Xiaomi Challenges Karnataka HC’s Order In INR 5,551 Cr Seizure Case

Chinese smartphone maker Xiaomi continues to knock on the doors of Indian courts against the seizure of INR 5,551 Cr ($676 Mn) from its accounts by Indian authorities for violating FEMA guidelines.

A division bench of the Karnataka High Court (HC) on Friday (January 12) reportedly heard an appeal filed by the smartphone manufacturer against a previous single-judge order that upheld the Enforcement Directorate’s (ED’s) seizure of the funds. 

Arguing before the court, the company’s counsel contended that the seizure was unnecessary. Training guns at the Section 37 of the Foreign Exchange Management Act (FEMA), the counsel claimed that the necessity of suspicion was not even required under the said provision. 

Calling Section 37A ‘draconian and arbitrary’, the company claimed that it had no option but to wait for 30 days after the seizure for the competent authority to decide on the matter. It also said that the provision did not prescribe the qualification of the ‘authorised officer.’

“Why should I be deprived of my property due to arbitrary action of an officer? Worst thing which shocks me is that the officer goes scot-free and I cannot tell him you have done it wrongly and please recall your order, you are biased against me,” the counsel was quoted as saying by news agency PTI.

After hearing Xiaomi’s arguments, a bench comprising Chief Justice Prasanna B Varale and Justice M G S Kamal listed the matter for next hearing on January 20. 

The court also directed that there will be no further extensions, adding that both the government and company will have to complete their arguments on the said date.

The matter harks back to April 2022 when the ED ordered the seizure of the funds. The agency alleged that Xiaomi India had made remittances to foreign companies under the pretext of royalties for services it never received.

Subsequently, the company approached the Karnataka High Court, which stayed the ED’s seizure order in early May 2022. However, in July that year, the ED successfully appealed the matter before the HC, arguing that Xiaomi had approached the court prematurely.

Following this, the competent authority under FEMA confirmed India’s largest-ever seizure in September 2022 which saw Xiaomi India again knocking the doors of Indian courts for relief. 

Eventually, in April 2023, Justice M Nagaprasanna dismissed a petition filed by Xiaomi against the seizure of the funds, holding that Section 37A of FEMA was valid. It is that order that Xiaomi has appealed. 

Meanwhile, Xiaomi is not the only Chinese smartphone manufacturer under the lens of Indian authorities. In July 2022, the ED claimed that Vivo remitted INR 62,476 Cr to foreign parties in the form of royalties to avoid paying taxes in India, a claim the company denied.

OPPO is also under scanner for alleged tax evasion to the tune of INR 4,389 Cr in India.

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