No. FEMA
120/2004-RB dated
July 7, 2004 as
amended from time to
time.
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CA No. Transfer of foreign
4852/2018 security without sale to
Date- wife without RBI
21/06/2019 approval.
Brief– The applicant, a
resident individual,
worked with an Indian
company and was
rewarded 8000 shares of
its overseas entity in
London, to be issued in
two tranches. The
consideration for the
reward of shares
equivalent to face value
INR 17,532 was
deducted from his salary.
As per the option
available in the reward
plan, the applicant
named his wife as
nominee for 3,000
shares out of 4,000
shares to be received in
the second tranche and
subsequently shares
were allotted in the
name of the wife.
Since, the nomination
was done without the
prior permission of the
RBI, it is in contravention
of the Regulations.
C.A. No. Allotment of shares to
BGL410/2019 persons resident outside
Date- India, prior to receipt of
6/08/2019 inward remittances
Brief– The Company
had allotted 250,000
shares worth Rs.
25,00,000 in two
tranches. However the
amount of consideration
for the allotment of the
shares was received
after the date of
allotment of shares.
A person resident in ₹ 16,108
India may transfer the
foreign security
acquired only by way of
sale.
Regulation 22 (4) read
with Regulation 3 of
the FEM (Transfer or
issue of any Foreign
Security)
Regulations, 2004
notified vide
notification no. FEMA
120/2004-RB dated
7/07/2004.
Capital instruments ₹ 62,500
shall be issued to the
person resident outside
India making such
investment within sixty
days from the date of
receipt of the
consideration.
Paragraph 2 of
Schedule 1 to
Notification No. FEMA
20 (R)/2017- RB,
dated November 07,
2017.
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C.A. No. Transfer of shares from A person resident in ₹ 22,925
928/2019 resident to non-resident India who proposes to
Date- by way of gift without transfer to a person
27/08/2019 Reserve Bank’s resident outside India
approval. any security by way of
Brief- The applicant, an gift shall make an
individual is a resident application to Reserve
shareholder in a private Bank for its approval.
limited company in India. Regulation 10A(a)(i)
He transferred 180 of Notification No.
equity shares of face FEMA 20/2000-RB.
value ₹ 10 each to non-
resident, at a notional
value of ₹ 10,626 per
share by way of gift
without Reserve Bank’s
approval.

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C.A. BGL Delay in refund of share Delay in allotment of ₹ 137
378/2019 application money and shares and delay in
Date- delay in allotment of refund of excess share
17/06/2019 shares beyond 180 days application money,
from the date of receipt beyond 180 days from
of inward remittance, to the date of receipt of
a person resident inward remittance.
outside India Paragraph 8 of
Brief- The applicant had Schedule 1 to
received funds towards Notification No. FEMA
share application money 20/2000-RB.
from the non-resident
investors. (Now the time limit is
60 days for allotment
The company had and 15 days from the
received inward 60 days for refund,
remittances amounting from the date of the
to ₹19,26,963.50, in remittance).
three tranches. The
company had allotted
250 equity shares worth
₹19,23,000.00, on June
22, 2017, against the
amount of consideration
of ₹19,26,963.50, and
leaving behind an
excess share application
money of ₹3,963.50.
Subsequently, the
excess amount of
₹3,963.50, was refunded
to the investor on
November 09, 2018,
beyond the stipulated
period of 180 days from
the date of inward
remittance, with prior
approval of Reserve
Bank of India. The
approval was given vide
Reserve Bank’s Letter
FE.BG.FID.No.
1257/21.10.304/2018-
19, dated October 26,
2018.

