Economic, Commercial and Intellectual Property Laws · Law relating to Foreign Exchange Management

FEMA Contravention, Penalties and Adjudication Explained

Updated 11 October 2026 · Fact-checked

Under FEMA, a contravention is punished by a civil penalty imposed after adjudication under section 13. The penalty can go up to thrice the sum involved, or up to ₹2 lakh if the sum cannot be quantified, plus daily penalty for continuing breach. You can compound, or appeal to the Appellate Tribunal within 45 days.

Understand Contravention, Penalties and Adjudication

FEMA is a civil law. A breach of the Act, or of any rule, regulation, notification, direction, order or authorisation condition, leads mainly to a money penalty, not jail. This is the key shift from the old FERA. Section 13 is the penalty section.

A penalty is not imposed straight away. An Adjudicating Authority, an officer of the Central Government appointed under section 16, holds an inquiry. It can start only on a written complaint by an officer authorised by the Central Government by a general or special order. The person charged must get a reasonable opportunity of being heard. He may appear himself or take the help of a legal practitioner or a chartered accountant of his choice.

If you are unhappy with the order, you can appeal to the Appellate Tribunal (section 19). The Tribunal is the one constituted under the SAFEMA Act, 1976, as provided in section 18. You must file within 45 days of receiving the order and deposit the penalty, unless the Tribunal dispenses with the deposit for undue hardship.

You may also avoid adjudication by compounding under section 15. You apply, and the Director of Enforcement or other authorised officers of the Directorate and the Reserve Bank compound the contravention. Once compounded, no further proceeding can be started or continued for that contravention.

A special regime exists for assets held abroad in contravention of section 4. The Authorised Officer can seize an equivalent value in India (section 37A). Large undisclosed foreign assets above the prescribed threshold also attract penalty, confiscation and, under section 13(1C), imprisonment up to five years and fine.

Key rules to remember

General penalty, section 13(1): Up to 3 × sum involved (if quantifiable); up to ₹2,00,000 (if not quantifiable); Imposed upon adjudication. It is a maximum, not a fixed amount.
Continuing contravention: Further penalty up to ₹5,000 per day after the first day; Counted for every day after the first day the contravention continues.
Confiscation, section 13(2): Adjudicating Authority may confiscate currency, security or property, and direct foreign exchange holdings be brought back or retained abroad; Is in addition to penalty, and covers property converted into bank deposits or Indian currency.
Foreign assets above threshold, section 13(1A) and (1C): Penalty up to 3 × sum involved + confiscation of equivalent value in India; imprisonment up to 5 years and fine; Applies where value exceeds the threshold prescribed under the proviso to section 37A(1). Prosecution only on written complaint by an officer not below Assistant Director.
Compounding, section 15: Compounded within 180 days from receipt of application; Application by the contravener. Compounding bars further proceedings for that contravention.
Appeal, section 19: Within 45 days of receipt of order; Tribunal aims to dispose within 180 days; Late appeal is allowed on sufficient cause. Penalty deposit is required unless waived for undue hardship.
Adjudication timeline, section 16(6): Endeavour to dispose of complaint within 1 year; If not, the authority records reasons in writing periodically.
Seizure under section 37A: Order placed before Competent Authority within 30 days of seizure; Competent Authority decides within 180 days; Competent Authority is an officer not below Joint Secretary. Appeal against its order lies to the Appellate Tribunal.

How to solve Contravention, Penalties and Adjudication questions

Most questions give a fact situation or ask you to explain a stage. Use this order and write in the provision, analysis, conclusion style.

1Identify the contravention: which provision, rule, direction or authorisation condition was breached.
2State the penalty rule in section 13(1): up to thrice the sum involved if quantifiable, else up to ₹2 lakh, plus up to ₹5,000 per day if continuing.
3Work out the maximum: multiply the sum by three, and add daily amount for days after the first day.
4Say who decides: the Adjudicating Authority under section 16, on a written complaint, after a hearing.
5Mention additional powers such as confiscation under section 13(2), or section 37A seizure if foreign assets are involved.
6Offer the remedies: compounding under section 15, or appeal to the Appellate Tribunal within 45 days under section 19 with penalty deposit.
7Close with a clear conclusion that answers the exact question asked.

Quickest way: Penalty maths and route in one pass

When to use it: Use for numerical or short-fact questions where time is tight.

Underline the sum involved and the number of days the breach continued.
Compute 3 × sum as the ceiling. If no amount can be quantified, use ₹2,00,000 as the ceiling.
Add ₹5,000 × (days − 1) if the breach continued.
Write 'up to' before every figure, since these are maximums.
Add one line on the route: adjudication, then appeal in 45 days, or compounding.

