Case Note & Summary
The petitioner, Mrs. Joyce Lynn Peters, filed a writ petition under Articles 226 and 227 of the Constitution of India challenging the rejection of her application for compounding of contravention under Section 15 of the Foreign Exchange Management Act, 1999 (FEMA). The Reserve Bank of India (RBI) had rejected the application vide letter dated 17.6.2016 (Annexure-K) and communication dated 24.10.2016 (Annexure-P), citing Rule 11 of the Foreign Exchange Compounding Proceedings Rules, 2000, on the ground that proceedings were pending before the Special Director of Enforcement. The petitioner contended that the rejection was arbitrary and that compounding is a statutory right under Section 15 of FEMA. The respondents argued that Rule 11 permits rejection when adjudication proceedings are pending. The High Court examined the provisions and held that Rule 11 is procedural and does not create a substantive bar to compounding. The court observed that the RBI must consider the compounding application on its merits, even if adjudication proceedings are ongoing. The impugned letters were quashed, and the RBI was directed to reconsider the application in accordance with law. The petition was allowed.
Headnote
A) Foreign Exchange Law - Compounding of Contravention - Section 15 of Foreign Exchange Management Act, 1999 read with Rule 11 of Foreign Exchange Compounding Proceedings Rules, 2000 - The petitioner sought compounding of alleged contravention of FEMA provisions. RBI rejected the application citing pendency of proceedings before the Special Director of Enforcement under Rule 11. The High Court held that Rule 11 does not bar compounding during pendency of adjudication; compounding is a statutory right under Section 15 and must be considered on merits. The rejection was quashed and RBI was directed to reconsider the application. (Paras 1-6) B) Administrative Law - Exercise of Discretion - Rule 11 of Foreign Exchange Compounding Proceedings Rules, 2000 - The court interpreted Rule 11 as procedural, not a substantive bar. It held that the RBI cannot mechanically invoke Rule 11 to deny compounding; the authority must apply its mind and consider the application on its own merits. The impugned letters were set aside. (Paras 3-6)
Issue of Consideration
Whether the Reserve Bank of India can reject an application for compounding of contravention under Section 15 of the Foreign Exchange Management Act, 1999 solely on the ground that proceedings are pending before the Special Director of Enforcement, invoking Rule 11 of the Foreign Exchange Compounding Proceedings Rules, 2000.
Final Decision
The writ petition is allowed. The impugned letters dated 17.6.2016 (Annexure-K) and 24.10.2016 (Annexure-P) are quashed. The respondent Nos.1 and 2 are directed to reconsider the petitioner's application for compounding in accordance with law, without being influenced by the pendency of proceedings before the Special Director of Enforcement.
Law Points
- Compounding under FEMA is a statutory right
- not a privilege
- Rule 11 of the Foreign Exchange Compounding Proceedings Rules
- 2000 cannot be used to reject compounding application solely because proceedings are pending before the Special Director
- RBI must consider compounding application on merits even if adjudication proceedings are ongoing
- Section 15 of FEMA
- 1999 provides for compounding of contraventions
- Rule 11 is procedural and does not bar compounding during pendency of adjudication.
