Foreign exchange management act - regulations & notifications

FEMA

1. UNIT III
•ForeignExchangeManagementAct
•Regulations
•Notifications
•PressNotes
•MasterCirculars
•MasterDirections
•APDirSeries
•Offences
•FAQs

2. WHAT IS FEMA?
•Inthebustlingworldofglobalfinance,everycountryneedsasetofrulestomanage
itsforeignmoneymatters.ForIndia,thisrulebookiscalledFEMA,ortheForeign
ExchangeManagementAct.
•FEMAstandsfortheForeignExchangeManagementAct.Introducedinearly2000,it's
essentiallytherulebookthatgovernshowIndiadealswithforeignmoney.Thinkofit
asaguardianthatensuresallforeignmonetarytransactionsinIndiahappen
smoothlyandlegally.

3. WHY IS FEMA IMPORTANT?
•Theworldofinternationalfinanceisvastandcomplex.ForacountrylikeIndia,withits
burgeoningeconomyandglobalaspirations,managingforeignfinancialinteractionsis
crucial.ThisiswheretheForeignExchangeManagementAct,orFEMA,playsapivotal
role.
•StreamliningTransactions:Atitscore,FEMAisdesignedtostreamlineandregulateall
ofIndia'sforeignexchangetransactions.Forinstance,ifabusinessinPunewantstoimport
machineryfromGermany,therearecurrencyexchanges,payments,andseveralother
financialintricaciesinvolved.FEMAprovidesaclearframeworkforsuchtransactions,
ensuringtheyareconductedsmoothlyandwithinthelegalparameterssetbythecountry.
•ProtectingNationalInterests:FEMAisn'tjustaboutfacilitatingtransactions;it'salso
aboutsafeguardingIndia'sfinancialinterests.Bysettingguidelinesonforeign
investments,itensuresthattheinflowandoutflowoffundsbenefitthenation'seconomy
anddon'tleadtoanyunduevolatilityorfinancialstrain.

4. THE BIGGER ROLE OF FEMA
•AttractingForeignInvestment:Intoday'sglobalisedworld,countriescompetetoattractforeign
investors.Clearregulations,likethoseprovidedbyFEMA,makeIndiaanattractivedestination
forforeigncompaniesandinvestors.Theyknowwhattoexpectandunderstandtherulesofthe
game,makingthemmoreconfidentininvestingtheirmoney.
•EconomicStability:FEMAalsoplaysaroleinmaintainingIndia'seconomicstability.By
monitoringandregulatingforeigninvestmentsandtransactions,itensuresthattherearen'tany
abruptcapitalmovementsthatcoulddestabilisetheeconomy.
•EmpoweringIndividuals:Onapersonallevel,forindividualslikestudentsstudyingabroador
professionalsworkinginforeigncountries,FEMAprovidesguidelinesonhowtheycanmanage
theirearnings,savings,andinvestmentsinrelationtoIndia.
•Inessence,whileFEMAmightseemlikejustanotherpieceoflegislation,itsimpactis
profound.ItshapesIndia'sinteractionsontheglobalfinancialstage,ensuringclarity,stability,
andgrowth.

5. MAIN GOALS: WHAT FEMA AIMS TO
ACHIEVE
•TheForeignExchangeManagementAct(FEMA)standsasapivotalpieceof
legislationinIndia'sfinancialframework.Institutedin1999,itsobjectiveswereclear-
cutandaimedatmodernisingIndia'sapproachtoforeignexchangeinlinewithits
evolvingeconomicstature.

6. FacilitationofExternalTradeandPayments:AttheheartofFEMAwasthegoalto
simplifyandfacilitateexternaltradeandpayments.Dataunderscoresthisobjective:
•TradeGrowth:Post-liberalization,India'sexportswitnessedasignificantsurge.From
USD18billionin1991,theycatapultedtooverUSD50billionby2001.FEMA's
streamlinedprocessesplayedaroleinsupportingthisgrowth.
•EnsuringanOrderlyForeignExchangeMarket:Withtheglobaleconomicintegration,
India'sforeignexchangemarketneededstability.FEMAprovidedtheregulatory
frameworktoachievethis.
•CurrencyStability:TheIndianRupee,whichsawfluctuationsrangingfromINR32-49
againsttheUSDollarinthe90s,stabilisedtoanarrowerbandofINR45-48by2003,
reflectingthemarket'sorderlydevelopment.

