Foreign Exchange (Compounding Proceedings) Rules, 2024
The Ministry of Finance (Department of Economic Affairs) vide its Notification dated 12th September, 2024 issued the Foreign Exchange (Compounding Proceedings) Rules, 2024 (“Amended Rules”) that supersede the Foreign Exchange (Compounding Proceedings) Rules, 2000 (“Erstwhile Rules”).
While a large portion of the Erstwhile Rules remains untouched, key changes have been incorporated under Rule 4, apart from a newly inserted Rule 14 and Rule 9 that further builds upon and enlarges the explanation provided under Rule 8 of the Erstwhile Rules.
The key changes brought about by the Amended rules are as under:
- Monetary Thresholds modified under Rule 4
- Under the Erstwhile Rules, Rule 4 elucidated certain monetary thresholds or sums involved in any contravention of any provision of the Foreign Exchange Management Act, 1999 (“Act”), other than a contravention of clause (a) of section 3 of the Act with the objective of determining the requisite compounding authorities of the Reserve Bank that would have the power to compound said contravention.
- The Amended Rules modify Rule 4 to the extent that these monetary thresholds have been significantly increased under the Amended Rules.
- A tabular comparison of the thresholds under the Erstwhile Rules and the Amended Rules is as under:
Compounding Authority (Officer of the RBI) | Limit of Sum involved in Contravention | |
Erstwhile Rules | Amended Rules | |
Assistant General Manager | Sum involved in contravention does not exceed INR 10 lakhs | Sum involved in contravention does not exceed INR 60 lakhs |
Deputy General Manager
|
Sum involved in contravention does not exceed INR 40 lakhs | Sum involved in contravention does not exceed INR 2.5 Crores |
General Manager
|
Sum involved in contravention does not exceed INR 1 Crore | Sum involved in contravention does not exceed INR 5 Crores |
Chief General Manager
|
Sum involved in contravention is INR 1 Crore or more | Sum involved in contravention is INR 5 Crores or more |
- Application Fees Increased under Rule 4 and Rule 5
- The fees for every application for compounding any contravention under Rule 4 and Rule 5 has been escalated from Rs 5000 to Rs 10,000 plus applicable GST.
- The language in the requisite sub rules has also been modified under the Amended Rules to enlarge the avenues through which payment may be made. As per the Erstwhile Rules the requisite amount was accepted only in the form of a demand draft. The Amended Rules provide payment by demand draft, or National Electronic Fund Transfer (NEFT), or other permissible electronic or online modes of payment.
- Insertion of Rule 9
A new Rule 9 has been inserted by the Amended Rules that builds upon and expands the explanation contained in Rule 8 of the Erstwhile Rules and categorically enlists certain cases wherein contraventions shall not be compounded. Rule 9 of the Amended Rules provides as under:
“9. Contraventions not to be compounded in certain cases. – No contravention shall be compounded,-
-
- where the amount involved is not quantifiable; or
- where the provisions of section 37A of the Act are applicable; or
- where the Directorate of Enforcement is of the view that the proceeding relates to a serious contravention suspected of money-laundering, terror financing or affecting the sovereignty and integrity of the nation, the compounding authority shall not proceed with the matter and shall remit the case to the appropriate Adjudicating Authority for adjudicating contravention under section 13; or
- where the Adjudicating Authority has already passed an order imposing penalty under section 13 of the Act; or
- where the compounding authority is of the view that the contravention involved requires further investigation by the Directorate of Enforcement to ascertain the amount of contravention under section 13 of the Act.”
- Insertion of Rule 14: Amended Rules not to be applied retrospectively
Rule 14 has been inserted vide the Amended Rules to specify that any compounding application pending before the compounding authority, on the date of commencement of the Amended Rules, shall be governed by the provisions of the Erstwhile Rules superseded herein.