Foreign Exchange Lapses Cost Apollo Hospitals Dear; RBI Imposes Compounding Penalties

(By Syed Ali Taher Abedi)

The Reserve Bank of India (RBI) has issued a compounding order under Section 15 of the Foreign Exchange Management Act, 1999 (FEMA) in respect of M/s Apollo Hospitals Enterprises Limited and five concerned directors/officers, bringing adjudication proceedings to an end after the Directorate of Enforcement (ED) issued a “no objection”.

The compounding follows an ED investigation initiated on the basis of credible information under FEMA provisions. After completion of its probe, the ED filed a complaint under Section 16 of FEMA before the Adjudicating Authority.

Apollo Hospitals subsequently applied to the RBI for compounding of the alleged contraventions under Section 15. On RBI’s reference, the ED provided a no-objection in keeping with the Act’s remedial framework, enabling the central bank to compound specified contraventions.

RBI’s order, relying on the ED’s no-objection, records the following compounded contraventions and the sums involved:

• Receiving foreign direct investment (FDI) in a prohibited sector (retail trading) and subsequent FDI without requisite government approval, contravening Regulation 5(1) read with Para B (1) of Annex A to Schedule 1, further read with SI.No. 16.5 of Annex B to Schedule 1 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000. Amount involved: Rs. 859,87,52,902.
• Issuance of Foreign Currency Convertible Bonds (FCCBs) in breach of Regulation 21(2)(i) read with para (i) of Schedule 1 of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004, read with Regulation 5(1) and relevant FEMA provisions. Amount involved: Rs. 70,02,47,500.
• Receiving foreign investment under the FII-PIS route that, in aggregate, breached the 24% paid-up capital limit, contravening Regulation 5(2) read with Para 1(4) of Schedule 2 of FEMA 20. Amount involved: Rs. 623,87,69,051.
• Breach of the overall sectoral cap of 51% for foreign shareholding in multi-brand retail trading, contravening Regulation 5(1) read with SI.No. 16.5 of Annex B to Schedule 1 of FEMA 20. Amount involved: Rs. 870,66,92,914.

The contraventions were compounded upon payment of a one-time sum of Rs. 17,76,80,121 by M/s Apollo Hospitals Enterprises Limited. Each of the five concerned directors/officers Preetha Reddy, Suneetha Reddy, S.K. Venkatraman, Akhileswaran Krishnan and S.M. Krishnan paid Rs. 18,00,000 each.

RBI’s compounding order terminates the adjudication proceedings under FEMA against the company for the specified contraventions and forecloses further litigation on those points.

The action underscores coordinated enforcement between ED and RBI, and highlights regulatory scrutiny of foreign investment routes, sectoral caps and convertible instruments in corporate funding.

Observers said the case illustrates the enforcement pathway under FEMA where ED-led investigations may proceed to adjudication but could be resolved by compounding on payment and ED concurrence, balancing recovery with finality of proceedings.