7. AttractingandManagingForeignInvestment:FEMA'stransparentguidelineswere
instrumentalinmakingIndiaamagnetforforeigninvestments:
•FDIInflow:AtestamenttoFEMA'ssuccessinthisdomainistheFDIdata.Froma
modestinflowofUSD1billionin1992,IndiaattractedoverUSD10billionby2005,
markingatenfoldincrease.

8. SafeguardingInterestsofResidentIndians:ForthevastdiasporaofIndiansoverseas,
FEMAofferedclarityonmanagingforeignearningsandinvestments:
•NRIRemittances:TheconfidenceinFEMA'sframeworkcanbegaugedfromthe
remittancedata.Non-ResidentIndians(NRIs)remittedaroundUSD12billionin2000,
afigurethatrosetooverUSD20billionby2005.
•FEMAwasn'tjustaregulatorychange;itwasastrategicinitiative.Bysettingclear,
data-backedobjectivesandmeetingthem,FEMAsolidifiedIndia'spositioninthe
globaleconomicarena,ensuringthatthenation'sforeignexchangeactivitieswere
bothrobustandresilient.

9. OVERALL STRUCTURE
•TheoverallstructureofForeignExchangeManagementAct,1999iscoveredbylegislations,
rulesandregulations.Theselegislations,rulesandregulationsrelatingtoForeignExchange
ManagementAct,1999,canbedividedintothefollowings:
1.FEMAcontains7chaptersdividedinto49sections
2.5setsofRulesmadebyMinistryundersection46ofFEMA.
3.23setsofRegulationsmadebyRBIundersection47ofFEMA.
4.MasterCircularissuedbyReserveBankofIndiaeveryyear.
5.ForeignDirectInvestment(FDI)policyissuedbyDepartmentofIndustrialPolicyand
Promotion(DIPP)timetotime.
6.NotificationsandCircularsissuedbyReserveBankofIndia.
7.EnforcementDirectorate.

10. •FEMAcontains7Chaptersdividedinto49sectionsofwhich12sectionscover
operationalpartandtherest37sectionsdealwithcontraventions,penalties,
adjudication,appeals,enforcementdirections,etc.
•FEMAmakesprovisionsfordealingsinforeignexchanges.
•Broadly,allcurrentaccounttransactionsarefree.However,CentralGovernmentcan
imposereasonablerestrictionsbyissuingrules.
•ThecapitalaccounttransactionswillberegulatedbyRBI/CentralGovernmentfor
whichnecessarycirculars/notificationswillhavetobeissuedunderFEMA.

11. •AllchaptersofFEMAdividedinto49sections.BesidestheFEMA,thereare5Rules
and23regulationsundertheActwhichhelpinimplementationoftheActare
classifiedhere:
ChapterI:Preliminary(Section1&2)
ChapterII:RegulationandManagementsofForeignExchange(Section3-9)
ChapterIII:AuthorisedPerson(Section10-12)
ChapterIV:ContraventionsandPenalties(Section13-15)
ChapterV:AdjudicationandAppeal(Section16-35)
ChapterVI:DirectorateofEnforcement(Section36-38)
ChapterVII:Miscellaneous(Section39-49)

