ED seizes over ₹5,500 Cr of Xiaomi in assets over Forex violations

The Enforcement Directorate on Saturday seized over ₹5,500 crore in assets from smartphone company Xiaomi, over alleged violation of the Indian foreign exchange law.

The agency seized the money (₹5,551.27 crore) from the bank accounts of Xiaomi Technology India Private Limited, an Indian subsidiary of the Chinese company, under the Foreign Exchange Management Act (FEMA), 1999.

The ED says that the Indian arm of the company has been making remittances to three foreign companies, including a Xiaomi entity, at the alleged behest of its Chinese parent company.

The company, however, has maintained that it strictly adheres to local laws and regulation during its operations.

The ED had initiated its probe into the company’s finances way back in February this year after irregularities in forex violations surfaced. The agency had also questioned Xiaomi’s president Manu Kumar in April.

“The company started its operations in India in 2014 and started remitting the money from 2015. The company has remitted foreign currency equivalent to ₹5,551.27 crore to three foreign based entities which include one Xiaomi group entity in the guise of royalty. Such huge amounts in the name of royalties were remitted on the instruction of their Chinese parent group entities. The amount remitted to other two US-based unrelated entities was also for the ultimate benefit of the Xiaomi group entities,” the ED said in a statement.

The ED questioned the remittances as Xiaomi India, which sells mobile phones in India under the MI brand, has not availed any service from the said three foreign companies to pay them back.

“Xiaomi India procures completely manufactured mobile sets and other products from the manufacturers in India. Xiaomi India has not availed any service from the three foreign based entities to whom such amounts have been transferred. Under the cover of various unrelated documentary façade created amongst the group entities, the company remitted this amount in the guise of royalty abroad which constitutes a violation of Section 4 of the FEMA. The Company also provided misleading information to the banks while remitting the money abroad,” the agency’s statement said.

In its defence, Xiaomi has said that the remittance was a “legitimated commercial agreement” made by Xiaomi India to make “royalty payments” to the three companies.

“These royalty payments that Xiaomi India made were for the in-licensed technologies and IPs used in our Indian version products. It is a legitimate commercial arrangement for Xiaomi India to make such royalty payments. However, we are committed to working closely with government authorities to clarify any misunderstandings,” the company said in a statement.