Rule 5 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 5 sends contraventions of clause (a) of section 3 of the Foreign Exchange Management Act, 1999 to the Directorate of Enforcement for compounding, and divides them into five slabs by the sum involved. Each slab has a named officer or pair of officers. Like rule 4, it carries a three-year bar on a similar contravention and prescribes the application and fee. A matter of this kind can be taken up through our legal consultation service.
Under rule 5 of the Foreign Exchange (Compounding Proceedings) Rules, 2024 (as notified on 12 September 2024), a contravention of clause (a) of section 3 is compounded by the Directorate of Enforcement: five lakh rupees or below, a Deputy Director; above five lakh but below ten lakh, an Additional Director; ten lakh to below fifty lakh, a Special Director; fifty lakh to below one crore, the Special Director with the Deputy Legal Adviser; and one crore or more, the Director of Enforcement with the Special Director. The fee is ten thousand rupees plus goods and services tax.
Which text is being explained
The Rules are G.S.R. 566(E) dated 12th September, 2024, made by the Central Government under clause (b) of sub-section (2) of section 46 read with sub-section (1) of section 15 of the Foreign Exchange Management Act, 1999. See our articles on section 15, section 46 and section 3, which is the section whose clause (a) is the subject of this rule. Later amendments should be checked on the Gazette site.
Rule 5(1): five slabs
Rule 5(1) opens: "If any person contravenes the provisions of clause (a) of section 3 of the Act," and sets out five cases. In each the stated officer or officers "may compound such contravention in accordance with the provisions of these rules".
| Sum involved | Who compounds (rule 5(1)) |
|---|---|
| (a) Five lakh rupees or below | The Deputy Director of the Directorate of Enforcement |
| (b) More than five lakh rupees but less than ten lakh rupees | The Additional Director of the Directorate of Enforcement |
| (c) Ten lakh rupees or more but less than fifty lakh rupees | The Special Director of the Directorate of Enforcement |
| (d) Fifty lakh rupees or more but less than one crore rupees | The Special Director along with the Deputy Legal Adviser of the Directorate of Enforcement |
| (e) One crore rupees or more | The Director of Enforcement along with the Special Director of the Directorate of Enforcement |
The slabs differ from rule 4 in two ways. They are expressed as ranges with a lower and an upper boundary (for example "ten lakh rupees or more but less than fifty lakh rupees"), so each sum falls in exactly one slab; and slabs (d) and (e) need two officers acting together. Compare the Reserve Bank slabs in the rule 4 article, which use ceilings and a "not below the rank" formula.
One point to keep straight: rule 3 names the Director of Enforcement and officers not below Deputy Director or Deputy Legal Adviser as compounding authorities. Rule 5(1) then names specific officers by designation. The Rules do not say how a "Deputy Director" in rule 5(1)(a) relates to the "not below the rank of Deputy Director" test in rule 3; read both as printed.
Rule 5(2): the three-year bar
As in rule 4, nothing in sub-rule (1) applies to a contravention committed by any person within a period of three years from the date on which a similar contravention committed by him was compounded under the Rules. The Explanation says that a second or subsequent contravention committed after the expiry of three years from the date on which the earlier contravention was compounded shall be deemed to be a first contravention.
Rule 5(3): the Director's control
Every officer of the Directorate of Enforcement specified in sub-rule (1) shall exercise the powers to compound subject to the direction, control and supervision of the Director of Enforcement.
Rule 5(4): application and fee
Every application for compounding under rule 5 shall be made in the prescribed Form to the Director, Directorate of Enforcement, New Delhi, along with a fee of ten thousand rupees plus goods and services tax, as applicable, by demand draft, or NEFT, or other permissible electronic or online modes of payment, in favour of the compounding authority. For the Form see the article on the compounding application form and fee.
Where rule 5 stops
Rule 9 says no contravention shall be compounded where the amount involved is not quantifiable, where section 37A of the Act is applicable, where the Directorate of Enforcement is of the view that the proceeding relates to a serious contravention suspected of money-laundering, terror financing or affecting the sovereignty and integrity of the nation, where the Adjudicating Authority has already imposed a penalty under section 13, or where further investigation by the Directorate is needed to ascertain the amount. These exclusions are explained in the article on contraventions that cannot be compounded. The time for the order is in rule 8(2) and payment in rule 10; see the procedure article. For the powers of the Directorate in general, see our guide on the Enforcement Directorate and FEMA.
Example
Veda Traders, a partnership, has a contravention of clause (a) of section 3 involving ₹8,00,000. That is more than five lakh rupees but less than ten lakh rupees, so rule 5(1)(b) points to the Additional Director. If the sum were exactly ₹5,00,000, rule 5(1)(a) would apply, because that slab includes "five lakh rupees or below". If the sum were ₹1,00,00,000, slab (e), "one crore rupees or more", applies and the Director of Enforcement acts along with the Special Director. Veda Traders would file the prescribed Form with the Director, Directorate of Enforcement, New Delhi, with ten thousand rupees plus goods and services tax.
If instead the contravention concerned a different section of the Act, rule 4 and the Reserve Bank would be the route.
Common mistakes
- Sending a clause (a) of section 3 case to the Reserve Bank. Rule 4(1) excludes it.
- Misreading slab edges: five lakh is slab (a); ten lakh is slab (c); fifty lakh is slab (d); one crore is slab (e).
- Expecting one officer at the top two slabs. Rule 5(1)(d) and (e) name two officers.
- Treating compounding as certain. Rule 9 bars it in the listed cases.
Need help with a section 3 contravention?
Contraventions of this kind are often tied to wider enquiry, and the way the first response is framed can shape the outcome. Our legal consultation service can review the facts, advise on whether compounding is suitable and prepare the application.
Key takeaways
- Rule 5 applies only to contraventions of clause (a) of section 3 of the Act.
- Five slabs run from five lakh rupees or below to one crore rupees or more, with two officers acting in the top two.
- The three-year bar and Explanation mirror rule 4.
- The application goes to the Director, Directorate of Enforcement, New Delhi, with a ten thousand rupee fee plus goods and services tax.
- Rule 9 lists cases that cannot be compounded.
Read next
- Reserve Bank compounding powers by amount: rule 4
- Contraventions that cannot be compounded: rules 6, 7 and 9
- Section 3 of FEMA: dealing in foreign exchange and payments to non-residents
- Compounding of contraventions under FEMA
Disclaimer: Based on the rules, regulations and Reserve Bank Master Directions under the Foreign Exchange Management Act, 1999 that this article names, each in the version and up to the date stated in the article, as consulted on 2 October 2026. Some texts are third-party copies or older prints and are identified as such. Limits, forms and time limits change by amendment and circular; later changes should be checked on the Reserve Bank and Gazette sites. This article is general information, not legal advice; check the official text before acting.