What changed
RBI is now empowered to compound contraventions under all FEMA sections except Section 3(a) (hawala), which remains with the Directorate of Enforcement. The compounding process is formalized with a 180-day timeline for order issuance and a 15-day payment window. Application fees and compounding sums must be paid via demand draft to RBI in Mumbai.
What it means for you
Banks and corporates can now resolve FEMA violations more efficiently without prolonged adjudication, lowering legal costs and uncertainty. The clear timeline and fee structure provide predictability, but willful or fraudulent cases will still face strict action. This encourages voluntary compliance and faster closure of past contraventions.
What you must do
- Update internal compliance teams on the expanded compounding scope under FEMA, excluding Section 3(a).
- Ensure applications for compounding are submitted in the prescribed format with supporting documents to the Compounding Authority (CEFA) in Mumbai.
- Monitor the 180-day timeline for compounding orders and arrange payment within 15 days via demand draft to RBI.
- Review past FEMA contraventions for eligibility under the new compounding framework to minimize penalties.
Who it affects
Authorised dealers in foreign exchange, Corporate entities with FEMA contraventions, Compliance officers at banks and financial institutions, Legal teams handling FEMA adjudication
What is the timeline for compounding under the new rules?
The Compounding Authority must issue an order within 180 days of receiving the application. The compounded sum must be paid within 15 days of the order.
Which FEMA contraventions can RBI now compound?
RBI can compound all contraventions under FEMA except those under Section 3(a), which deals with hawala transactions and remains with the Directorate of Enforcement.
How do I apply for compounding?
Submit an application in the prescribed format with relevant facts, supporting documents, and the application fee to the Compounding Authority at CEFA, Foreign Exchange Department, RBI, Mumbai. Payment must be via demand draft in favor of 'Reserve Bank of India'.