Rule 16 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 16 says when the Adjudicating Authority may fix an amount of settlement. The person must have been served a notice, must have opted for settlement and must have admitted the contravention in the notice. The Authority may then determine the amount in three cases: a contravention made without intent or fraud, an importer who missed the actual user condition without misusing the imported goods, or an importer who did not fulfil the export obligation without misusing the imported goods. A settlement is final. Rule 16 gives effect to section 11(4) of the Act. The 2015 Amendment Rules extended clauses (ii) and (iii) to services and technology. This article explains rule 16 as per the Rules as notified in 1993 read with the 2015 Amendment Rules.
Who: a person to whom a notice has been issued, who has opted for settlement and admitted the contravention in the notice. What: the Adjudicating Authority may determine the amount of settlement. Three cases: (i) contravention without mens rea, wilful mistake, suppression, collusion, fraud, forgery or intent to cause loss of foreign exchange; (ii) actual user condition not met but imported goods not misused; (iii) export obligation not fulfilled but imported goods not misused. Effect: the settlement is final.
The source in the Act
Section 11(4) of the Act, as substituted in 2010, reads: "Where any person, on a notice to him by the adjudicating Authority, admits any contravention, the Adjudicating Authority may, in such class or classes or cases and in such manner as may be prescribed, determine, by way of settlement, an amount to be paid by that person." (The gazette prints "class or classes or cases", a drafting slip for "classes of cases", and a small "adjudicating" in the first line; the words are quoted as printed.) Section 19(2)(g) lets the rules prescribe the class or classes of cases and the manner. Rule 16 is that rule. In 1992 the settlement provision was section 11(3); the 2010 Act moved it to section 11(4), and rule 16 still refers to "settlement" without a sub-section number. See our article on section 11(1) to (4) and on section 19.
If you have a notice and are thinking of admitting the contravention, take a legal consultation before you reply, because an admission has consequences.
What changed in 2015
In clauses (ii) and (iii) of rule 16(1), the 2015 Amendment Rules replaced "goods" with "goods or services or technology or goods connected with such services and technology", and at the end of each clause replaced "imported goods" with "imported goods or services or technology". Nothing else changed. No settlement amount, scale or percentage appears in the Act or the Rules, and none is stated here.
Rule 16(1): who may be settled and in which cases
Rule 16(1) reads: "The Adjudicating Authority may determine the amount of settlement to be paid by the person to whom a notice has been issued and who has opted for settlement and has admitted the contravention specified in the notice, in the following cases, namely:—"
Three conditions on the person come first:
- A notice has been issued. This is the notice under section 14; see sections 13 and 14.
- He has opted for settlement. The choice is the person's.
- He has admitted the contravention specified in the notice. The admission must relate to the contravention in the notice.
The rule says "may". The Authority is not bound to settle even in the listed cases.
The three cases
| Clause | Case |
|---|---|
| (i) | The Authority is "of the opinion that the contravention of any provision of the Act or these rules or the Policy has been made without mensrea or without wilful mistake or without suppression of facts, or without any collusion, or without fraud and forgery, or without an intent to cause loss of foreign exchange" |
| (ii) | The person importing goods (after 2015, goods or services or technology) "has not met the requirements of the actual user conditions as specified in the Policy and has not misutilised the said imported goods" (after 2015, imported goods or services or technology) |
| (iii) | The person importing goods (after 2015, the same widened words) "has not fulfilled the export obligation and has not mis-utilised the said imported goods" (after 2015, imported goods or services or technology) |
Printing slip: clause (i) prints "mensrea" as one word (mens rea). It is kept as printed. The Authority's "opinion" in clause (i) is the test; the rule does not say what it must rest on.
Reading the clauses:
- Clause (i) is about state of mind. Each "without" is a separate qualification: no guilty intent, no wilful mistake, no suppression of facts, no collusion, no fraud or forgery and no intent to cause loss of foreign exchange. The clauses are joined by "or", so on the words, the Authority's opinion has to be that the contravention was made without those things. How the "or"s are to be read together is not explained in the rule.
- Clause (ii) is about the actual user condition under the Policy. FTP 2023, para 2.09 (in the copy consulted), deals with the Actual User condition on imports that need an authorisation. The rule requires two things: the condition was not met and the goods were not misutilised.
- Clause (iii) is about export obligation. The person imported, did not fulfil the export obligation, and did not misutilise the imported goods.
The word "and" in clauses (ii) and (iii) matters. Failure to meet the condition or obligation is not enough. The person must also show that the imported goods were not misutilised. For policy on defaults in export obligations, see our guide on the amnesty scheme for export obligation default.
Example: Brightwave Textiles (an invented firm) imported inputs under an authorisation with an export obligation. Because of a buyer's cancellation, it fell short of the obligation, but it can show that the inputs were used in making goods for export and were not sold locally. A notice alleges breach. If Brightwave opts for settlement and admits the contravention specified in the notice, the Adjudicating Authority may, in a case within clause (iii), determine an amount of settlement.
Rule 16(2): settlement is final
"Where a person has opted for settlement under sub-rule (1), the settlement made by the Adjudicating Authority shall be final."
The words "shall be final" matter for two reasons. First, the choice is a serious one: the person who opts for settlement and admits the contravention accepts the outcome. Second, the rule does not say whether any appeal under section 15 lies against a settlement. Section 15(1) speaks of "any decision or order made by the Adjudicating Authority"; whether a settlement is such an order is not stated in the sources consulted. The reader should check the current law before assuming either way. See section 15.
Settlement and other routes
- Settlement Commission. Section 11B of the Act deems settlement of customs duty and interest ordered by the Settlement Commission under section 32 of the Central Excise Act, 1944 to be a settlement under the Act. That is a separate route; see our article on sections 11A, 11B and 12.
- Other laws. Section 12 says a penalty or confiscation under the Act does not prevent other punishment under other laws; whether it applies to a settlement is not stated.
- Compounding. For a general comparison of compounding and adjudication, see our guide on compounding versus adjudication of offences.
Need help deciding whether to opt for settlement?
An admission is a serious step. Our legal consultation service can help you compare the settlement route with contesting the notice and prepare your reply. Later amendments to the Act, the Rules and the Policy should be checked.
Key takeaways
- Rule 16 lets the Adjudicating Authority determine an amount of settlement for a person who has been served a notice, has opted for settlement and has admitted the contravention in the notice.
- It covers three cases: contravention without intent or fraud, actual user condition not met without misuse, and export obligation not fulfilled without misuse.
- The Authority "may" settle; it is not bound to.
- A settlement made under rule 16 is final.
- The 2015 Rules extended clauses (ii) and (iii) to services and technology; no settlement amount is stated in the Act or the Rules.
Read next
- Section 11(1) to (4): contravention, penalty and settlement
- Rules 17 and 18: confiscation and redemption
- Sections 11A, 11B and 12: Settlement Commission and other punishments
- FTP amnesty scheme for export obligation default
Disclaimer: Based on the Foreign Trade (Development and Regulation) Act, 1992 as enacted read with the Amendment Act of 2010, and on the Foreign Trade (Regulation) Rules, 1993 as notified read with the Amendment Rules of 2015, as consulted on 2 October 2026. Later amendments, the current Foreign Trade Policy and the Handbook of Procedures should be checked. This article is general information, not legal advice; check the official text before acting.