The competent authority under the Foreign Exchange Management Act (FEMA) has approved a more forfeiting order RDeposits of Rs 5,551 crore for Chinese mobile phone maker Xiaomi – the largest amount frozen so far in India – said the ED on Friday.
The agency accused the famous Chinese phone maker of converting equivalent foreign currencies R5,551.27 crore for three entities – the Xiaomi group company and two unrelated entities in the US – under the guise of royalty.
The Enforcement Directorate (ED) first issued an order for confiscation of these bank deposits on April 29 under FEMA and subsequently sent them for approval by the relevant authority, as required by the law regulating foreign exchange violations in the country.
“The competent authority designated under Section 37A of the Federal Emergency Management Agency (FEMA) confirmed the forfeiture order for RRs 5551.27 crore (dated 29.04.2022) passed by the Enforcement Directorate against Xiaomi Technology India Private Limited under the provisions of FEMA. ”
“This is the largest amount of seizure orders in India which has been confirmed by the authority to date,” the federal agency said in a statement.
The competent authority under the Federal Emergency Management (FEMA) is the official designated by the central government for adjudication of an ED forfeiture order issued by law. This officer should not be below the rank of Joint Secretary.
The authority, while confirming the confiscation order, said that the executive management was “right to keep” this foreign exchange equivalent to RRs 5,551.27 crore has been transferred out of India by Xiaomi India in an “unauthorized” manner and is held outside India on behalf of the group entity in contravention of Section 4 of the FEMA.
The agency charged that Xiaomi India did not benefit from any service from the three foreign entities to which these amounts were transferred.
“Under the guise of various unrelated documentary interfaces created between the group entities, the Company has transferred this amount in the form of offshore ownership which is in violation of Article 4 of FEMA.”
It alleged that “the company also provided misleading information to the banks while transferring funds abroad.”
The agency said the relevant authority also noted that royalty payment is nothing but a tool for transferring foreign exchange from India and the same is a “flagrant violation” of FEMA provisions.
Xiaomi started operations in India in 2014 and started transferring money from 2015, the investigation found.
The company has transferred foreign currencies equivalent to INR 5,551.27 crore to three foreign entities which includes one entity from the Xiaomi group under the guise of equity.
“These huge amounts were transferred in the name of royalties on the instructions of the Chinese parent group entities. The amount transferred to two other unrelated entities based in the United States was also for the benefit of the Xiaomi group entities,” the company said.
Xiaomi India is a mobile phone dealer and distributor in India under the brand name MI. It purchases fully manufactured mobile devices and other products from manufacturers in India.
Xiaomi India also filed an injunction with the Karnataka High Court against the emergency management order issued in April, which the agency said was “rejected” by the court on July 5.