In a Circular issued recently, the Reserve Bank of India has explained the backdrop and the changes made in the Foreign Exchange (Compounding Proceedings) Rules, 2000 relating to compounding of offences under the Foreign Exchange Management Act, 1999 (FEMA). A.P. (DIR Series) Circular No. 56 [RBI/2009-10/508] clarifies the method to apply for such compounding, the scope and manner of compounding, issuance of compounding order, prerequisites of compounding process etc. to clarify the framework to this effect.
In respect of the power being exercised by RBI to this effect, the Circular notes as under;
The compounding of the contravention under the FEMA, 1999 was implemented by the Reserve Bank by putting in place the simplified procedures for compounding with effect from February 1, 2005 with a view to providing comfort to the citizens and corporate community by minimizing transaction costs, while taking a serious view of the wilful, malafide and fraudulent transactions. It has been decided to put in place an updated procedure for compounding of contravention/s under FEMA on the basis of observations made over the last few years on the compounding process on a continuous basis and the experience gained in dealing with compounding applications. The objective is rationalization and streamlining of the process and the procedure for compounding and to enhance transparency and effect smooth implementation of the compounding process. The directions contained in the compounding of contravention/s issued vide A.P. (DIR Series) Circular No.31 dated February 1, 2005 are superseded by this circular.
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