Corporate and Other Laws · The Foreign Exchange Management Act, 1999

FEMA: Contraventions, Penalties and Enforcement

Updated 4 October 2026 · Fact-checked

Most FEMA contraventions are civil. Section 13 lets an adjudicating authority impose a penalty up to three times the sum involved, or up to ₹2,00,000 if the amount is not quantifiable. You can apply for compounding under section 15. The Enforcement Directorate investigates. Acquiring foreign assets above the section 37A threshold can also lead to prosecution under section 13(1C).

Understand Contraventions, Penalties and Enforcement

FEMA, 1999 replaced FERA. Its aim is to facilitate external trade and payments and to promote orderly development of the foreign exchange market. Because of this aim, a breach of FEMA is generally treated as a civil contravention. The main remedy is a money penalty, not a prison term. There is one important exception, explained below.

Section 13 is the core penalty provision. It applies when a person contravenes any provision of the Act, or any rule, regulation, notification, direction or order made under it, or breaks a condition of an RBI authorisation. The penalty is up to three times the sum involved if the amount is quantifiable. If it is not quantifiable, the penalty is up to ₹2,00,000. If the contravention continues, a further penalty of up to ₹5,000 per day applies for each day after the first day. The adjudicating authority may also order confiscation of the currency, security or property involved, and may direct that foreign exchange holdings be brought back to India or retained outside India.

Foreign assets above the threshold (section 13(1A) to 13(1D)): these sub-sections were inserted in 2015. If a person is found to have acquired foreign exchange, foreign security or immovable property situated outside India, of aggregate value above the threshold prescribed under the proviso to section 37A(1), then:

Under section 13(1A), he is liable to a penalty up to three times the sum involved, and confiscation of the equivalent value of foreign exchange, foreign security or immovable property situated in India.
Under section 13(1B), the Adjudicating Authority may, after recording reasons in writing, recommend prosecution. If the Director of Enforcement is satisfied, he may, after recording reasons in writing, direct a criminal complaint to be filed by an officer not below the rank of Assistant Director.
Under section 13(1C), he is also punishable with imprisonment up to five years and with fine, in addition to the penalty under section 13(1A).
Under section 13(1D), a court takes cognizance of this offence only on a written complaint by such an officer.

The process for an ordinary section 13 contravention runs in a fixed order. An authorised officer issues a show-cause notice. The Adjudicating Authority hears the person and passes an order. A person who is unhappy can appeal to the Special Director (Appeals) and then to the Appellate Tribunal. A further appeal on a question of law goes to the High Court. Penalty is usually required to be deposited when appealing, though the appellate authority may waive this.

Two escape and pressure points matter. First, compounding under section 15: under section 15(1), a contravention under section 13 may, on an application by the person committing it, be compounded by the Director of Enforcement or other officers of the Directorate of Enforcement, and by officers of the Reserve Bank, as the Central Government authorises in the prescribed manner. The compounding is to be done within 180 days from the date of receipt of the application. The sum payable is fixed by the compounding authority. Once compounded, no further proceedings are taken for that contravention. Compounding is not available where the contravention is repeated within 3 years, or in certain other cases barred by the Compounding Rules. Second, civil imprisonment under section 14: if the penalty is not paid within 90 days from the date of the notice for payment, the person can be sent to civil prison, but only after being heard. The term is up to 3 years if the penalty exceeds ₹1 crore and up to 6 months in any other case.

Enforcement is done by the Directorate of Enforcement (section 36 and 37). Its officers have investigation powers similar to income-tax authorities, including search and seizure. Under section 37A, if the Authorised Officer prescribed by the Central Government has reason to believe that foreign exchange, foreign security or immovable property situated outside India is suspected to be held in contravention of section 4, he can seize an equivalent value of assets situated in India. This action is not automatic. The Authorised Officer must record reasons in writing and then himself passes the seizure order. No seizure is made where the aggregate value of the foreign exchange, foreign security or immovable property outside India is less than the value prescribed. The officer must place the seizure order, with the relevant material, before the Competent Authority (an officer not below the rank of Joint Secretary to the Government of India) within 30 days of the seizure. The Competent Authority must then confirm or set aside the order within 180 days of the seizure, after hearing both the Directorate of Enforcement and the aggrieved person. Where the contravener is a company, section 42 also makes the persons in charge of its business liable.

