FEMA 1999 Section 13: Penalties (2026)

Explainer · Foreign Exchange Law · FEMA

Updated for 2026 · Claw Editorial

Section 13 of the Foreign Exchange Management Act, 1999 (FEMA) is the penalty provision. It says that if a person breaks FEMA, any rule or regulation made under it, any notification, direction or order of the Reserve Bank, or a condition attached to an authorisation, that person is liable to a penalty. FEMA is a civil law, not a criminal one, so the usual punishment is a money penalty decided by an Adjudicating Authority, not a jail term. The only big exception is undisclosed foreign assets, where later changes to Section 13 added confiscation and prosecution. This explainer sets out what Section 13 says, how the penalty is worked out, the procedure, and what the courts have said. Last verified October 2026.

01What Section 13 says

Section 13(1) is the core rule. If any person contravenes FEMA, or any rule, regulation, notification, direction or order issued under it, or breaches a condition of an authorisation given by the Reserve Bank, that person is liable to a penalty.

So Section 13 covers a wide range of breaches: an outward remittance made without the right approval, foreign investment that does not follow the rules, a delay in bringing back export proceeds, or acquiring property abroad in a way the rules do not allow. The penalty attaches to the breach itself.

02How the penalty is worked out

The amount depends on whether the sum involved in the breach can be measured in money.

These are ceilings, not fixed amounts. Section 13 does not set a minimum penalty, so the Adjudicating Authority has discretion to fix a figure anywhere up to the cap, based on the facts, the seriousness of the breach and whether it was deliberate.

Section 13 also allows the Adjudicating Authority to confiscate any currency, security or other money or property in respect of which the contravention has taken place. So a penalty and confiscation can come together.

03The foreign-asset sub-sections

The Finance Act, 2015 added tougher sub-sections for undisclosed assets held abroad. They work with Section 37A, which lets authorities seize equal-value assets in India.

• Section 13(1A): where a person is found to have acquired foreign exchange, foreign security or immovable property outside India above the value fixed under the Section 37A proviso, the penalty can be up to three times the sum involved, and equal-value property held in India can be confiscated.
• Section 13(1C): in addition, such a person can face imprisonment of up to five years and a fine. This is the one place where FEMA carries a jail term.
• Section 13(1D): a court cannot take up a Section 13(1C) offence except on a written complaint by an officer not below the rank of Assistant Director.

So the ordinary FEMA breach stays civil, but hidden foreign assets above the threshold move into a harsher zone with confiscation and possible prosecution.

04Procedure: who decides and how

A Section 13 penalty is not imposed by a court in the first instance. It follows a set path:

1. Investigation. The Directorate of Enforcement looks into the suspected breach, using its powers under Section 37 of FEMA.
2. Show cause notice. If a case is made out, a notice is issued asking the person to explain why a penalty should not be imposed.
3. Adjudication. An Adjudicating Authority holds a hearing, considers the reply and the evidence, and passes an order fixing the penalty, if any.
4. Appeal. The order can be challenged before the Appellate Tribunal, and from there to the High Court on a question of law.

Many smaller breaches never reach a penalty at all, because FEMA allows compounding. Instead of fighting the case, a person can admit the breach and pay a compounding amount to close it. For how that works, see FEMA compounding in India. For the investigation stage, see Section 3 of FEMA and the related rules.

05What the courts have said

Because Section 13 sets a ceiling but no floor, a recurring question is how much discretion the Adjudicating Authority has. Tribunals and courts have held that the discretion must be used judiciously, on the facts and evidence, and that a penalty well below the cap can stand where the breach is technical or the person acted in good faith.

In appeals, the Appellate Tribunal has declined to disturb a low penalty where the appellant could not show the discretion was misused, and has reduced penalties that were out of proportion to the breach. The theme is proportion: the penalty should fit the seriousness and the intent behind the breach, not simply hit the three-times ceiling.

06A practical note

The three-times figure sounds alarming, but remember three things. First, it is a maximum, and penalties are often much lower for technical or first-time breaches. Second, compounding lets you close many breaches quickly without a full fight. Third, the jail risk under Section 13(1C) is narrow and applies to undisclosed foreign assets above a threshold, not to the everyday remittance or investment slip-up.

The safe course is to regularise a breach early. Voluntary disclosure and a compounding application usually lead to a far better outcome than waiting for a show cause notice. Keep clear records of approvals, dates and the purpose of every foreign exchange dealing.

07Where Claw fits

Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.

How a Section 13 penalty is likely to be fixed depends heavily on how Adjudicating Authorities, the Appellate Tribunal and High Courts have treated similar breaches. Claw lets you search more than 30 crore judgments and orders, with Supreme Court rulings from 1950 and High Court rulings from 1990, to see how penalties under Section 13 have been worked out and reduced, and to read appellate orders, with results in under 5 seconds. You can also track a live FEMA appeal or writ by party or advocate name across 9,102 courts, benches and forums. Claw does not use the documents you upload to train its AI models.

Create a free Claw account to research Section 13 penalty orders and follow a pending FEMA matter, and use case search across Indian courts to find decisions on similar contraventions.

08Sources and further reading

• India Code (official text of FEMA, 1999): indiacode.nic.in
• Reserve Bank of India (FEMA rules, regulations and master directions): rbi.org.in
• Directorate of Enforcement (the authority that investigates FEMA breaches): enforcementdirectorate.gov.in
• Claw: clawlaw.in

This explainer is general information, not legal advice. FEMA rules change often through notifications and master directions, so check the current text and take advice from counsel before you act.

09Frequently asked questions