Economic, Commercial and Intellectual Property Laws · Overseas Direct Investment

Penalties and Contraventions under FEMA Section 13

Updated 11 October 2026 · Fact-checked

Section 13 FEMA says that a person who contravenes the Act, or any rule, regulation, notification, direction, order or authorisation condition, is liable, after adjudication, to a penalty up to three times the sum involved, or up to ₹2 lakh if the sum is not quantifiable, plus up to ₹5,000 per day if the contravention continues.

Understand Penalties and Contraventions under FEMA Section 13

FEMA 1999 is a civil law. Section 13 is its main penalty provision. It covers any breach of the Act, or of any rule, regulation, notification, direction or order made under it, and any breach of a condition attached to an RBI authorisation. Overseas investment breaches, such as wrong reporting or investing outside the permitted conditions, fall here because they breach the rules and directions made under FEMA.

The penalty is not fixed by the officer on a whim. It is imposed only upon adjudication. An Adjudicating Authority holds an inquiry and gives the person a reasonable opportunity of being heard before imposing a penalty.

The amount depends on whether the money involved can be counted. If the sum involved is quantifiable, the penalty can go up to thrice that sum. If it is not quantifiable, the cap is ₹2 lakh. Note the words "up to": the authority has discretion and can impose less.

If the contravention continues, a further penalty of up to ₹5,000 can be added for every day after the first day on which it continues.

There are two ways to close a contravention: adjudication, where the authority decides and penalises, and compounding under Section 15, where the person applies and settles the matter. Section 13 also has special provisions (1A to 1D) for undisclosed foreign assets above a prescribed threshold, which carry confiscation and even imprisonment of up to five years and fine.

Key rules to remember

Penalty where sum is quantifiable: Maximum penalty = 3 × sum involved in the contravention; Section 13(1). The words are "up to", so the authority may impose a lower amount.
Penalty where sum is not quantifiable: Maximum penalty = ₹2,00,000; Section 13(1). Applies when the amount involved cannot be quantified.
Continuing contravention: Further penalty ≤ ₹5,000 × number of days after the first day; Section 13(1). The first day is not counted for this additional penalty.
Confiscation and repatriation: Adjudicating Authority may confiscate currency, security or property involved and direct foreign exchange holdings to be brought back or retained outside India; Section 13(2). It is in addition to the penalty, at the authority's discretion.
Undisclosed foreign assets above threshold: Penalty up to 3 × sum involved plus confiscation of equivalent value in India; imprisonment up to 5 years and fine under 13(1C); Section 13(1A) and (1C). Applies where value exceeds the threshold prescribed under the proviso to Section 37A(1). Court takes cognizance only on a written complaint by an officer not below Assistant Director.
Compounding: Application by contravener; compounded within 180 days of receipt of application; Section 15. Once compounded, no further proceedings for that contravention.
Adjudication timeline: Endeavour to dispose of complaint within 1 year of receipt; Section 16(6). If delayed, reasons must be recorded periodically in writing.
Contravention by companies: Company plus persons in charge and responsible are deemed guilty; Section 42(1). A person escapes by proving lack of knowledge or due diligence.

How to solve Penalties and Contraventions under FEMA Section 13 questions

Use this order for any question on penalties or contraventions under FEMA, including overseas investment cases.

1Identify the contravention: which provision, rule, regulation, direction, order or authorisation condition was breached.
2Check whether the sum involved is quantifiable. If yes, the cap is three times that sum. If not, the cap is ₹2 lakh.
3Check whether the contravention continues. If yes, add up to ₹5,000 for each day after the first day.
4State that the penalty is imposed only upon adjudication, after a complaint in writing and a reasonable opportunity of being heard (Section 16).
5Mention additional powers: confiscation and directions to bring back or retain foreign exchange under Section 13(2).
6Mention the alternative of compounding under Section 15 on the person's application, and its effect.
7If the person is a company, apply Section 42 to those in charge, and the due diligence defence.
8Close with a clear conclusion giving the maximum penalty and the route available.

Quickest way: Three-line penalty check

When to use it: When a numerical question gives the sum involved and the number of days of default, and time is short.

Write the cap: 3 × sum involved (or ₹2,00,000 if not quantifiable).
Write the daily cap: ₹5,000 × (total days − 1).
Add the two for the maximum exposure, then say it is "up to" and subject to adjudication, with compounding as an option.