Key rules to remember

Penalty under section 13 (quantifiable): Maximum penalty = 3 × sum involved in the contravention; 'Up to' three times. The authority fixes the actual amount after a hearing.
Penalty under section 13 (not quantifiable): Maximum penalty = ₹2,00,000; Applies only where the sum involved cannot be quantified.
Continuing contravention: Further penalty up to ₹5,000 × number of days after the first day; Count days after the first day only. This is in addition to the main penalty.
Confiscation (section 13): Adjudicating authority may confiscate currency, security or property involved and direct repatriation or retention of foreign exchange holdings; Given in addition to the penalty, not instead of it.
Foreign assets above threshold (section 13(1A) to 13(1D)): Foreign exchange, foreign security or immovable property outside India acquired, aggregate value above the threshold under the proviso to section 37A(1) → penalty up to 3 × sum involved + confiscation of equivalent value in India (13(1A)); prosecution on recommendation and direction (13(1B)); imprisonment up to 5 years and fine (13(1C)); cognizance only on written complaint of an officer not below Assistant Director (13(1D)); This is the exception to the general civil nature of FEMA. The imprisonment is in addition to the penalty under section 13(1A).
Compounding (section 15): Application by the person committing the contravention → compounded by the Director of Enforcement or other officers of the Directorate of Enforcement, and officers of the Reserve Bank, as authorised by the Central Government in the prescribed manner → within 180 days from receipt of the application; no further proceedings after compounding; The contravention must be one under section 13. Compounding is not available where a contravention is repeated within 3 years, or in cases barred by the Compounding Rules, such as cases suspected to involve money laundering, terror financing or a threat to national security. The 180 days runs from receipt of the application. It is the time for compounding, not for filing the application.
Civil imprisonment (section 14): Penalty unpaid for 90 days from the date of notice for payment → after hearing, civil prison up to 3 years if penalty exceeds ₹1 crore; up to 6 months in other cases; Only after the person is given an opportunity to be heard. It is civil imprisonment and follows failure to pay the penalty. It is different from the imprisonment of up to 5 years under section 13(1C).
Contraventions by companies (section 42): Person in charge of and responsible for the company's business, plus any director, manager, secretary or other officer with consent, connivance or neglect, is deemed guilty; A person who proves the contravention happened without his knowledge or that he exercised all due diligence is not liable.
Seizure of equivalent assets (section 37A): Authorised Officer has reason to believe foreign assets are suspected to be held in contravention of section 4, records reasons in writing and, by his own order, seizes equivalent value in India → places the order before the Competent Authority (not below Joint Secretary) within 30 days of seizure → Competent Authority confirms or sets aside within 180 days of seizure, after hearing both sides; Applies where foreign exchange, security or immovable property outside India is suspected to be held in contravention of section 4. No seizure is made where the aggregate value of the foreign assets is less than the prescribed value. The 30 days is the deadline for placing the order before the Competent Authority, not for confirmation.
Appeals: Adjudicating Authority → Special Director (Appeals) → Appellate Tribunal → High Court (question of law); Time limits are short, so state the forum order in answers.

How to solve Contraventions, Penalties and Enforcement questions

Use this method for any theory or case-based question on FEMA contraventions and enforcement.

1Identify the contravention. Name the provision, rule, direction or condition that was broken, for example holding foreign exchange abroad without permission.
2State the nature of the liability. Say that FEMA contraventions are generally civil and are dealt with under section 13. If foreign assets above the section 37A threshold are acquired, add section 13(1A) to 13(1D): penalty up to three times, confiscation of equivalent Indian assets, and prosecution with imprisonment up to 5 years and fine.
3Check whether the sum involved is quantifiable. If yes, apply 'up to three times'. If no, apply 'up to ₹2,00,000'. Add the daily penalty if the contravention continues.
4Add the other consequences: confiscation, and repatriation or retention of foreign exchange holdings.
5If a company is involved, apply section 42 and check the due-diligence defence for the persons in charge.
6Deal with remedies: compounding under section 15 (note that it is not available for a repeat contravention within 3 years or for cases barred by the Rules), then the appeal route.
7Cover enforcement and recovery: Directorate of Enforcement, search and seizure, section 37A (Authorised Officer has reason to believe assets abroad are suspected to be held in contravention of section 4, records reasons and seizes by his own order; no seizure if the aggregate value is below the prescribed value; order placed before the Competent Authority within 30 days of seizure; Competent Authority confirms or sets aside within 180 days after hearing both sides), and civil imprisonment after hearing if the penalty is not paid within 90 days of the notice.
8Write a one-line conclusion that answers the exact question, using 'up to' for every maximum.

Quickest way: Provision-facts-conclusion with a number check

When to use it: Use this for case-study answers and for MCQs on penalty amounts and procedure.

