Module: | MODULE A: INTERNATIONAL BANKING
Q184: Consider the following statements regarding the enforcement and penalties under the Foreign Exchange Management Act:
1. Any contravention of the provisions of the Foreign Exchange Management Act is strictly treated as a criminal offense leading to immediate arrest without notice.
2. The Reserve Bank of India has the power to compound any contravention under the Act, allowing the violator to settle the matter by paying a monetary penalty without formal litigation.
3. If a financial penalty imposed for a contravention is not paid within 90 days, the offender becomes liable for civil imprisonment.
Which of the statements given above is or are INCORRECT?
2. The Reserve Bank of India has the power to compound any contravention under the Act, allowing the violator to settle the matter by paying a monetary penalty without formal litigation.
3. If a financial penalty imposed for a contravention is not paid within 90 days, the offender becomes liable for civil imprisonment.
Which of the statements given above is or are INCORRECT?
✅ Correct Answer: A
🎯 Quick Answer:
Option A is correct because only statement 1 is incorrect.Structural Breakdown: A foundational principle of the Act is that contraventions are treated as civil offenses, punishable by financial penalties, not as criminal offenses.
Therefore, Statement 1 is false.
Statement 2 is true; the compounding process is a voluntary mechanism where an entity admits a mistake and pays a fine to close the case efficiently.
Statement 3 is also true; under Section 14 of the Act, failure to pay the levied monetary penalty within 90 days upgrades the civil penalty to potential civil imprisonment.
Historical Context: This civil approach marks the biggest paradigm shift from the predecessor law, the Foreign Exchange Regulation Act of 1973, which was draconian and treated any foreign exchange violation as a severe criminal offense leading to immediate police arrest.
Causal Reasoning: The shift from criminal to civil liability was caused by the need to decriminalize corporate business practices post-liberalization.
The government recognized that honest administrative errors in international trade should be penalized financially rather than treating business professionals like common criminals, which would stifle international trade.