Common mistakes in Penalties and Contraventions under FEMA Section 13

Stating the penalty as exactly three times the sum involved.
Students memorise "thrice" and drop the words "up to".
Fix: Always write "up to thrice the sum involved". The authority has discretion to impose less.
Counting the first day for the daily penalty.
Students multiply ₹5,000 by the total days of default.
Fix: The further penalty runs for every day after the first day. Use total days minus one.
Treating Section 13 as a criminal offence in every case.
Confusion with the special sub-sections 13(1A) to 13(1D).
Fix: The general penalty is civil and imposed on adjudication. Imprisonment arises only under 13(1C) for foreign assets above the prescribed threshold.
Mixing up adjudication and compounding.
Both end a contravention and both are in the same chapter.
Fix: Adjudication starts on a complaint and the authority imposes a penalty after a hearing. Compounding starts on the contravener's own application under Section 15 and bars further proceedings.
Forgetting the ₹2 lakh limit applies only when the sum is not quantifiable.
Students apply the ₹2 lakh figure as a general maximum.
Fix: Apply three times the sum first. Use ₹2 lakh only when the amount cannot be quantified.
Ignoring Section 42 when the contravener is a company.
Students focus on the company and forget the officers.
Fix: State that persons in charge and responsible are also deemed guilty, subject to proving no knowledge or due diligence.

Worked examples

Example 1

An Indian company made an overseas investment of ₹40,00,000 in breach of the conditions of the applicable rules. The breach continued for 11 days. Calculate the maximum penalty the Adjudicating Authority can impose under Section 13(1), assuming the sum involved is quantifiable and equals the investment.

Show the solution

The sum involved is quantifiable: ₹40,00,000.
Maximum main penalty = 3 × ₹40,00,000 = ₹1,20,00,000.
The contravention continued for 11 days. The further penalty applies for every day after the first day, so for 11 − 1 = 10 days.
Maximum further penalty = 10 × ₹5,000 = ₹50,000.
Total maximum = ₹1,20,00,000 + ₹50,000 = ₹1,20,50,000.
The penalty is imposed only upon adjudication, and the authority may impose less.

Answer: The maximum penalty is ₹1,20,50,000 (₹1,20,00,000 plus ₹50,000), imposed only after adjudication.

Example 2

A person contravenes a FEMA direction, but the amount involved cannot be quantified. The authority wishes to know the penalty and whether the person can avoid adjudication. Advise.

Show the solution

Provision: Section 13(1) penalises contravention of any direction made under the Act.
The amount is not quantifiable, so the penalty can be up to ₹2,00,000.
If the contravention continues, a further penalty of up to ₹5,000 per day after the first day may be added.
Adjudication under Section 16 requires a written complaint by an authorised officer and a reasonable opportunity of being heard. The person may appear personally or through a legal practitioner or chartered accountant.
Under Section 15, the person may apply for compounding. It is to be done within 180 days from receipt of the application by the Director of Enforcement or other authorised officers, including officers of the Reserve Bank.
Once compounded, no proceeding or further proceeding can be initiated or continued for that contravention.

Answer: The penalty can be up to ₹2,00,000 plus up to ₹5,000 per day after the first day if it continues. The person can avoid adjudication by applying for compounding under Section 15, which bars further proceedings for the compounded contravention.

Exam tips

Write the section number with every rule: Section 13 for penalty, 15 for compounding, 16 for adjudication, 42 for companies.
In numerical questions, show the 3 × sum step and the (days − 1) × ₹5,000 step separately for step marks.
For difference questions, use the points: who starts it, who decides, outcome, and effect on further proceedings.
Always use the words "up to" and "upon adjudication" in your conclusion.
If a question mentions undisclosed foreign assets, bring in Sections 13(1A) to 13(1D) and 37A.

Practice questions from Overseas Direct Investment

Penalties and Contraventions under FEMA Section 13 in other exams

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

Penalties and Contraventions under FEMA Section 13: frequently asked questions

What is the penalty under Section 13 of FEMA?

If the sum involved is quantifiable, the penalty can be up to three times that sum. If it is not quantifiable, it can be up to ₹2 lakh. For a continuing contravention, a further penalty of up to ₹5,000 per day after the first day may be added.

What is the difference between adjudication and compounding under FEMA?

Adjudication begins on a written complaint and ends with the Adjudicating Authority imposing a penalty after hearing the person. Compounding begins on the contravener's own application under Section 15. Once compounded, no further proceedings are taken for that contravention.

How can an ODI violation be compounded?

The person who committed the contravention applies for compounding under Section 15. The application is dealt with by the Director of Enforcement or authorised officers of the Directorate and the Reserve Bank, within 180 days of receipt of the application, in the prescribed manner.

Are company directors liable for a FEMA contravention by the company?

Yes. Under Section 42, persons in charge of and responsible for the company's business are deemed guilty along with the company. They escape liability if they prove the contravention took place without their knowledge or that they exercised due diligence.

Can FEMA lead to imprisonment?

The general Section 13(1) penalty is monetary. Imprisonment up to five years and fine arises under Section 13(1C) for acquiring foreign exchange, foreign security or immovable property outside India above the prescribed threshold.