For MCQs, look for the number. Three times sum involved, ₹2,00,000 if not quantifiable, ₹5,000 per day, 90 days, 180 days, 3 years for a repeat contravention bar on compounding, 5 years for imprisonment under section 13(1C), and under section 37A, 30 days to place the seizure order before the Competent Authority and 180 days for the Competent Authority to confirm or set aside. Match the number to the right rule and discard options with other figures.
For MCQs, remember that 180 days for compounding runs from receipt of the application. It is not the time for paying the penalty.
For MCQs, watch the word 'civil' versus 'criminal'. FEMA contraventions are generally civil, so an option saying imprisonment follows any ordinary contravention is wrong. The exception is acquiring foreign assets above the threshold, which can lead to prosecution and imprisonment up to 5 years under section 13(1C).
For written answers, use three labelled lines: Provision, Facts, Conclusion. Examiners give step marks for each.
For computation, write the penalty cap, then the daily penalty, then the total on separate lines.
Always use 'up to' or 'maximum' because the authority has discretion.
Finish with the remedy available (compounding or appeal) to pick up the last marks.

Common mistakes in Contraventions, Penalties and Enforcement

Writing that the penalty is exactly three times the sum involved.
Students memorise the multiple and forget the words 'up to'.
Fix: Say the penalty is up to three times. The authority decides the actual amount after hearing the person.
Counting the daily penalty from the first day of contravention.
The rule says 'for every day after the first day', and students skip these words.
Fix: Subtract one day. A contravention that lasts 21 days gives 20 days of daily penalty.
Treating FEMA like PMLA and calling it a purely criminal law, or the opposite, calling it purely civil.
Both are enforced by the Directorate of Enforcement, so they get mixed up. Students also forget the 2015 sub-sections of section 13.
Fix: Remember that FEMA contraventions are generally civil and mainly attract penalties, with civil imprisonment under section 14 for non-payment. The exception is acquiring foreign assets above the section 37A threshold: section 13(1A) to 13(1D) allow prosecution and imprisonment up to 5 years and fine. PMLA is criminal and deals with laundering of proceeds of crime.
Saying civil imprisonment can be ordered straight away for the contravention.
Students link imprisonment with the contravention itself instead of non-payment.
Fix: Civil imprisonment arises only when the penalty is not paid within 90 days of the notice for payment, and only after a hearing. The term is up to 3 years if the penalty exceeds ₹1 crore and up to 6 months otherwise. Do not confuse it with the imprisonment of up to 5 years under section 13(1C).
Forgetting section 42 when the contravener is a company.
Students focus on the company as the only wrongdoer.
Fix: Add that persons in charge of the business and officers who consented, connived or were negligent are also deemed guilty, subject to the due-diligence defence.
Saying every contravention can be compounded.
Students remember compounding as a general relief.
Fix: State that compounding applies to section 13 contraventions on application, but not where the contravention is repeated within 3 years, and some serious contraventions are excluded under the Compounding Rules. Write this exception briefly.
Saying section 37A allows the officer to seize Indian assets freely, for any value, or that the seizure must be confirmed within 30 days.
Students remember only the 'equivalent value' idea, skip the safeguards and the value threshold, or mix up the 30-day and 180-day periods.
Fix: Write that the Authorised Officer must have reason to believe the assets abroad are suspected to be held in contravention of section 4, records reasons in writing and passes the seizure order himself. No seizure is made if the aggregate value abroad is below the prescribed value. He must place the order before the Competent Authority within 30 days of seizure. The Competent Authority confirms or sets aside the order within 180 days of seizure, after hearing both sides.

Worked examples

Example 1

Mr. Rao contravened a FEMA provision involving a quantifiable sum of ₹40,00,000. The contravention continued for 21 days. Compute the maximum penalty under section 13. If the adjudicating authority imposes this maximum and Mr. Rao does not pay within 90 days of notice, what is the consequence?

Show the solution

Provision: section 13 allows a penalty up to three times the sum involved where it is quantifiable.
Main penalty (maximum) = 3 × ₹40,00,000 = ₹1,20,00,000.
Continuing contravention: the daily penalty applies for each day after the first day. Days = 21 − 1 = 20.
Daily penalty (maximum) = 20 × ₹5,000 = ₹1,00,000.
Total maximum penalty = ₹1,20,00,000 + ₹1,00,000 = ₹1,21,00,000.
Consequence of non-payment: under section 14, failure to pay within 90 days from the date of the notice for payment makes him liable to civil imprisonment, but only after he is heard. The penalty exceeds ₹1 crore, so the term may extend to 3 years.

Answer: Maximum penalty is ₹1,21,00,000 (₹1,20,00,000 + ₹1,00,000). If unpaid within 90 days of the notice, Mr. Rao is liable to civil imprisonment of up to 3 years under section 14, after being heard.

Example 2

Alpha Ltd. broke a condition of an RBI authorisation. A show-cause notice names the company and Mr. Bose, the director in charge of its day-to-day business. Mr. Bose says he did not know about the breach. Advise on liability, remedies and enforcement powers.

