Isabella Mariam

The Calcutta High Court, Single Bench of Justice Amrita Sinha dismissed a writ petition challenging the Reserve Bank of India’s rejection of a compounding application filed under the Foreign Exchange Management Act, 1999 (FEMA) after the conclusion of adjudication proceedings. The Court held that once an adjudication order has been passed by the competent authority, there is no scope for compounding the contravention. It was observed that allowing compounding at such a stage would render the adjudication process redundant and defeat the very purpose of the statutory scheme under FEMA and the Compounding Rules.

The Court upheld the legal position that "once the order of adjudication is passed and the adjudication proceeding is concluded, there is no scope for entertaining the prayer for compounding." The Court observed that permitting compounding post-adjudication would "frustrate the whole adjudication rendering the adjudication proceeding nugatory."

Also Read: Courts have authority to determine rate of interest. Appellants having suffered a delay of five decades are entitled to compensation: Supreme Court

Penalty of ten crore rupees imposed by the adjudicating authority stands confirmed. The interim order was vacated, and the writ petition was dismissed with no order as to costs.

The petitioner was found to have contravened provisions of FEMA, specifically the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000. The transactions in question occurred between 31st February, 2011 and 8th February, 2013. The Directorate of Enforcement issued a show cause notice on 18th November, 2022.

Subsequently, an application for compounding was filed on 20th January, 2023. However, the RBI returned the application on 8th January, 2024 due to lack of clarity and incomplete information, while granting the petitioner liberty to file a fresh application.

On legal advice, the petitioner did not file a revised compounding application. The adjudicating authority proceeded and imposed a penalty of INR 10 crore on 28th March, 2024. Thereafter, the petitioner filed a fresh application for compounding, which was again rejected by the RBI on 11th September, 2024, citing the bar on post-adjudication compounding.

The petitioner did not prefer an appeal against the adjudication order and accepted the penalty. The contention raised was that, in the absence of an appeal, compounding should still be permissible.

According to the RBI, compounding is not permissible after the adjudication order has been passed. Reference was made to various provisions under FEMA, including Sections 13 to 15 and the Foreign Exchange (Compounding Proceedings) Rules, 2000. Rule 6 states that "where any contravention is compounded before the adjudication of any contravention under Section 16, no inquiry shall be held for adjudication." Rule 11 bars compounding if an appeal under Section 17 or 19 is pending.

The Master Direction on Compounding of Contraventions under FEMA, 1999 (FED Master Direction No. 4/2015-16) and A.P. (DIR Series) Circular 31 dated 1st February, 2005 also formed the basis of arguments. Direction 5.6 specifies that incomplete applications shall not be processed. Direction 6.4 reiterates that no compounding is permissible once an appeal is filed.

The petitioner interpreted Rule 11 to mean that compounding is barred only if an appeal has been filed. Since no appeal was filed, the petitioner argued that compounding remained permissible. The RBI disagreed and maintained that adjudication's conclusion itself extinguishes the option to apply for compounding.

Justice Amrita Sinha noted that "the very object of compounding an offence will be frustrated if prayer for compounding is made after the adjudication process is concluded." The Court stated:

"Compounding cannot be claimed as a matter of right but it is always subject to the legal provisions."

The Court acknowledged that the compounding process exists to avoid prolonged adjudication and trial, but added:

"By this manner the usual lengthy process of adjudicating the offence can be avoided and valuable time can be saved."

In this case, the petitioner had previously submitted a defective application which was returned with an opportunity to refile. Instead of pursuing that option, the petitioner participated in the adjudication process without objection. The Court observed:

"The participation of the petitioner implies that the petitioner did not want to compound the offence and, accordingly, proceeded for adjudication of the same."

The Court further stated:

"The petitioner simply tried to test the waters and see as to whether the adjudication order comes in his favour or not."

The Court considered this a deliberate attempt to delay proceedings and avoid the financial penalty by revisiting the option of compounding post-adjudication.

It was also noted that allowing post-adjudication compounding would violate jurisprudential principles:

"Not more than one order on the same set of facts, between the same parties, can be permitted to be executed."

On the role and scope of the compounding authority, the Court held:

"The compounding authority does not have the determination or the jurisdiction to cancel/overrule or set at naught the order passed by the adjudicating authority."

Further, it was recorded:

"The petitioner has not been able to show a single instance when the authority permitted compounding after conclusion of the adjudication process."

Also Read: “‘Child in Womb at Time of Accident Entitled to Compensation’: Punjab and Haryana High Court Enhances Award to Legal Heirs, Holds Denial of Conventional Heads Infirm”

The Court stated that the Act does not envisage compounding post-adjudication. It observed:

"The legislature has consciously not provided the provision to compound an offence after conclusion of the adjudication process."

The Court concluded:

"The application made by the petitioner seeking compounding of the offence on conclusion of the adjudication proceeding cannot be allowed and the authority rightly rejected the application filed by the petitioner."

Accordingly, the writ petition was dismissed:

"The writ petition fails and is hereby dismissed. The interim order stands vacated."

"No costs."

Advocates Representing the Parties:

For the Petitioner: P. Chidambaram, Senior Advocate, Tanmay Bhatnagar, Advocate, Aditya Kanodia, Advocate, Shreya Trivedi, Advocate, Shounak Bhattacharya, Advocate

For the Respondents: Jaideep Gupta, Advocate, Prasun Ghosh, Advocate, Suchismita Chatterjee Ghosh, Advocate, Malay Kumar Seal, Advocate

For Enforcement Directorate: Arijit Chakraborty, Advocate, Deepak Sharma, Advocate, Swati Singh, Advocate

Case Title: Sanjay Jhunjhunwala Vs. Reserve Bank of India & Ors.

Case Number: WPA 2065 of 2025

Bench: Justice Amrita Sinha

[Read/Download order]