FEMA is civil law; RBI alone can compound offences: ED
UPSC / SSC current affairs note · Economy
Why in news
The Enforcement Directorate (ED) has reiterated that the Foreign Exchange Management Act (FEMA) is a civil law and that the Reserve Bank of India (RBI) is the sole authority for compounding contraventions. This clarification follows RBI's closure of a FEMA case against Apothecon Pharmaceuticals after compounding. The ED issues a no-objection certificate to RBI for compounding, and once compounded, ED drops proceedings.
Background
FEMA, enacted in 1999, replaced FERA and is a civil legislation aimed at facilitating external trade and payments. Section 15 of FEMA allows compounding of contraventions to promote voluntary compliance and reduce litigation. The ED is the designated agency to investigate FEMA violations upon RBI's recommendation.
Key facts
FEMA is primarily a civil legislation; Section 15 provides for compounding of contraventions.
Compounding aims to facilitate voluntary compliance, reduce litigation, and ensure expeditious disposal of cases.
Compounding is not available for serious crimes like money laundering, terror financing, or acts affecting sovereignty and integrity.
RBI is the competent authority to compound eligible contraventions under FEMA.
ED issues a no-objection certificate to RBI for compounding of offences.
RBI has issued master directions on compounding, prescribing a compounding matrix based on nature, gravity, duration, and amount involved.
Once RBI compounds the contraventions, ED drops proceedings and closes the investigation.
Major closed cases are publicized via press releases to encourage similar pending cases to apply for compounding.
Apothecon Pharmaceuticals case: compounding allowed after paying Rs 40 lakh penalty for delay in reporting foreign inward remittances and issuing equities without government approval.
Prelims pointers
- FEMA: Foreign Exchange Management Act, 1999
- Section 15: Compounding of contraventions
- RBI: Reserve Bank of India
- ED: Enforcement Directorate
- Compounding matrix: factors include nature, gravity, duration, amount involved
Mains angles
- GS2: Statutory bodies – Role of RBI and ED in FEMA enforcement
- GS3: Indian Economy – Foreign exchange management and compliance mechanisms