In this blog post, Dhiren Sehgal, a recent graduate of Jindal Global Law School and currently a student of the Diploma in Entrepreneurship Administration and Business Laws course by National University of Juridical Sciences (NUJS), Kolkata and iPleaders, discusses the penalties for non-adherence of FDI regulations.

Penalty

On violation or contravention of any of the FDI regulations, then by way of non-adherence or breach or contravention of any rule or regulation or any notification/circular or press release; even if it’s an order which has been issued via exercising of the powers which has been given by the virtue of the FEMA provisions; or if there is a contravention of any conditions which have been authorized by the Government of India/ Foreign Investment Promotion Board (FIPB) or by the Reserve Bank of India for that matter, then he shall be liable, upon adjudication, to a penalty up to thrice the sum involved in the act of non-adherence where the sum can be quantified or determined. In cases where the sum isn’t quantifiable or can’t be determined then a sum of up to Two Lakh Rupees.

In cases where the non-adherence is of a continuing nature then, a further penalty is inflicted which may extend to rupees five thousand per day, the contravention or non-adherence continues to the initial day of non-adherence. When a person leads to the commission of a contravention or non-adherence of any of the provisions of this Act (FEMA) or of any rule or order issued thereunder is a company (company implies any corporate body and incorporates a firm or other association of people or individuals as characterized in the Companies Act), each individual who, at the time the non-adherence was committed, was accountable for, and was dependable to, the company for the behavior of the business of the company and also the company, should be regarded to be liable of the non-adherence and might be at risk to be tried or proceeded against and penalized accordingly.

Any Adjudicating Authority decreeing or adjudicating any contradictions or non-adherence for any of the FDI regulations, may, in the event that he supposes fit in addition to any punishment, or penalty which he may inflict for such non-adherence can direct that in any cash or currency, security or some other property in context of which the non-adherence has occurred shall be seized and confiscated by the Central Government.

Appealing and Adjudication

With the intention and purpose of adjudicating and settling of any contradiction or non-adherence of FEMA, the Ministry of Finance according to the provisions enshrined in the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules 2000, selects officers of the Central Government as the Adjudicating authority for holding an inquiry in the way recommended. A sensible and a rational opportunity must be given to the individual charged to have conferred contradictions or non-adherence against whom an objection has been made for being listened before forcing any punishment or penalty.

The Central Government may name according to the provisions contained in the Foreign Exchange Management (Adjudication Proceedings and Offer) Rules, 2000, an Appellate Authority/Appellate Tribunal to hear appeals against the orders or the judgments of the adjudicating authority.

Rules of Compounding Proceedings

Under the Foreign Exchange (Compounding Proceedings) Rules 2000, the Central Government may designate a ‘compounding Authority’ an officer either from Enforcement Directorate or Reserve Bank of India for any individual repudiating or non-adhering any provisions of the FEMA. The Compounding Authorities are approved and authorized to compound the sum or amount that is involved or is central to the negation or non-adherence to the Act made by the individual. No non-adherence shall be compounded unless the sum required in such contradiction or contravention is quantifiable. Any second or resulting non-adherence committed after the expiry of a time of three years from the date on which the non-adherence was already compounded might be deemed to be a first non-adherence.

The Compounding Authority may require any data can call for any information, record or some other archives applicable to the compounding procedures. The Compounding Authority should pass an order of compounding after managing and affording a chance of being heard to all the worries and concerns as speedily and not later than 180 days from the date of an application made to the Compounding Authority. Compounding Authority should issue an order indicating the provisions of the Act or the rules, directions, demands or orders made thereunder in the context of which the non-adherence has occurred alongside details of the alleged non-adherence.

Any individual who negates or doesn’t adhere to any provision of the FEMA, 1999 [except area 3(a)] or contradicts any standard, order, rule, regulation issued in exercise of the powers guaranteed under this Act or repudiates any condition subject to which an approval is issued by the Reserve Bank, can apply for compounding to the Reserve Bank. Applications are looking for compounding of contraventions under section 3(a) of FEMA, 1999 might be submitted to the Directorate of Enforcement.

Sensitive Contraventions

The non-adherence, at first sight, including IRS evasion, national and security concerns including genuine and serious infringement of the regulatory framework, and so forth, are delicate and sensitive non-adherences.

Technical Contraventions

It is clarified that whenever a contravention or a non-adherence is identified by the Reserve Bank or conveyed to its notification by the entity which is involved in the contravention by the way of a reference other than through the endorsed application for compounding, the Bank will ponder on deciding:

• Whether a non-adherence is technical and/or minor in nature and, all things considered, can be managed by the method for an authoritative/preventative advice;
• Whether it is material and, consequently, is required to be compounded for which the important and necessary compounding procedures must be taken after and followed or
• Whether the issues included are delicate/sensitive in nature and, subsequently, should be referred to the Directorate of Enforcement (DOE). Notwithstanding, once a compounding application is recorded or filed by the concerned entity suo moto, admitting the non-adherence, the same won’t be deemed as “technical” or “minor” in nature and the compounding procedure shall be initiated in consonance with section 15 (1) of Foreign Exchange Management Act, 1999 read with Rule 9 of Foreign Exchange (Compounding Proceedings)