Divi’s Laboratories Penalized for Procedural Lapse in Annual Performance Report Submission

The Directorate of Enforcement (Hyderabad Zonal Office) recently levied a penalty of ₹6 lakhs each on Divi’s Laboratories Limited and its Chief Executive Officer (CEO) for delayed submission of Annual Performance Reports (APRs) related to the company’s overseas subsidiaries. The order, issued on November 19, 2024, cites procedural violations under Section 13(1) of FEMA, 1999.

The subsidiaries involved are Divi’s Laboratories Europe AG and Divi’s Laboratories (USA) Inc., with delays in APR filings for the fiscal years 2005-06 to 2010-11, 2013-14, and 2014-15. Despite the penalties, the company has confirmed that this issue will not impact its financials, operations, or other business activities.

Details of the Action

The penalty order was officially communicated to the company on November 22, 2024. This procedural delay in compliance was identified during an audit of overseas investments. The penalty aligns with FEMA’s enforcement regulations aimed at ensuring timely submission of critical reports by companies with international subsidiaries.

Company’s Response

In its statement, Divi’s Laboratories affirmed that it will pay the penalty within the prescribed timeline, ensuring full compliance with the directive. The company emphasized that this is an isolated procedural issue with no material effect on its operations, financial performance, or future plans.

Understanding FEMA Compliance

The Foreign Exchange Management Act (FEMA) governs international financial transactions to ensure that Indian companies operating globally adhere to financial and procedural norms. Non-compliance, including delays in APR filings, can attract financial penalties and corrective actions.

Impact on Divi’s Laboratories

1. Financial Implications: The ₹6 lakh penalties for both the company and its CEO are immaterial to the firm’s financial standing, given its robust revenue and profit base.
2. Operational Impact: Divi’s Laboratories has clarified that the procedural delays and subsequent penalties will not disrupt ongoing operations or future business strategies.
3. Investor Confidence: Prompt resolution of the issue is likely to reassure investors about the company’s commitment to compliance and transparency.

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