RBI Compounding Fee on One97 Communications FEMA Violation Explained for Exams

RBI compounding fee on One97 Communications FEMA violation explained in simple terms for competitive exams, covering RBI actions, FEMA rules, and key exam facts.

RBI Imposes ₹18.76 Lakh Compounding Fee on One 97 Communications for FEMA Violations

Introduction: RBI’s Action Against One97 Communications

In February 2026, the Reserve Bank of India (RBI) imposed a compounding fee of ₹18.76 lakh on One97 Communications Limited (OCL) — the parent company of Paytm Payments Services Limited — for contravening provisions of the Foreign Exchange Management Act, 1999 (FEMA). This regulatory penalty was announced through a compounding order issued under Section 15 of FEMA. The contravention was linked to historic foreign investment transactions involving OCL’s subsidiary, Little Internet Private Limited.

Background: What Prompted the Penalty

The RBI’s order stems from investment flows made between March 2016 and June 2017, when Little Internet Singapore Private Limited invested approximately ₹33 crore into Little Internet India. The Indian central bank found these foreign investment transactions to be in contravention of FEMA regulations — particularly Regulation 5(1) read with Regulation 13 of FEMA Notification No. 120/RB-2004, which governs the reporting and compliance requirements for foreign investment.

Compounding: A Mechanism to Settle FEMA Violations

Instead of pursuing lengthy adjudication or prosecution, RBI allows corporate entities to settle technical contraventions under FEMA through a process called compounding. Under this mechanism, violators voluntarily admit to the contravention and pay a prescribed fee. Once the compounding fee is paid, the matter stands closed and no further enforcement action is pursued for the specific issue. One97 Communications opted for this settlement route, resulting in the ₹18.76 lakh compounding fee.

Regulatory Disclosure and Compliance

After receiving the compounding order, One97 Communications disclosed the RBI penalty in its quarterly filing under the Securities and Exchange Board of India (SEBI) Listing Obligations and Disclosure Requirements (LODR). This mandatory disclosure ensures transparency for investors and stakeholders about material regulatory developments affecting the company.

Broader RBI Monitoring and Related Actions

The RBI has also taken action in other FEMA compounding cases involving entities such as Nearbuy India Private Limited, another former subsidiary of One97 Communications. In a separate instance, the RBI imposed a compounding fee of around ₹4.28 lakh for related FEMA contraventions during the financial year 2025–26. These actions reflect tighter regulatory scrutiny of foreign investment compliance among corporate groups operating in the fintech and technology sectors.

Implications for Fintech and Corporate Compliance

This announcement underscores the RBI’s continued focus on ensuring strict compliance with foreign exchange regulations, especially for companies with complex corporate and investment structures spanning jurisdictions. For fintech firms like Paytm, regulatory adherence is crucial due to the cross-border nature of investments and growing integration with global capital flows.

Why This News is Important

Significance for Government Exam Aspirants

This news holds high relevance for students preparing for competitive government exams — including Banking, SSC, UPSC, RBI Grade B/A, and other finance-related positions — because it deals with:

• The Reserve Bank of India (RBI) — India’s premier financial regulator, whose actions are frequently asked in current affairs sections.
• The Foreign Exchange Management Act (FEMA) — a key law governing foreign exchange and cross-border investment rules, which is part of the Indian financial regulatory framework tested in exams.
• The concept of compounding under FEMA, an important regulatory enforcement mechanism that reflects how authorities resolve non-compliance without prosecution.

Policy and Regulatory Context

Understanding such regulatory actions helps aspirants grasp how financial governance works in India — especially regarding foreign investments, compliance reporting, and the roles of institutions like RBI and SEBI (Securities and Exchange Board of India). Questions based on regulatory enforcement, compounding orders, cross-border investments, and compliance obligations often appear in banking and finance current affairs.

Relevance Across Various Exams

This topic is particularly relevant for:

• Banking and Insurance exams — where RBI policies are a major segment.
• UPSC CSE and State PSCs — for questions about financial institutions and regulatory mechanisms.
• SSC and Railways — in the general awareness and economics sections.

By studying this development, aspirants deepen their understanding of how India’s financial regulatory framework works in practice.

Historical Context: FEMA and Compounding Mechanism

Overview of FEMA

The Foreign Exchange Management Act (FEMA), 1999 is the primary legislation regulating foreign exchange and cross-border capital flows in India. Enacted to replace the older Foreign Exchange Regulation Act (FERA), FEMA aims to facilitate external trade, promote the orderly development of the foreign exchange market, and ensure compliance with regulatory norms. The Reserve Bank of India (RBI) is the chief authority responsible for enforcing FEMA provisions.

Compounding Under FEMA

Under Section 15 of FEMA, contraventions of the Act can be resolved through a compounding process. Rather than pursuing prolonged legal adjudication or prosecution, entities can apply for compounding by admitting to the violation and paying a fee. This mechanism was introduced to expedite the resolution of technical and non-willful FEMA breaches and reduce the regulatory burden on both businesses and enforcement agencies.

RBI and Corporate Compliance

In recent years, RBI’s use of the compounding mechanism has increased, with several companies settling past violations involving foreign investments, reporting delays, or other foreign exchange compliance issues. Such settlements provide clarity to corporate entities and help maintain regulatory discipline while avoiding litigation.

Key Takeaways from “RBI Imposes ₹18.76 Lakh Compounding Fee on One97 Communications”

FAQs: Frequently Asked Questions

1. What action did RBI take against One97 Communications?

The Reserve Bank of India imposed a compounding fee of ₹18.76 lakh on One97 Communications Limited for violating provisions of the Foreign Exchange Management Act (FEMA) related to foreign investment transactions.

2. Under which law was the penalty imposed?

The penalty was imposed under the Foreign Exchange Management Act (FEMA), 1999, which regulates foreign exchange transactions and cross-border investments in India.

3. What is compounding under FEMA?

Compounding is a mechanism that allows companies or individuals to settle FEMA violations by paying a fee and admitting the contravention, thereby avoiding lengthy legal proceedings.

4. Why is FEMA important for competitive exams?

FEMA is a major financial law in India and is frequently asked in exams like UPSC, Banking, SSC, RBI Grade B, and State PSCs because it governs foreign exchange and investment policies.

5. Which authority enforces FEMA regulations in India?

The Reserve Bank of India (RBI) is the primary authority responsible for enforcing FEMA regulations.

6. What is the role of SEBI in this case?

SEBI ensures that listed companies disclose important regulatory developments to investors under the Listing Obligations and Disclosure Requirements (LODR).

7. When did the FEMA violations occur?

The violations were related to foreign investment transactions that took place between March 2016 and June 2017.

8. What is the objective of FEMA, 1999?

The objective of FEMA is to facilitate external trade, promote orderly development of the foreign exchange market, and regulate foreign exchange transactions.

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