THE FOREIGN EXCHANGE (COMPOUNDING PROCEEDINGS) RULES, 2024 – OVERVIEW

The Department of Economic Affairs (DEA), Ministry of Finance, on 12^th September has notified the Foreign Exchange (Compounding Proceedings) Rules, 2024 under powers given under section 46 read with section 15 of the Foreign Exchange Management Act (FEMA), 1999. The amended Rules will supersede the existing Foreign Exchange (Compounding Proceedings) Rules, which were issued in 2000. They provide a framework for individuals or entities to voluntarily settle contraventions of the Foreign Exchange Management Act, 1999 (FEMA), by paying a compounding fee.

Key Highlights

The 2024 Rules introduce significant reforms aimed at reducing administrative delays and supporting the Government of India’s Ease of Doing Business initiative.

1. Revision in Monetary Limits for RBI Officials

The monetary jurisdiction for officers of the Reserve Bank of India (RBI) handling compounding proceedings (for all contraventions other than Section 3(a) of FEMA) has been substantially enhanced to allow faster disposal at regional levels:

RBI Officer Rank	Former Limits (2000 Rules)	Revised Limits (2024 Rules)
Assistant General Manager (AGM)	Up to ₹10 Lakh	Up to ₹60 Lakh
Deputy General Manager (DGM)	> ₹10 Lakh to ₹40 Lakh	> ₹60 Lakh up to ₹2.5 Crore
General Manager (GM)	> ₹40 Lakh to ₹100 Lakh	> ₹2.5 Crore up to ₹5 Crore
Chief General Manager (CGM)	Exceeding ₹100 Lakh	Exceeding ₹5 Crore

2. Monetary Limits for Directorate of Enforcement (ED) Officials

For contraventions specifically involving Section 3(a) of FEMA (dealing in or transferring foreign exchange/foreign security to unauthorized persons), the authorities in the Directorate of Enforcement (ED) hold compounding jurisdiction as detailed below:

ED Officer Rank	Sum Involved in Contravention
Deputy Director	Up to ₹5 Lakh
Additional Director	> ₹5 Lakh up to ₹10 Lakh
Special Director	> ₹10 Lakh up to ₹50 Lakh
Special Director in conjunction with Deputy Legal Adviser	> ₹50 Lakh up to ₹1 Crore
Director of Enforcement along with Special Director	Exceeding ₹1 Crore

3. Key Operational Changes

Provision	Erstwhile Framework (2000 Rules)	Updated Framework (2024 Rules)
Application Fee	₹5,000	₹10,000 (+ applicable GST)
Payment Mode	Demand Draft (DD) only	Digital Modes (NEFT/RTGS), Online Payment, or DD
Order Timeline	Within 180 days from application	Within 180 days from application receipt
Payment Timeline	Within 15 days of the order	Within 15 days of the compounding order
Rule on Pending Matters	N/A	Applications pending before Sept 12, 2024, continue under the 2000 Rules

Non-Compoundable Contraventions (Rule 9)

Rule 9 of the 2024 Rules explicitly categorizes contraventions that cannot be compounded by the Compounding Authority:

• Unquantifiable Sums: Matters where the amount involved in the contravention is not quantifiable.
• Serious Violations: Cases involving money laundering, terror financing, or threats to national security/integrity (referred to Adjudicating Authority under Section 13).
• Section 37A Violations: Holding foreign assets outside India in violation of Section 4 of FEMA.
• Already Adjudicated: Cases where the Adjudicating Authority has already passed an order imposing a penalty under Section 13.
• Further ED Investigation Needed: Cases where the authority believes further investigation by the ED is necessary to ascertain the contravention amount.

3-Year Limitation Rule for Repeat Offences

Under Rule 4(2) and Rule 5(2):

• Three-Year Lookback: If a similar contravention committed by a person was previously compounded under these rules, any second or subsequent contravention within 3 years of that date cannot be compounded.
• Reset Period: Any contravention committed after the expiry of 3 years from the date of the previous compounding order will be treated as a first-time contravention.

Summary Impact

The Foreign Exchange (Compounding Proceedings) Rules, 2024 bring much-needed modernization to FEMA compliance in India. By increasing officer authorization limits up to fivefold, incorporating digital payment gateways, and laying down clear rules for non-compoundable offences, the Ministry of Finance has created a more transparent, efficient, and business-friendly regulatory system.

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