Common mistakes in Contravention, Penalties and Adjudication

Stating the penalty as exactly three times the sum involved.
Students remember the multiple and drop the words 'up to'.
Fix: Always write 'up to thrice the sum involved'. The authority has discretion below that ceiling.
Charging the daily penalty from day one.
The words 'for every day' feel like they start at the beginning.
Fix: The text says every day after the first day. For 10 days, count 9 days.
Treating FEMA contravention as a criminal offence in general.
Students mix FEMA with FERA or PMLA.
Fix: Say general contraventions attract civil penalty. Imprisonment arises only for the foreign assets case under section 13(1C).
Writing the appeal period as 30 or 60 days.
Other statutes use different periods.
Fix: Section 19(2) gives 45 days from receipt of the order, extendable for sufficient cause.
Forgetting the pre-deposit of penalty when appealing.
Students focus on the time limit only.
Fix: Mention the deposit under the first proviso to section 19(1) and the Tribunal's power to dispense for undue hardship.
Saying compounding can happen any time with no effect on proceedings.
The consequence in section 15(2) is skipped.
Fix: State that after compounding no proceeding or further proceeding can be initiated or continued for that contravention.

Worked examples

Example 1

Mehta Exports Pvt. Ltd. contravened a FEMA direction involving ₹40,00,000. The amount is quantifiable. The contravention continued for 11 days. What is the maximum penalty the Adjudicating Authority can impose under section 13(1)?

Show the solution

Provision: section 13(1) allows a penalty up to thrice the sum involved where the amount is quantifiable.
Main penalty ceiling: 3 × ₹40,00,000 = ₹1,20,00,000.
Continuing contravention: further penalty up to ₹5,000 for every day after the first day.
Days counted: 11 − 1 = 10 days.
Daily penalty ceiling: 10 × ₹5,000 = ₹50,000.
Total ceiling: ₹1,20,00,000 + ₹50,000 = ₹1,20,50,000.

Answer: The maximum penalty is ₹1,20,50,000. It is a ceiling, and the Adjudicating Authority may impose less.

Example 2

Explain the remedies available to a person who has been penalised by an Adjudicating Authority under FEMA, and how he can avoid adjudication altogether.

Show the solution

Provision: penalty under section 13 is imposed by an Adjudicating Authority appointed under section 16, after a hearing.
Appeal: under section 19, the aggrieved person may appeal to the Appellate Tribunal, which under section 18 is the Tribunal constituted under the SAFEMA Act, 1976.
Time limit: the appeal must be filed within 45 days of receiving the order. The Tribunal may admit a late appeal if there was sufficient cause.
Deposit: the appellant must deposit the penalty, but the Tribunal may dispense with it if it causes undue hardship, on conditions to safeguard realisation.
Outcome: the Tribunal may confirm, modify or set aside the order, and tries to dispose of the appeal within 180 days.
Avoiding adjudication: under section 15, the person can apply for compounding. The Director of Enforcement or other authorised officers compound it within 180 days from receipt of the application.
Effect: once compounded, no proceeding or further proceeding can be initiated or continued for that contravention.

Answer: The person can appeal to the Appellate Tribunal within 45 days with the penalty deposit, subject to waiver for undue hardship. To avoid adjudication he can apply for compounding under section 15, which bars further proceedings for the compounded contravention.

Exam tips

Learn the numbers cold: thrice, ₹2 lakh, ₹5,000 per day, 45 days, 180 days, one year, five years.
In numerical questions, show the multiplication and the day count separately. Marks go for steps.
Cite section numbers: 13 for penalty, 15 compounding, 16 adjudication, 18 and 19 for the Tribunal and appeals, 37A for seizure.
For a short note on adjudication, cover who appoints, the written complaint, hearing rights, and the one-year target.
Keep the foreign assets provisions separate in your answer so the examiner sees the civil versus criminal difference.

Practice questions from Law relating to Foreign Exchange Management

Contravention, Penalties and Adjudication in other exams

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

Contravention, Penalties and Adjudication: frequently asked questions

What is the penalty for contravention under section 13 of FEMA?

Upon adjudication, up to thrice the sum involved if it is quantifiable, or up to ₹2 lakh if not. For a continuing contravention, a further penalty up to ₹5,000 per day after the first day can be added.

Who is the Adjudicating Authority under FEMA?

It is an officer of the Central Government appointed by an order in the Official Gazette under section 16. It can hold an inquiry only on a written complaint by an officer authorised by the Central Government.

Within how many days must you appeal to the Appellate Tribunal?

Within 45 days from receipt of the order. The Tribunal can accept a later appeal if it is satisfied there was sufficient cause for the delay.

Who can compound a FEMA contravention?

The Director of Enforcement or other authorised officers of the Directorate of Enforcement and of the Reserve Bank can compound it, on the contravener's application. The matter is to be compounded within 180 days from receipt of the application.

Can a FEMA contravention lead to imprisonment?

Generally no, as penalties are civil. But if a person acquires foreign exchange, foreign security or immovable property abroad above the prescribed threshold, section 13(1C) allows imprisonment up to five years and fine, on a written complaint by an officer not below Assistant Director.