ED’s Seizure Of Xiaomi’s INR 5,551 Cr Funds Confirmed By FEMA Authority

In mounting problems for Chinese smartphone manufacturer Xiaomi, the Enforcement Directorate (ED) on Friday (September 30) said that the competent authority has confirmed the seizure of the company’s INR 5,551.27 Cr worth of funds in a Foreign Exchange Management Act (FEMA) probe.

In July this year, the Karnataka High Court (HC) ordered the competent authority (CA) to take a call on the veracity of seizure of INR 5,551.27 Cr in the bank accounts of Xiaomi within 60 days. 

This is the highest seizure amount confirmed by the CA in the country till date. 

“The Authority, while confirming the seizure of INR 5551.27 Cr, held that ED is right…foreign exchange equivalent to INR 5,551.27 Cr has been transferred out of India by Xiaomi India in an unauthorised manner and is held outside India on behalf of the group entity in contravention of Section 4 of the FEMA, 1999 and the same is liable to be seized in terms of provisions of Section 37A of the FEMA,” the ED said in a statement. 

The CA also noted that royalty payments by Xiaomi were ‘nothing but a tool’ to transfer the foreign exchange out of the country, it added.

Xiaomi has been entangled in regulatory problems since the beginning of this year. The company has been in the crosshairs of agencies including the Income Tax Department, the Directorate of Revenue Intelligence (DRI) and the Enforcement Directorate (ED) over compliance issues ranging from customs duties to foreign exchange.

Remittance Of Funds To Foreign Entities

The case pertains to an overarching probe into the smartphone manufacturer. Earlier, the ED had summoned Xiaomi’s former India head Manu Jain and seized the proceeds in connection with illegal outward remittances made by the company.

The ED has alleged that the Chinese player unauthorisedly remitted an amount totalling INR 5,551.27 Cr in the guise of royalty to three entities, including one Xiaomi group company. The other two entities were US-based and were purportedly also designed for the ultimate benefit of the China-based parent company. 

The agency also alleged that Xiaomi did not procure any services from these three foreign entities, yet the royalties were transferred to these firms on the orders of the parent company. 

Xiaomi is also in the dock for providing misleading information to the banks while remitting the money abroad.

Subsequently, Xiaomi India filed a writ petition with the Karnataka High Court (HC) seeking release of funds, but the plea was later dismissed by the court in July. 

Around the same time, the company also alleged that the ED sleuths threatened physical violence against its top officials and that any statements made were under duress.

With the CA confirming the seizing of the funds, the matter could create problems for the smartphone player. In August, Xiaomi said that the ongoing probe could take a long time to settle and ‘may adversely affect its operating results or cash flows’.

Not just Xiaomi, other Chinese smartphone manufacturers also continue to be on the radar of authorities. The India arms of OPPO and Vivo are under investigation and have been accused of evasion of tax and customs duty.

Vivo India is accused of remitting INR 62,476 Cr to foreign entities, while OPPO India is accused of tax evasion of INR 4,389 Cr.