12. OVERALL SCHEME OF FEMA
•Section3ofFEMAprovidesthatmakinganypaymenttopersonnotresidentofIndiaandreceivingany
paymentfrompersonresidentoutsideIndia,acquiringanyassetoutofIndiaordealingwithforeign
currencyorforeignsecuritycanbeonlyaspergeneralorspecialpermissionofRBI.
•Section4ofFEMAprovidesthatnopersonresidentinIndiashallacquire,hold,ownorpossessortransfer
anyforeignexchange,foreignsecurityoranyimmovablepropertyoutsideIndiaonlyasperprovisionsof
FEMA.
•Broadly,allcurrentaccounttransactionsarefree.However,CentralGovernmentcanimposereasonable
instructionsbyissuingrules.[section5ofFEMA].
•CapitalAccountTransactionsarepermittedtotheextentspecifiedbyRBIorCentralGovernmentby
issuingregulations.[section6ofFEMA-powersrelatingtonon-debtcapitalaccounttransactionshave
beentransferredtoCentralGovernmentw.e.f.15-10-2019].
•FEMAenvisagesthatRBIwillhaveacontrollingroleinmanagementofforeignexchange.SinceRBIcannot
directlyhandleforeignexchangetransactions,itauthorises‘AuthorisedPersons’todealinforeign
exchangeasperdirectionsissuedbyRBI.[section10ofFEMA].
•RBIisempoweredtoissuedirectionstosuch‘AuthorisedPersons’undersection11ofFEMA.These
directionsareissuedthroughAP(DIR)circulars.
•FEMAalsomakesprovisionsforenforcement,penalties,adjudicationandappeals.

13. GENERAL RELAXATIONS FROM SECTION 3 OF
FEMA
•Receiving payment (a) made in Rupees when person resident outside India visits India
(b) by cheque, bank drafts, postal order (c) made in foreign currency out of India
•Making payment in Rupees (i) boarding, lodging and travelling and medical expenses
when person resident out of India visits India (ii) payment in Rupees for payment of gold
and silver brought in India as per law
•Making payment to person resident out of India for guarantee given as per law
•Payment by company to non whole time director when he visits India for his travel and
sitting fees
•Gift to NRI/OCI close relative by cheque/DD in his NRO account within LRS limit
•Loan in Rupees to NRI relative in Rupees by cheque

14. RULES
•As per section 46 of the Act, the Central Government may, by notification, make rules to carry out the provisions
of FEMA, 1999. Inter alia, such rules may provide for:
(a) the imposition of reasonable restrictions on current account transactions under section 5;
(b) the manner in which the contravention may be compounded under sub-section (1) of section 15;
(c) the manner of holding an inquiry by the Adjudicating Authority under sub-section (1) of section 16;
(d) the form of appeal and fee for filing such appeal under sections 17 and 19;
(e) the salary and allowances payable to and the other terms and conditions of service of the Chairperson and
other Members of the Appellate Tribunal and the Special Director (Appeals) under section 23;
(f) the salaries and allowances and other conditions of service of the officers and employees of the Appellate
Tribunal and the office of the Special Director (Appeals) under sub-section (3) of section 27;
(g) the additional matters in respect of which the Appellate Tribunal and the Special Director (Appeals) may
exercise the powers of civil court under clause (i) of sub-section (2) of section 28;
(h) the aggregate value of foreign exchange referred to in sub-section (1) of section 37A;]
(i)the authority or person and the manner in which any document may be authenticated under clause (ii) of
section 39; and
(j) any other matter which is required to be, or may be, prescribed.

15. •TheRulesmadebyCentralGovernmentundersection46ofFEMAare:
1.ForeignExchangeManagement(EncashmentofDraft,Cheque,Instrumentsand
PaymentofInterest)Rules,2000
2.ForeignExchangeManagement(AuthenticationofDocuments)Rules,2000
3.ForeignExchangeManagement(CurrentAccountTransaction)Rules,2000
4.ForeignExchangeManagement(AdjudicationsProceedingsandAppeal)Rules,2000
5.ForeignExchangeManagement(CompoundingProceedings)Rules,2000
6.ForeignExchangeManagement(Non-DebtInstruments)Rules,2019.
7.ForeignExchangeManagement(OverseasInvestment)Rules,2022.

