FEMA Law Violations: Consequences and Recourse

Welcome to our blog - let’s look at the intricate world of FEMA (Foreign Exchange Management Act) laws and the serious consequences that can follow if someone violates them. In this article, we'll explore the penalties for contravention, the possible scenarios when caught, and the steps to take in case of a violation.

Penalties for Violating FEMA Laws: If an individual contravenes FEMA regulations, also known as a violation, they could face a penalty of up to 300% of the sum involved in the offense. In cases where the sum is not quantifiable, the penalty can be set at Rs 2,00,000. Moreover, if the violation is ongoing, an additional penalty of Rs 5000 per day may apply. Let's look at a practical example to understand this better.

Scenario 1: Violation of Land Purchase Suppose an individual, let's call him Mr. X, who is a non-resident Indian (NRI), buys agricultural land in India, contrary to FEMA regulations, and the land's value is 15 lakhs. Mr. X will be liable to pay a penalty of Rs 45,00,000, which is three times the value of the land. Paying the penalty, however, does not permit him to keep the land. He is required to sell it to an Indian resident.

Consequences of Violation: It's crucial to note that paying the penalty does not grant immunity from selling the property. Violations cannot be retained, and the RBI will mandate selling the property to a resident individual. Therefore, it's a misconception to assume that penalties provide an avenue to keep the violated asset.

Violation: Holding an NRE Savings Account Another common violation is holding an NRE (Non-Resident External) savings account by a resident Indian. If someone is found to have committed this violation, they may face a penalty of Rs 5000 per day for each day of the violation, without any upper limit. It's vital to correct such violations promptly.

Compounding Violations: In certain cases, individuals may have the option to compound the contraventions by admitting guilt and seeking regularization of the transactions. Compounding allows individuals to approach the Reserve Bank of India (RBI) to request regularization. However, not all violations can be compounded. Transactions involving suspected money laundering, hawala transactions, or those affecting the nation's integrity may not be eligible for compounding.

Seeking Professional Guidance: The complexity of FEMA laws makes it essential for individuals to consult professionals with expertise in this area. Chartered accountants, company secretaries, and advocates can offer specialized guidance on FEMA law matters. If you receive a notice of violation, avoid trying to handle it yourself; instead, seek the advice of a qualified consultant.

Conclusion: FEMA law violations can lead to severe consequences, and there is no time limit for penalizing these violations. The best approach is to abide by the laws of the land and consult professionals when needed. Ignorance is not an excuse under the law, so it's essential to be well-informed and compliant to avoid facing penalties. Remember, adherence to FEMA regulations safeguards both individuals and the nation's financial integrity.