The Enforcement Directorate (ED) on Wednesday (June 17) announced that the Reserve Bank of India (RBI) has issued a compounding order under Section 15 of the Foreign Exchange Management Act (FEMA), 1999, in the case of M/s Apollo Hospitals Enterprises Limited and five of its directors/officials. The business group made a one-time payment of over Rs 17.76 crore, apart from Rs 18 lakh each by the executives
The order terminates all adjudication proceedings against the company and the individuals for compounded contraventions of FEMA provisions. The RBI passed the order after the ED issued a formal “No Objection”.
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According to the press note issued by the ED headquarters, the violations they investigated, based on credible information, involved large-scale foreign investment and fundraising transactions.
Contraventions totalled over Rs 2.4 cr
The alleged four-point contraventions, which were finalised for adjudication under the FEMA post-investigation, totalled more than Rs 2,424 crore, the central agency said in a statement.
One of the major contraventions involved Apollo Hospitals receiving Foreign Direct Investment (FDI) worth Rs 859.88 crore in the retail trading sector, which was a prohibited activity under the prevailing regulations at the time.
The company further received additional FDI without obtaining the requisite government approval, in violation of Regulation 5(1) read with the relevant schedules of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000.
Additionally, the company issued Foreign Currency Convertible Bonds (FCCBs) in contravention of Regulation 21(2)(i) read with Schedule 1 of FEMA Notification No. 120/2004-RB (as amended) and other related provisions. The amount involved in this violation was approximately Rs 70.02 crore.
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The firm was also accused of breaching the 24 per cent paid-up capital limit under the Foreign Institutional Investors Portfolio Investment Scheme (FII-PIS) route, violating Regulation 5(2) read with Schedule 2 of FEMA 20. The value of investments exceeding the prescribed limit was approximately Rs 623.88 crore.
Apollo Hospitals allegedly violated the overall 51 per cent sectoral cap for foreign shareholding in multi-brand retail trading. This breach, which contravenes Regulation 5(1) read with the relevant annexures of FEMA 20, involved foreign investment amounting to Rs 870.67 crore.
The contraventions were compounded by the RBI upon a one-time payment of Rs 17,76,80,121 by M/s Apollo Hospitals Enterprises Limited and Rs 18 lakh each by the five concerned directors/officials. This payment has resulted in the complete termination of all adjudication proceedings under FEMA against the company and the individuals, with no further liability.
The five directors/officials named in the compounding order are: Preetha Reddy (vice chairperson), Suneetha Reddy (managing director), S K Venkatraman, Akhileswaran Krishnan and S M Krishnan.
Why it matters?
Apollo Hospitals Enterprises Limited is one of India’s largest and most respected healthcare groups. Founded in 1983 by Dr Prathap C Reddy in Chennai, it operates a vast network of multi-speciality hospitals, Apollo Pharmacies, clinics, and diagnostic centres.
The company is listed on the NSE and BSE and has long attracted foreign investment. The Reddy family has played a central role in its growth. Preetha Reddy serves as its vice chairperson. The MD, Suneetha Reddy, is her sister.
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FEMA 1999 is India’s primary law governing all foreign exchange transactions, cross-border investments, and capital account transactions. It aims to conserve foreign exchange reserves and regulate their proper use. Compounding under Section 15 of FEMA is a voluntary, administrative mechanism.
It allows a company or individual who has inadvertently or otherwise contravened FEMA provisions to admit the violation, pay a prescribed compounding fee, and regularise the transaction. This avoids lengthy adjudication, penalties, or prosecution.
In serious or investigated cases, the ED first conducts an investigation and can file a complaint under Section 16 before the Adjudicating Authority. However, if the entity applies to the RBI for compounding, the ED may issue a “No Objection” if it is satisfied that compounding serves the larger interest of compliance. The RBI then decides on the compounding fee and issues the final order.
In this case, the ED conducted a detailed investigation and subsequently filed a complaint. Apollo Hospitals later applied to the RBI for compounding of the violations. After the ED conveyed its “No Objection”, the central bank passed the compounding order on March 10, 2023. The ED’s press release issued on Wednesday formally brings the matter to a close.
The allegedviolation cases primarily relate to compliance with sectoral caps and approval requirements for Foreign Direct Investment (FDI), particularly in retail trading and pharmacy operations. They also involve the proper issuance of Foreign Currency Convertible Bonds (FCCBs), a common fundraising instrument used by Indian companies, and adherence to Foreign Institutional Investor (FII) investment limits under the Portfolio Investment Scheme.
These are essentially technical but important regulatory requirements. The large sums involved highlight the massive scale of Apollo Hospitals’ foreign fundraising and investment activities over the years. By opting for compounding, the company has successfully regularised all the transactions and closed the matter without any admission of criminal liability or facing further proceedings.
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A compounding order in the regulatory context means a formal decision taken by an authority to settle an offence by allowing the defaulter to pay a monetary penalty instead of facing prosecution.
Compounding is a provision available in FEMA, and the ED has said that it has been promoting this provision in select FEMA cases since last year, in the spirit of the Union government’s “ease of doing business” and as a measure to reduce litigation.
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