16. The main functions of RBI under FEMA are as follows –
(a)Controloverdealingsinforeignexchangebygivinggeneralorspecialpermissionfordealinginforeign
exchange,excludingthosecaseswherespecificprovisionshavebeenmadeinAct,rulesorregulations–section3of
FEMA
(b)RBIcannotimposeanyrestrictionsoncurrentaccounttransactions.ThesecanbeimposedonlybyCentral
GovernmentinconsultationwithRBI–section5ofFEMA.
(c)Specifyingconditionsforpaymentinrespectofcapitalaccounttransactioninvolvingdebtinstruments–section
6(2)ofFEMA[powersinrespectofnon-debtinstrumentsarewithCentralGovernmentw.e.f.15-10-2019].
(d)Regulate/prohibit/restrictspecifiedtransactionsinforeignexchange–section6(3)ofFEMA
(e)Specify(byregulation)periodandmannerinwhichforeignexchangeduefromexportofgoodsandservices
shouldbereceived–section8
(f)Tograntexemptionfromrealisationandrepatriationincasesspecifiedu/s9[Thesecoverprovisionsinrespectof
possessionofforeigncurrencyorforeigncoins,foreigncurrencyaccounts,foreignexchangeacquiredfrom
employment,business,trade,servicesetc.]
(g)Grantingauthorisationto‘AuthorisedPerson’todealinforeignexchange,togivedirectionstothemandtoinspect
theauthorisedperson–sections10,11and12.
(h)Tomakeregulations–section47
(i)AdministerFEM(Non-debtInstruments)Rules,2019

17. REGULATIONS
Section 47 of the FEMA empowers the RBI to make regulations to carry out the provisions of FEMA, 1999. Such regulations may
provide for:
(a) For Capital Account transaction:
•the permissible classes of capital account transactions,
•the limits of admissibility of foreign exchange for such transactions,
•and the prohibition, restriction or regulation of certain capital account transactions under section 6;
(b) the manner and the from in which the declaration is to be furnished under clause (a) of sub-section (1) of section 7;
(c) the period within which and the manner of repatriation of foreign exchange under section 8;
(d) the limit up to which any person may possess foreign currency or foreign coins under clause (a) of section 9;
(e) the class of persons and the limit up to which foreign currency account may be held or operated under clause (b) of section 9;
(f) the limit up to which foreign exchange acquired may be exempted under clause (d) of section 9;
(g) the limit up to which foreign exchange acquired may be retained under clause (e) of section 9;
(h) export, import or holding of currency or currency notes;
(i) any other matter which is required to be, or may be specified.

18. •TheRegulationsmadebyReserveBankofIndiaundersection47ofFEMAare:
1.ForeignExchangeManagement(AcquisitionandTransferofImmovablePropertyOutsideIndia)Regulations,2000
2.ForeignExchangeManagement(BorrowingandLendinginRupees)Regulations,2000
3.ForeignExchangeManagement(BorrowingandLendinginForeignExchange)Regulations,2000
4.ForeignExchangeManagement(Deposit)Regulations,2000
5.ForeignExchangeManagement(ExportandImportofCurrency)Regulations,2000
6.ForeignExchangeManagement(Guarantees)Regulations,2000
7.ForeignExchangeManagement(IssueofSecurityinIndiabyaBranch,OfficeorAgencyofaPersonResidentOutside
India)Regulations,2000
8.ForeignExchangeManagement(AcquisitionandTransferofImmovablePropertyinIndia)Regulations,2000
9.ForeignExchangeManagement(EstablishmentinIndiaofBranchorOfficeorOtherPlaceofBusiness)Regulations,
2000
10.ForeignExchangeManagement(ExportofGoodsandService)Regulations,2000
11.ForeignExchangeManagement(ForeignCurrencyAccountsbyaPersonResidentinIndia)Regulations,2000
12.ForeignExchangeManagement(Insurance)Regulations,2000
13.ForeignExchangeManagement(InvestmentinFirmorProprietaryConcerninIndia)Regulations,2000
14.ForeignExchangeManagement(MannerofReceiptandPayment)Regulations,2000

