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CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Institutions

Sunrise Textiles Ltd, an Indian company, received Rs 20 crore from a foreign investor for shares, but under FEMA the amount should have been reported within the prescribed period and was reported late. The contravention amount is quantifiable at Rs 20 crore. Which statement is correct about the proceedings?

The contravention is civil. It can be compounded by the RBI on application, and otherwise the adjudicating authority may impose a penalty up to three times the sum involved where the amount is quantifiable, which is a ceiling and not a fixed amount.

  1. AOnly criminal prosecution before a magistrate is possible
  2. BThe contravention is compounding-eligible by the RBI on application, and otherwise the adjudicating authority may impose a penalty up to three times the sum involved where quantifiableCorrect
  3. CNo penalty is possible for a reporting delay
  4. DPenalty is fixed at exactly Rs 20 crore as a flat amount

Explanation

FEMA provides for penalty up to three times the sum involved where the amount is quantifiable, and for compounding of contraventions by the RBI on application. Late reporting is commonly dealt with by compounding or late submission fee frameworks. It is not a criminal matter, and the penalty is a ceiling, not a fixed Rs 20 crore.

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