Compounding is the process by which a person or entity can settle a regulatory or legal dispute with the Reserve Bank of India (RBI) by paying a monetary penalty or taking other corrective measures. Compounding is a way to avoid lengthy legal proceedings and potential damage to a person’s reputation.
A Simple Guide to Compounding with the RBI
Compounding is a process of voluntary admission of contravention, and payment of a monetary penalty in lieu of regulatory action. Compounding allows a person or entity to settle regulatory or legal disputes with the RBI by paying a monetary penalty or taking other corrective measures. The RBI has the power to compound offences under various laws, such as the Foreign Exchange Management Act (FEMA), the Banking Regulation Act, and the Payment and Settlement Systems Act, among others.
Eligibility for Compounding
Not all contraventions can be compounded. The RBI has specified a list of contraventions that are eligible for compounding, along with the applicable penalty. The contraventions that are not eligible for compounding are those that are of a serious nature or that involve a large amount of money.
Procedure for Compounding
The procedure for compounding is as follows:
- The person or entity must make an application to the RBI for compounding.
- The application must be accompanied by a compounding fee, as specified by the RBI.
- The RBI will examine the application and may call for further information or documents.
- The RBI may accept or reject the application for compounding.
- If the application is accepted, the person or entity must pay the penalty within a specified time.
- If the penalty is not paid within the specified time, the RBI may initiate legal proceedings against the person or entity.
Documents Required for Compounding
The documents required for compounding application may vary depending on the nature of the contravention. However, the following documents are generally required for compounding:
- Application for compounding
- Undertaking stating that the person or entity has not been compounded for the same contravention in the past
- Copies of relevant documents, such as contracts, invoices, bank statements, and correspondence with the RBI
- Evidence of the contravention, such as inspection reports, audit reports, or other documentary evidence
Factors Considered by the RBI
The RBI considers various factors when deciding whether to accept an application for compounding and the quantum of penalty. Some of the factors considered by the RBI are:
- The nature and gravity of the contravention
- The financial benefit derived from the contravention
- The economic benefit accruing to the person or entity from the contravention
- The amount of loss caused to any person as a result of the contravention
- The conduct of the person or entity, including their cooperation with the RBI in the investigation
Advantages of Compounding
Compounding has several advantages, such as:
- It avoids lengthy legal proceedings and potential damage to a person’s reputation.
- It enables a person or entity to settle a regulatory or legal dispute with the RBI quickly and efficiently.
- It enables a person or entity to avoid more severe penalties, such as imprisonment or cancellation of a license.
- It enables a person or entity to continue doing business without disruption.
Compounding is a process by which a person or entity can settle a regulatory or legal dispute with the RBI by paying a monetary penalty or taking other corrective measures. Compounding is a way to avoid lengthy legal proceedings and potential damage to a person’s reputation. The RBI has specified a list of contraventions that are eligible for compounding, along with the applicable penalty. Compounding has several advantages, such as avoiding lengthy legal proceedings