19. 15. Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000
16. Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2000
17. Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Currency) Regulations, 2000
18. Foreign Exchange Management (Remittance of Assets) Regulations, 2000
19. Foreign Exchange Management (Transfer or Issue of Security by a Person resident Outside India) Regulations, 2000
20. Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000
21. Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004
22. Foreign Exchange Management (Offshore Banking Unit) Regulations, 2002
23. Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs) ) Regulations, 2003.
24. Foreign Exchange Management (Crystallization of Inoperative Foreign Currency Deposits) Regulation, 2014.
25. Foreign Exchange Management (International Financial Services Centre) Regulation, 2015.
26. Foreign Exchange Management (Regularization of Assets held Abroad by a Person Resident in India) Regulations, 2015.
27. Foreign Exchange Management (Debt Instruments) Regulations, 2019.
28. Foreign Exchange Management (Overseas Investment) Regulations, 2022.
29. Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2015.
30. Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2015.
31. Foreign Exchange Management (Remittance of Assets) Regulations, 2016.
32. Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 subsumed in Foreign Exchange Management (Overseas Investment) Rules,
2022 w.e.f. 22 August, 2022.
33. Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 subsumedinForeign Exchange Management (Non-
Debt Instruments) Rules, 2019.

20. AUTHORITIES AND ENFORCEMENT
MACHINERY
•FEMAinitselfisnotanindependentandisolatedlaw.TheprovisionsofFEMAare
spreadatdifferentplaceandsothereareregulatorybodies.ReserveBankofIndia
makesRegulationsforFEMAandtheRulesaremadebyCentralGovernment.
AuthoritiesgoverningtheenforcementofFEMAare:
1.ForeignExchangeDepartmentofReserveBankofIndia.
2.DirectorateofEnforcement,DepartmentofRevenue,MinistryofFinance.
3.CapitalMarketDivision,DepartmentofEconomicAffairs,MinistryofFinance.
4.ForeignTradeDivision,DepartmentofEconomicAffairs,MinistryofFinance.

21. MACHINERY RESPONSIBLE FOR VARIOUS
ASPECT OF FEMA IS:
1.EnforcementDirectorate:ToinvestigateprovisionsoftheAct,theCentral
Government,haveestablishedtheDirectorateofEnforcementwithDirectorsandother
officersasofficersoftheEnforcement.
2.AdjudicatingAuthorities:TheAdjudicatingAuthoritieswillissueanoticetothe
personwhohascontravenedtheprovisionsoftheForeignExchangeManagementAct,
Rules,Regulations,NotificationsoranydirectionsissuedbytheRBI.

22. 3.SpecialDirector(Appeals):AnypersonaggrievedbyanordermadebytheAdjudicating
Authority,beinganAssistantDirectorofEnforcementoraDeputyDirectorofEnforcement
canpreferanappealtotheSpecialDirector(Appeals.)
4.AppellateTribunal:Anypersonaggrievedbyanordermadebytheadjudicating
Authority,ortheSpecialDirector(Appeals)canpreferanappealtotheAppellateTribunal.
•FEMAenvisagesthatRBIshallhavecontrollingroleinmanagementofforeignexchange.
SinceRBIcannotdirectlyhandleforeignexchangetransactions,itauthorizes“Authorised
Persons”todealinforeignexchangeasperdirectionissuedbyRBI.RBIisempoweredto
issuedirectiontosuch“AuthorisedPersons”.TheseDirectionsareissuedthroughAP(DIR)
Circulars.(APstandforAuthorisedPersonandDIRstandforDirections)

23. BASIC GUIDELINES OF FEMA
1. Regulation of Foreign Exchange Transactions
•AuthorisedChannels:FEMAmandatesthatallforeignexchangetransactionsbe
routedthroughauthorisedpersons.Asof2022,therearemorethan2,500authorised
dealers(ADs)licensedbytheReserveBankofIndia(RBI)tohandleforeign
exchange.
•Example:IfastartupinMumbaiwishestopayforsoftwareservicesfromtheUS,the
paymentmustbeprocessedthroughtheseADs,ensuringtransparencyand
compliance.