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C.A.111/2019 Delay in refund of share
Dated- application money
9/08/2019 beyond the stipulated 75
days of the receipt of
inflow to a person
resident outside India
Brief– The applicant had
received foreign inward
remittances towards
subscription to equity
shares from a foreign
investor, but did not allot
any share to the foreign
investor and returned the
money.
The inward remittance of
Rs. 1,92,863 was
refunded with a delay of
217 days.
If the capital ₹ 50,643
instruments are not
issued by the Indian
company within sixty
days from the date of
receipt of the
consideration, the
amount so received
has to be refunded to
the person concerned
by outward remittance
through banking
channels or by credit to
his NRE/ FCNR(B)
accounts, as the case
may be, within fifteen
days from the date of
completion of sixty
days.
Para 2(2) of Schedule
1 to Notification No.
FEMA 20(R)/2017-RB
dated November 7,
2017.
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 C.A. No.93 Acquisition of No person resident ₹ 29,25,000
/2019 immovable properties outside India shall
Dated- (agricultural land) in transfer any immovable
20/05/2019 India by an NRI without property in India,
RBI permission. provided that the
Brief– a Non-resident Reserve Bank may, for
Indian acquired six sufficient reasons,
pieces of agricultural permit the transfer,
land in Gujarat between subject to such
September 11, 2003 and conditions as may be
October 19, 2007 by way considered necessary.
of purchase for a total 8 of Foreign
consideration of ₹ Exchange
9,75,000, without Management
obtaining prior (Acquisition and
permission of Reserve Transfer of
Bank of India. And the Immovable Property
properties were in India) Regulations,
transferred by him on 2000 notified vide
October 3, 2018. Notification No.
FEMA. 21/2000-RB
dated 3rd May 2000,
as amended from
time to time, read
with Regulation 3(a)
of Notification No.
FEMA.21 /2000-RB
dated May 03, 2000.

A person resident
outside India who is a
citizen of India may
acquire any immovable
property in India other
than agricultural /
plantation / farm house.

Regulation 3(a) of
Notification No.
FEMA.21 /2000-RB
dated May 03, 2000.

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CA No 4890 / (i) Delay in reporting the
2019. issuance of shares
Dated- under the Employee
11/07/2019 Stock Options Plans
(ESOP) beyond the
stipulated time period,
and
(ii) Delay in reporting the
issuance of bonus
shares beyond the
stipulated time period.
Brief– The applicant
company issued 35000
shares under ESOP
(value – Rs.
1,96,00,000/-) on
20/05.2014, to foreign
nationals/ Non-resident
Indians (NRIs), but
delayed the reporting of
the same, beyond the
stipulated time period.
Further, the applicant
delayed in reporting the
issuance of bonus
shares (total value – Rs.
40,12,500/-) beyond the
stipulated time period,
In terms of ₹ 24,750
Regulation 8(3) of
Notification No.
FEMA. 20/ 2000-RB,
which dealt with ‘Issue
of shares under
Employees’ Stock
Options Scheme to
persons resident
outside India’, as then
applicable, “The
issuing company shall
furnish to the Reserve
Bank, within thirty days
from the date of issue
of shares under the
scheme, a report…..”.
Regulation 6B of the
above mentioned
Notification, “A
company issuing right
shares or bonus shares
or warrants in terms of
these Regulations shall
report to the Reserve
Bank in Form FC-GPR
as stipulated in
Paragraph 9(1)(B) of
Schedule 1 to these
Regulations”.
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 C.A. No.90 Acquisition of immovable No person resident ₹ 30,00,000
/2019 property by non-resident outside India shall
dated- foreign national in India transfer any immovable
26/02/2019 without RBI permission. property in India,
Brief– The applicants Provided that the
were non-resident Reserve Bank may, for
foreign citizens of non- sufficient reasons,
Indian origin at the time permit the transfer,
of acquisition of the subject to such
property. They acquired conditions as may be
a plot and residential considered necessary.
building on the same plot Regulation 8 of
in Kerala. Foreign Exchange
Management
The applicants were (Acquisition and
advised by RBI, Kochi Transfer of
vide letter no. Immovable Property
KOC.FED.NRFAD / 1125 in India) Regulations,
/ 65.27.015/2016-17 2000 notified vide
dated October 5, 2016 to Notification No.
sell the property under FEMA. 21/2000-RB
reference to a person dated May 03, 2000 as
resident in India within amended from time to
six months. As advised, time.
the property under
reference was sold on
April 19, 2017 for a total
consideration of ₹
75,00,000 to a company
incorporated in India.

