Advisory on FEMA exemptions and regulatory framework for GIFT City IFSC units
The Foreign Exchange Management Act 1999 (FEMA) governs every cross-border transaction involving Indian residents and entities — foreign direct investment, external commercial borrowings, overseas direct investment, liberalised remittances, export-proceeds realisation, and the establishment of liaison, branch and project offices. The regulatory architecture comprises the Act, the FEMA (Non-Debt Instruments) Rules 2019, the FEMA (Debt Instruments) Regulations 2019, the FEMA (Overseas Investment) Rules 2022, and a web of RBI Master Directions, circulars and AP(DIR) series. AMLEGALS advises on structuring transactions within FEMA parameters and represents clients before the Adjudicating Authority, the Appellate Tribunal and the Enforcement Directorate.
FEMA contraventions carry civil penalties of up to three times the sum involved (Section 13). Compounding under Section 15 allows voluntary settlement before the RBI Compounding Authority, but the application must demonstrate full disclosure, remediation and the absence of continuing contravention. The Enforcement Directorate investigates suspected contraventions and may initiate adjudication proceedings. Appeals from the Adjudicating Authority lie to the FEMA Appellate Tribunal, and from the Tribunal to the High Court under Section 35. AMLEGALS handles the full lifecycle — from preventive advisory to compounding applications, adjudication defence and appellate representation.
Structuring FDI, ODI, ECB, LRS and trade-credit transactions within FEMA parameters, pricing guidelines and sectoral caps.
Advising on FC-GPR, FC-TRS, ODI filings, FLAIR reporting and strategy for curing late or defective filings through the RBI reporting framework.
Preparing and filing compounding applications under Section 15 of FEMA before the RBI Compounding Authority with full disclosure and remediation evidence.
Representing respondents before the FEMA Adjudicating Authority in contravention proceedings under Section 13.
Filing appeals before the FEMA Appellate Tribunal against adjudication orders and pursuing further appeals under Section 35 before the High Court.
Advising on responses to Enforcement Directorate summons, search-and-seizure proceedings and show-cause notices in FEMA matters.
Under Section 13 of FEMA, the penalty for contravention may extend to three times the sum involved in the contravention. Where the amount is not quantifiable, the penalty may extend to two lakh rupees, and where the contravention is a continuing one, a further penalty of five thousand rupees for every day after the first day during which the contravention continues.
Compounding under Section 15 of FEMA is a voluntary process by which a person who has committed a contravention may apply to the RBI Compounding Authority for settlement. The Authority may compound the contravention on payment of a compounding amount determined with reference to the nature, gravity and duration of the contravention. Compounding is not available for contraventions under Sections 3(a) (hawala) and 3(b)-(d) in specified circumstances.
FEMA is a civil statute; contraventions attract monetary penalties, not imprisonment. However, if a contravention also constitutes an offence under the Prevention of Money Laundering Act 2002, the Enforcement Directorate may initiate criminal proceedings under PMLA, which carries imprisonment of three to seven years (up to ten years for specific offences).
The FEMA Adjudicating Authority must complete the adjudication within one year from the date of receipt of the complaint from the Enforcement Directorate. The order must be in writing and supported by reasons. Appeals to the Appellate Tribunal must be filed within forty-five days of the order.
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