Case Studies of Compounding under FEMA- Why Compliance is important unde...

COMPOUNDING UNDER
FEMA

Why Compliance is
important under FEMA?

When
an Indian company receive FDI from foreign country , it has to be reported by
filing Form FC-GPR to RBI within 30 days of allotment of shares through your AD.

When
shares are transferred between a non-resident and resident and vice-versa, it
has to be reported in FC-TRS within 60 days to RBI through your AD.

Below
is the List of important compliance to be followed under the provisions of
FEMA:

1.   
Annual Return on
Foreign Liabilities and Assets

2.   
Annual Performance
Report (APR)

3.   
External
Commercial Borrowings

4.   
Single Master Form
(w.e.f. 30.06.2018)

5.   
Advance Reporting
Form (ARF) (now merged with the FC-GPR)

6.    Form FC-GPR

7.    Form FC-TRS

8.   
Form ODI

Option Available for Rectification of Non-Compliances
under FEMA

If any omission or commission in reporting the above to
RBI by an Indian Company or LLP , it has two options to rectify the same:

1.   
Payment of LSF
(Late Submission Fee)

Or

2.   
Compounding

WHAT IS COMPOUNDING
?

Compounding
is the voluntarily admitting the contravention, pleading guilty and seeking
redressal.

Any
contravention of the Act, any rules, regulations, notification, orders,
directions, circulars issued thereunder can be compounded.

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.

Which Offences are
not compoundable?

Compounding
of offences under FEMA is not possible under section 3 (a) if the contravention
relates to 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 and  compounding may be applied suo moto or on making aware of the contravention by RBI,
or any other authority or by any other means.

Compounding
orders passed on or after June 1, 2019 are be published on the RBI’s website on
monthly basis.

Company’s Name	Contravention under FEMA	Fine Amount
Datamatics Global Services Ltd	Failure to file APR for ODI in WOS in Germany for 10 years (from 2007 to 2016)	₹ 7,72,500/-
Bennett Coleman & Co.Ltd	Failure to file APR for ODI in WOS The applicant company had also delayed the filing of its APRs with respect to its overseas JV for 8 years, i.e. from 2009 to 2016.	₹ 4,35,833/-
Everest Kanto Cylinder Ltd.	company failed to receive the amount of interest (USD 38,18,654) for multiple loan remittances due on various dates (from March 2008 to September 2018) from the overseas WOS within the prescribed time period of 60 days, company submitted the annual performance reports (APRs) for the years 2007, 2017 and 2018, with a delay	Rs 11,60,000/-
Indospace Capital Advisors Pvt Ltd	·     delay in reporting of receipt of inward remittances ·     delay in submission of Form FC-GPR ·     delay in refund of excess consideration ·     taking on record transfer of shares in the books of the company without certified FCTRS	V
Valcon Management Consultants Pvt Ltd	As above	₹6,91,115/-
Hydco Engineering Pvt. Ltd.	delay in issue of shares delay in filing the Annual Return in respect of the Foreign Liabilities and Assets	₹4,38,371/-
Shri Mohana R Velagapudi	Delay in filing FC-TRS	₹ 5,22,500/-
Puissant Towers (India) Pvt Ltd	₹Delay in reporting inward remittance and FC-GPR Rs 14,24,69,864.85	As per section 13 of the FEMA, RBI can levy penalty up to thrice the sum involved in such contravention. But levied only a fine of ₹8,71,049/
Yalamanchili Software Exports Ltd	ODI Reporting delays ranging from 8.4 years to 11.2 years. Delays of upto one year were observed in submission of Share-certificates on five occasions and all 11 APRs were submitted beyond the due date	₹ 2,72,499/-
Efficient Light Source Technologies Pvt Ltd.	2,21,61,250FC-GPR as indicated above with a delay of 13 years one month approximately beyond the stipulated time of 30 days.	₹12,95,000/
Shri K Gokhul Kalyana Sundaram	The applicant filed the Form FC TRS with a delay of one year three months approximately beyond the prescribed period of 60 days from the date of receipt of consideration	₹ 11,250/-
Healthcare Global Enterprises Limited (I)	Applicant was not eligible to raise ECB under the Automatic Route on the date of the transaction. AIC ceiling breached and LRN not obtained. Contravention of Regulation 6 of the Regulations	₹ 17,69,000/-
Atria Convergence Technologies Pvt. Ltd.	Non-reporting of downstream investments by the applicant to the Reserve Bank of India (RBI) – The applicant did not report its downstream investments (both direct and indirect) in the following Indian companies to the RBI subsequent to receiving indirect foreign investment from IVF III A in contravention of the provisions of Regulation 14(6)(ii)(a) of Notification No. FEMA 20/2000-RB read with A.P. (DIR Series) Circular No.01 dated July 04, 2013. Further downstream investments by the applicant were also not reported to the FIPB as prescribed. The period of contravention ranges from March 25, 2009 to the date of regularization by FIPB vide letter dated June 23, 2015 for the contravention amount of Rs.110,55,08,039/-	₹ 73,41,300/-
S. Narendra	Applicant engaged in the business of import and export of diamonds since approximately the last 50 years. The applicant had imported rough diamonds on credit, but did-not effect the re-payment within the stipulated period of 180 days Non-repayment of foreign currency credit, extended by the overseas supplier of goods, for a period exceeding six months on a couple of occasions. Sometimes, settlement of import dues may be delayed due to disputes, financial difficulties, etc. Authorised dealers may make remittances in such cases even if the period of six months has expired, one of the banks terminated their working capital limits abruptly, which prevented them from arranging working limits	₹ 4,55,726/-

Conclusion

•     Under Compounding , the
applicant and his advisor can appear in person and explain the reasons with the
RBI compounding officials which is not available under LFS.

•     I have seen a long list
of compounding orders in the RBI website. 
I wonder why Auditors of the company or Secretarial Auditors  have not pointed these FEMA issues in their
report. Had they reported , these violations could have been corrected at the
earlier stages and not after 10 years or so.

•     Like Secretarial or
Statutory Audit , FEMA Audit should be prescribed by RBI under FEMA  for those companies which has FDI, ODI , ECB
etc so that violations can be stopped at the initial stage itself.