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CA No. NDL Delay in reporting A person resident ₹ 30
393/2019. transfer of shares from outside India, may
Dated- Non-Resident to transfer share or
15/07/2019 Resident in Form FC- convertible debenture
TRS. of an Indian company,
Brief- The applicant, a without the prior
resident trust, had permission of the
acquired 380 equity Reserve Bank, by way
shares of an Indian of sale, to a person
company from a resident in India
company in Mauritius, a subject to the
non-resident company adherence to pricing
on December 29, 2016 guidelines,
for a consideration of Rs. documentation and
380/- paid on December reporting requirements
29, 2016. The applicant for such transfers as
reported the transfer of may be specified by
the said shares in Form Reserve Bank from
FC-TRS on September time to time. And, in
26, 2018. There was, terms of paragraph 10
thus, a delay of 1 year of Schedule 1 to FEMA
and 7 months in 20/2000-RB, in case of
reporting the transfer of transfer of shares of an
shares beyond the Indian company by way
prescribed time period of of sale from a person
60 days from the date of resident in India to a
payment of the amount person resident outside
of consideration. India or vice versa, the
transferor/ transferee,
resident in India, shall
submit to the AD bank
a report in the Form
FC-TRS, as specified
by the Reserve Bank
from time to time,
within 60 days from the
date of receipt or
payment of the amount
of consideration. The
onus of submission of
the Form FC-TRS
within the specified
time shall be on the
transferor/ transferee,
resident in India.
Regulation 10B(2) of
FEMA 20/2000-RB.

C. A. 915/2019 (i) Prior approval was not A person resident in ₹ 10,01,560

Dated- sought from Reserve India who proposes to
27/08/2019 Bank in transfer of transfer to a person
shares from resident to resident outside India
non-resident by way of any security by way of
gift. gift shall make an

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 (ii) The face value of the
shares transferred by
way of gift exceeds 5%
of the paid up capital of
the Indian Company.
(iii) The value of security
to be transferred by the
donor together with any
security transferred to
any person residing
outside India as gift in
the calendar year
exceeds the rupee
equivalent of USD
25000/-
Brief-The applicant, an
individual is a resident
shareholder in the
private limited company
in India.
The applicant transferred
by way of gift 82000
equity shares of face
value ₹100/- each to the
Non-Resident, at a
notional share value of
₹190.93/- without
Reserve Bank’s
approval. Total
consideration involved
was Rs. 1,56,56,260 and
the date of transfer being
16/05/2010.
CA No. 4910 / Where a person
2019 date- committing a
26/07/2019 contravention of any of
the provisions of this Act
application to Reserve
Bank for its approval.
Regulation 10A(a)(i)
of Notification No.
FEMA 20/2000-RB.
A person resident in
India who proposes to
transfer to a person
resident outside India
any security by way of
gift shall make an
application to Reserve
Bank and Bank may
grant such approval on
being satisfied of the
condition that the gift
does not exceed 5% of
the paid-up capital of
the Indian company.
Regulation 10A(a)(ii)
(b) of Notification No.
FEMA 20/2000-RB.
A person resident in
India who proposes to
transfer to a person
resident outside India
any security by way of
gift shall make an
application to Reserve
Bank and Bank may
grant such approval on
being satisfied of the
condition that the value
of security to be
transferred by the
donor together with any
security transferred to
any person residing
outside India as gift in
the calendar year does
not exceed the rupee
equivalent of USD
25000.
10A (a)(ii)(e) of
Notification No. FEMA
20/2000-RB.
Where a person ₹ 36,563
committing a
contravention of any of
the provisions of this
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or of any rule, direction Act or of any rule,
or order made there direction or order made
under is a company, there under is a
every person who, at the company, every person
time the contravention who, at the time the
was committed, was in contravention was
charge of, and was committed, was in
responsible to, the charge of, and was
company for the conduct responsible to, the
of the business of the company for the
company as well as the conduct of the
company, shall be business of the
deemed to be guilty of company as well as the
the contravention and company, shall be
shall be liable to be deemed to be guilty of
proceeded against and the contravention and
punished accordingly. shall be liable to be
Brief- The applicant was proceeded against and
a Director of an Indian punished accordingly.
company during the Section 42(1) of
relevant period when the FEMA, 1999
company had failed to
comply with the
conditions which were
stipulated for receiving
foreign investments and
failure to bring the
shareholding in line with
Regulation 5(1)(i) read
with para F.8 of Annex B
to Schedule 1 of
Notification No. FEMA
20/2000-RB (with
respect to four
shareholders – the total
amount of contravention
being Rs. 11,56,28,928)
within the time period
given by Foreign
Investment Promotion
Board (FIPB), Ministry of
Finance, Government of
India. This non-
adherence resulted in
contravention of the
provisions contained in
the above mentioned
Regulation by the
company, for which it
was compounded vide
Compounding Order
dated January 23, 2018.