24. 2.MandatoryReporting:Significantforeignexchangetransactions,beitaheftyinvestment
orasizabletradedeal,mustbereportedtotheRBI.InJune2023,Indiareportedforeign
exchangereservesworthoverUSD600billion,highlightingthescaleofoperationsunder
FEMA'spurview.
3.DirectivesonForeignDirectInvestment(FDI)
•SectoralCaps:FEMAprovidesclearguidelinesonFDIlimitsacrosssectors.Forinstance,
theaviationsectorhasa49%FDIcap,whilethetelecomsectorallowsupto100%.
•RepatriationNorms:WhileIndiaattractedFDIworthUSD71billionintheFinancialYear
2022-23,FEMAensuresthatprofitsanddividendsfromsuchinvestmentscanbesentback
totheinvestor'shomecountry,followingspecificprocedures.

25. 4. Property Transactions for NRIs and PIOs
•Buying Property: While NRIs and PIOs can purchase residential and commercial
properties in India, agricultural land is off-limits. In 2018, property investments by
NRIs stood at a staggering USD 10.2 billion. Example: An NRI based in London can
buy an apartment in Bangalore but cannot purchase farmland in Punjab.
•Selling Off: While selling property, the funds, especially if they're to be sent abroad,
must adhere to certain conditions, ensuring the money is clean and accounted for.

26. 5.BankingDirectivesforNRIs
•TypesofAccounts:FEMAoutlinestherulesforNRIaccountslikeNRE,NRO,and
FCNR.Asof2020,depositsinNREaccountsalonesurpassedUSD130billion.
•LoanProvisions:WhileNRIscantakeloansagainsttheirdeposits,thereare
restrictions.Forinstance,theloanamountcannotbeusedforrelendingor
agriculturalactivities.
6.OffencesandTheirRepercussions
•Penalties:Non-compliancewithFEMAcanbecostly.In2019,penaltiesworthINR
1,200crorewereleviedonvariousentitiesforFEMAviolations.

27. PENAL PROVISIONS
•Governed by Chapter IV viz. Contravention and penalties.
-Sec 13: Penalties.
-Sec 14: Enforcement of the order of the Adjudication Authority.
-Sec 15:Powers to Compound contravention RBI / DoE [A.P(Dir ) No. 56/2010)].
-Sec 49: Sunset clause [ FERA violations]

28. Section 13 –Contravention of
•Act
•Rules,
•Regulations,
•Notifications,
•Directions or
•Orders

29. PENALTIES –AS PRESCRIBED UNDER
SEC.13
•Uptothricethesuminvolvedinsuchcontraventionwheresuchamountis
quantifiable.
•Oruptotwolakhrupeeswheretheamountisnotquantifiable.
•Andwheresuchcontraventionisacontinuingone,furtherpenaltywhichmayextend
tofivethousandrupeesforeverydayafterthefirstdayduringwhichthe
contraventioncontinues.

30. METHODS TO DEAL WITH
CONTRAVENTIONS
•Compounding ;
•Adjudication ;
•Appeals ;
•FERA contraventions : Sun set clause;
•Contraventions by AuthorisedPersons

31. COMPOUNDING OF CONTRAVENTION
•Settleanoffencecommittedbythecontravenerthroughimpositionofamonetary
penaltywithoutgoinginforlitigationafterthecontraveneracknowledgesvoluntarily
havingcommittedthecontravention
•Powerstocompound(Section15)–anycontraventionunderSection13may,on
applicationmadebythepersoncommittingsuchcontravention,becompounded
within180daysfromthedateofapplicationby–
•DirectorateofEnforcement.
•ReserveBankofIndia.

