RBI issues compounding order for FEMA violations by Apothecon Pharmaceuticals

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RBI compounding on Apothecon

Highlights

RBI issued a compounding order against Apothecon Pharmaceuticals Private Limited for FEMA violations, including delays and procedural breaches involving amounts from Rs. 99,126,630 to Rs. 299,736,399.
After settlement of cases involving delays in reporting Form ARF, FCGPR, FLA Return, and share allotment without prior approval, the ED will not conduct further investigation or action.
Under RBI's new 2024 compounding rules, voluntary compliance by eligible companies, reduction in litigation, and increased transparency in the process have been promoted, supporting ease of doing business.

This article was translated from the original. Read the original version by our correspondent here.

Scope of Compounding Order and Violations

According to the Enforcement Directorate press release, the RBI issued this compounding order under Section 15 of the Foreign Exchange Management Act, 1999, after receiving a No Objection from the Directorate of Enforcement, ED. This concludes action against Apothecon Pharmaceuticals Private Limited for those violations deemed eligible for compounding.

The case involved delays in reporting Form ARF, delays in filing FCGPR, issuing shares before receipt of foreign funds, allotting shares after 180 days of receipt of funds, delays in filing FLA Return for multiple financial years, and allotting shares without prior approval from the Government of India. The amounts mentioned in the text include Rs. 99,126,630 related to Form ARF delay, Rs. 299,736,399 for FCGPR delay, Rs. 1,848,280 for advance share issuance, Rs. 22,499,550 for share issuance delayed by more than 180 days, and Rs. 89,404,500 for share allotment without prior approval.

According to the text, the ED initiated the investigation based on credible information, while the company filed for compounding in the meantime. Under FEMA, once the compounding amount is deposited within the stipulated period, no further proceedings are initiated or continued regarding the related violation.

Compliance Framework and Business Impact

FEMA is primarily a civil law, and Section 15 aims to promote voluntary compliance, reduce litigation, and enable speedy settlement of cases. The Foreign Exchange (Compounding Proceedings) Rules, 2024, lay down the process for filing applications, examining cases, and passing orders, while certain serious violations, such as those involving money laundering or suspected terrorist financing, are excluded from compounding.

Under Rule 3, the RBI is the competent authority for compounding eligible violations within its jurisdiction and has also issued a matrix for determining the amount based on the nature, gravity, duration, and amount involved. The ED has stated that where violations are eligible for compounding, conditions are met, and there are no legal impediments, the NOC mechanism supports voluntary compliance, reduces unnecessary litigation, and promotes ease of doing business.

This case indicates that for procedural violations related to foreign investment reporting and share allotment, companies can obtain relief by taking corrective steps, strengthening internal controls, and compliance mechanisms. After compounding by the RBI, the ED withdraws such proceedings and closes the investigation, and major cases are shared publicly so that eligible parties in similar pending cases can apply to the RBI.

Our previous report detailed ED's action on alleged illegal earnings from organized immigration and visa fraud in Jalandhar, where prosecution complaints were filed against several firms and individuals under PMLA. The article highlighted alleged manipulation in visa applications through fake documents and fabricated fund proofs, assessment of proceeds of crime, and enforcement actions such as seizure of cash/gold and freezing/attachment of properties during searches.

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