Show the solution

Provision: section 13 penalises breach of any provision, rule, direction or authorisation condition. Section 42 makes a company's contravention punishable against the company and every person in charge of and responsible for its business.
Facts: the breach is of an RBI authorisation condition, which is covered by section 13. Mr. Bose is the director in charge of business, so he is within section 42.
Defence: section 42 lets Mr. Bose escape liability if he proves the contravention took place without his knowledge or that he exercised all due diligence. His bare statement is not enough; he must prove it.
Penalty: the adjudicating authority can impose a penalty up to three times the sum involved, or up to ₹2,00,000 if it is not quantifiable. It can also order confiscation of the property involved.
Remedies: the company may apply for compounding under section 15, unless the contravention is a repeat within 3 years or is barred by the Compounding Rules. The compounding order is to be passed within 180 days of receipt of the application. The company may also appeal to the Special Director (Appeals), then the Appellate Tribunal, and then the High Court on a question of law.
Enforcement: the Directorate of Enforcement can investigate and carry out search and seizure. If the penalty is not paid within 90 days of the notice, civil imprisonment under section 14 can follow after a hearing.

Answer: Alpha Ltd. is liable under section 13. Mr. Bose is also deemed guilty under section 42 unless he proves lack of knowledge or due diligence. The company can seek compounding under section 15 (subject to the repeat-contravention and Rules exclusions) or appeal. Non-payment can lead to civil imprisonment under section 14 after a hearing.

Exam tips

Learn the numbers as a set: three times, ₹2,00,000, ₹5,000 per day, 90 days, 180 days, 3 years, 30 days, 5 years. MCQs usually test one of these.
The 180 days for compounding runs from receipt of the application. Do not write it as the time for filing or paying.
Keep a FEMA versus PMLA contrast ready: generally civil versus criminal, penalty versus imprisonment and attachment, regulation of foreign exchange versus laundering of proceeds of crime. Mention the exception that section 13(1C) allows imprisonment up to 5 years for acquiring foreign assets above the threshold. Both Acts are enforced by the Directorate of Enforcement.
In case studies, use the Provision, Facts, Conclusion layout and show the penalty working line by line to earn step marks.
Always link section 13 to the remedies: compounding under section 15 and the appeal route. Mention that compounding is not available for a repeat contravention within 3 years or for cases barred by the Rules.
When you write about section 37A, add the safeguards: reason to believe and reasons recorded in writing, no seizure below the prescribed aggregate value, seizure order placed before the Competent Authority within 30 days of seizure, and confirmation or setting aside by the Competent Authority within 180 days after hearing both sides.
Cite a section number only when you are sure. Name the rule in words if you are not.

Practice questions from The Foreign Exchange Management Act, 1999

Contraventions, Penalties and Enforcement in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Contraventions, Penalties and Enforcement: frequently asked questions

What is the penalty under FEMA section 13?

For a contravention where the sum is quantifiable, the penalty is up to three times the sum involved. If it is not quantifiable, it is up to ₹2,00,000. For a continuing contravention, a further penalty of up to ₹5,000 per day applies for each day after the first day.

What is compounding of contraventions under FEMA?

Under section 15(1), a person who has committed a contravention under section 13 can apply to have it compounded. The Director of Enforcement or other officers of the Directorate of Enforcement, and officers of the Reserve Bank, as authorised by the Central Government in the prescribed manner, can compound it within 180 days from the date of receipt of the application. Once compounded, no further proceedings are taken for that contravention. Compounding is not available where the contravention is repeated within 3 years, and some serious contraventions are barred under the Compounding Rules.

What is the difference between FEMA and PMLA?

FEMA contraventions are generally civil and mainly attract penalties, as the law regulates foreign exchange. The exception is acquiring foreign assets above the section 37A threshold, which can lead to prosecution and imprisonment up to 5 years under section 13(1C). PMLA is a criminal law that targets laundering of proceeds of crime and provides for imprisonment and attachment of property. The Directorate of Enforcement enforces both.

What powers does the Directorate of Enforcement have under FEMA?

Its officers can investigate contraventions with powers similar to those of income-tax authorities, including search and seizure. Under section 37A, the Authorised Officer who has reason to believe that foreign exchange, security or property abroad is suspected to be held in contravention of section 4 can seize assets in India of equivalent value. No seizure is made if the aggregate value abroad is below the prescribed value. He must record reasons in writing and passes the seizure order himself. He must place the order before the Competent Authority within 30 days of seizure, and the Competent Authority confirms or sets it aside within 180 days after hearing both sides.

Can a person be jailed under FEMA?

Yes, in two ways. Under section 13(1C), a person who acquires foreign exchange, security or immovable property outside India above the section 37A threshold is punishable with imprisonment up to 5 years and fine, on a written complaint by an officer not below Assistant Director. Under section 14, civil imprisonment can follow if a penalty is not paid within 90 days from the date of the notice for payment, and only after the person is heard. That term can be up to 3 years if the penalty exceeds ₹1 crore and up to 6 months in any other case.