The Enforcement Directorate on Friday informed that the competent authority has confirmed the seizure order of ₹5551.27 Crore passed against Chinese mobile phone maker Xiaomi. The ED said that the order was issued on 29th September under the provisions of the Foreign Exchange Management Act (FEMA).
“The Competent Authority appointed under Section 37A of the Foreign Exchange Management Act has confirmed the seizure order of Rs. 5551.27 Crore dated 29.04.2022 passed by the Directorate of Enforcement (ED) against Xiaomi Technology India Private Limited under the provisions of FEMA,” a press release issued by the ED said.
The competent authority in this case is the Chief Commissioner of Customs, Chennai, who heard the matter from both the sides.
The seizure order amounting to ₹5551.27 Crore is the highest amount frozen till date in the country, according to the ED. The ED has charged the Chinse company with illegally remitting foreign currency equivalent to Rs 5,551.27 crore to foreign entities under the guise of royalty payment.
The Competent Authority appointed under FEMA has confirmed the seizure order of Rs. 5551.27 Crore dated 29.04.2022 passed by the ED against Xiaomi Technology India Private Limited under the provisions of FEMA.
— ED (@dir_ed) September 30, 2022
“The Authority while confirming the seizure of Rs. 5551.27 Crore, held that ED is right in holding foreign exchange equivalent to INR 5551.27 Crore has been transferred out of India by the Xiaomi India in an unauthorised manner and is held outside India on behalf of the group entity is in contravention of Section 4 of the Foreign Exchange Management Act, 1999 and the same is liable to be seized in terms of provisions of Section 37A of the FEMA. The Competent Authority also observed that payment of royalty is nothing but a tool to transferring the foreign exchange out of India and the same is in blatant violation of provisions of FEMA,” the press release further said.
The ED had seized the amount on April 30 this year, after which it requested approval from the competent authority, which has been confirmed by the authority now. The money which was lying in the bank accounts was seized from M/s Xiaomi Technology India Private Limited, which is a trader and distributor of mobile phones in the country under the brand name MI. This was the result of a probe by the ED against the company for alleged illegal remittances sent abroad.
“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,” the ED had said at that time. The three entities include one Xiaomi group company and two US-based companies not related to Xiaomi. According to ED, the remittances to the US-based companies were also done for the ultimate benefit of Xiaomi group companies.
According to the ED, after staring its operations in India in 2014, Xiaomi started remitting money from the year 2015. ED says that 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 guise of Royalty abroad which constitute violation of Section 4 of the FEMA. The Company also provided misleading information to the banks while remitting the money abroad,” the statement added.
The company had earlier moved Karnataka High Court against the seizure by the ED, but the court had dismissed the plea. On July 5th, the court had said that the competent authority will decide the matter within 60 days, and accordingly, the authority ruled in ED’s favour yesterday.