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CA No 4871 / Extending loan without An Indian Party may ₹ 1,39,366
2019 any equity contribution, extend a loan or a
Dated- to overseas Joint guarantee to or on
10/07/2019 Venture (JV), without behalf of the Joint
prior approval of the Venture/ Wholly Owned
Reserve Bank of India, Subsidiary abroad,
Brief- The applicant within the permissible
company had set-up an financial commitment,
overseas JV, in provided that the Indian
Mozambique, under ODI Party has made
on April 22, 2008. The investment by way of
applicant company contribution to the
remitted an amount of equity capital of the
USD 275,000 (INR Joint Venture.
1,19,15,500) in three Regulation 6(4) of
tranches from Notification No.
26.02.2008 to FEMA. 120/2004-RB,
26.09.2008, as project as then applicable.
advance. Subsequently,
in June 2009, the
applicant company
decided to quit the
project due to
uncertainty around
allotment of land. No
shares were issued
against the remittances
sent, and these
remittances were treated
as loans/ advances by
the applicant company.
The money has now
been brought back into
India and the UIN has
been closed on
07.05.2019.

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 C.A. No. 85 Transfer of funds from Permissible debit of ₹ 113,758
/2019 dated- NRE account to ordinary NRE account is
18/03/2019 savings account. transfer to NRE /
Brief- The applicant, FCNR (B) accounts of
being an individual is an the account holder or
OCI and a person non- any other person
resident in India The eligible to maintain
applicant opened and such account are
maintained ordinary stated in Regulation
saving bank account 4(C) of Schedule 1 to
with ICICI Bank ltd and Notification No.
Prime Co-operative FEMA. 5/2000-RB
Bank Limited. Being a dated 3rd May 2000.
non-resident he is not Regulations relating to
eligible to open and borrowing and lending
maintain an ordinary in rupees between a
saving account as per person resident in India
extant FEMA guidelines. and a person resident
outside India
The applicant has contravened.
granted a loan of ₹
1,39,01,100/- to his Regulation 4(i) and (ii)
friend, a person resident of Notification No.
in India in 5 stances FEMA. 4/ 2000 -RB
starting from 04.01.2013 dated 3rd May 2000
to 04.09.2014, from his as updated upto
ordinary savings account 20.09.2013.
maintained with ICICI
Bank, the amount
represented either
transfer of funds from his
NRE Account
maintained with HDFC
Bank or amount received
from LIC on his father’s
death.

For this purpose the

applicant has transferred
₹ 85,01,100/- from his
NRE Account
maintained with HDFC
Bank to his ordinary
savings account
maintained with ICICI
Bank.

He also charged 6%
interest per annum and
earned a total interest of
Rs. 35,94,988/-

Source- rbi.org.in

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Disclaimer: This article has been prepared in good faith on the basis of information
available on the date of publication without any independent verification. The Author does
not guarantee or warrant the accuracy, reliability, completeness or currency of the
information in this publication nor its usefulness in achieving any purpose. The Author will
not be liable for any loss, damage, cost or expenses incurred or arising by reason of any
person using or relying on information in this publication. Readers are requested to
consult a professional before taking any action.

(Author – Sonika Bharati, FCS, LLB, is a Company Secretary in Practice from Delhi
and can be contacted at sonika@akgadvisory.com)

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