ED order to seize Rs 5.5K cr from Chinese mobile firm Xiaomi gets approval

In a major setback for Xiaomi India, the Central government-appointed authority on Friday approved the seizure order of Rs 5,551.27 crore passed by the Enforcement Directorate (ED) against the Chinese mobile manufacturer in April this year.

To date this is India’s biggest seizure order under the Foreign Exchange Management Act (FEMA). The ED seized Xiaomi’s assets over allegations of making illegal payments to parties outside India in the guise of royalties.

“The FEMA authority, while confirming the seizure of Rs 5,551.27 crore, held that the ED was right in holding that foreign exchange equivalent to the amount had been transferred out of India by Xiaomi India in an ‘unauthorised manner’ and was held outside India on behalf of the group entity in contravention of Section 4 of the FEMA,” the ED stated on Friday. 

FEMA, which checks foreign exchange violations, requires that the appeals against seizure orders be heard only by an authority appointed by the Centre.

In this case, the chief commissioner of Customs, Chennai, heard the matter. The order has been issued under Section 37A (deals with assets held outside India) of FEMA against Xiaomi Technology India, the federal agency said in a statement.

Following the seizure on April 29 by the ED, Xiaomi India filed a writ petition before the Karnataka High Court, seeking a stay. The court upheld the ED action and directed the authority to hear the case and decide the matter in 60 days.

However, the court had issued an interim order staying the seizure order, allowing the smartphone market leader to take bank overdrafts to continue its day-to-day operations and pay for imports of items essential to its business, with the exception of royalties.

Under FEMA, the competent authority shall dispose of the petition within 180 days of the seizure by either confirming or by setting aside such an order, after giving an opportunity of being heard to the representatives of the ED and the aggrieved person.

What do we know so far

• ED had initiated investigation in connection with the illegal remittances made by the company February this year
• The mobile maker had remitted foreign currency equivalent to Rs 5,551.27 cr to 3 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 instructions of their Chinese parent group entities, according to ED probe
• The amount remitted to other two US-based unrelated entities were also found to ultimately benefit the Xiaomi group entities
• Xiaomi India has not availed any service from the three foreign-based entities to whom such amounts have been transferred  
• The mobile maker also provided misleading information to the banks while remitting the money abroad, it noted