32. RESERVE BANK :
•Sec.3 –Dealing in Foreign Exchange
•Sec.4 –Holding of foreign currency
•Sec.5 –Current account transactions
•Sec.6 –Capital account transactions
•Sec.7 –Export of goods and services
•Sec.8 –Realisation and repatriation of FE
•Sec.9 –Exemption from realisation & repatriation
•Sec.10.6 –Mis-utilisation of FE
DIRECTORATE OF ENFORCEMENT :
•Sec.3(a) i.eHawala transactions

33. NOT COMPOUNDABLE
IfanappealunderSec.17or19ofFEMAfiled;
•Thecontraventionisnotquantifiable;
•AcontraventionhasbeenfinallyadjudicatedanddisposedoffbytheAdjudication
Authority;
•Contraventionsrelatedtoanytransactionwithoutproperapprovalorpermission
formtheconcernedGovt.oranyStatutoryAuthority:therequisiteapprovalnot
obtained;
•Acontravention,primafacie,involvesmoneylaundering,security,etc.,&needs
investigation

34. DETECTION OF CONTRAVENTION
•Voluntary disclosure;
•Analysis of data;
•Market Intelligence;
•RBI’s inspections;
•Others –Media reporting / complaints.

35. COMPOUNDING PROCESS
•Receipt of application;
•Receipt of fees;
•Examination by RBI;
•Calling for additional documents, if required;
•Opportunity of personal hearing;
•Passing of Compounding Order;
•Payment of penalty; and
•Issuance of Certificate for payment of penalty.

36. •Thecompoundingapplicationisdisposedofonmerits,uponconsiderationof
recordsandsubmissionsmadebytheapplicantintheapplicationaswellasduring
thepersonalhearingandattheabsolutediscretionoftheCompoundingAuthority.
•CompoundingAuthorityactsunderthesupervisionoftheGovernoroftheRBI.

37. FINANCIAL IMPLICATIONS
•Violationscanattractpenaltiesuptothreetimesthecontraventionamount.For
instance,anunauthorisedforeigntransactionofINR10crorecouldleadtofinesofup
toINR30crore.In2018,theAdaniGroupwasreportedlyfinedalargeamountfor
FEMAcontraventionsrelatedtotheirpowerproject.
1.CompoundingRoute:TheRBIoffersaresolutionmechanismwherecertainviolations
canbesettledwithoutlitigation.In2016,thepopulare-commerceplatform,Flipkart,
facedacompoundingapplicationforallegedbreachesofFEMAregulations.In2019,
theRBIcompoundedover1,500cases,collectingfinesofapproximatelyINR150crore.

38. 2.LegalConsequences
StructuredAdjudication:FEMAviolationsundergoarigorousadjudicationprocess.If
unsatisfiedwiththeinitialdecision,entitiescanappealtohigherauthorities,ensuringa
fairassessment.Inthepastfiveyears,over60%ofappealedcasessawareductionin
penaltiesafterreassessment.Vodafone,initslong-standingdisputewithIndian
authorities,hasoftennavigatedtheFEMAadjudicationprocessregardingits
acquisitionofHutchisonEssar.
3.AssetSeizure
PropertyatRisk:Graveviolationscanleadtoassetconfiscation.Forexample,acquiring
apropertyabroadwithoutnecessarypermissionscouldresultintheseizureofan
equivalentpropertyinIndia.Inalandmarkcase,propertiesoftheSaharaGroupwere
attachedduetoFEMAviolationslinkedtotheiroverseashotels.
4.JailTerms:Deliberateevasionorfraudcanleadtoimprisonment.Dependingonthe
violation'smagnitude,jailtermscanrangefromonetofiveyears.

39. 5.ReputationalFallout
TrustDeficit:Beyondlegalandfinancialrepercussions,FEMAviolationscantarnishan
entity'sreputation.Suchentitiesmightfacechallengesinsecuringpartnerships,
investments,orevencustomertrust.TheKingfisherAirlinesdebacle,whereFEMA
violationswereamongthemanycharges,ledtoasignificanterosionofthebrand's
trustandvalue.
•FEMA'sguidelinesareclear,andtheconsequencesofviolationsarestringent.For
businessesandindividuals,adherenceisn'tjustaboutcompliance;it'sabout
upholdingastandardoftransparencyandintegrityintheglobaleconomicarena.

40. •https://www.taxmann.com/post/blog/introduction-to-overseas-investments-in-
foreign-entities/