The Karnataka high court on Friday upheld the seizure of Rs 5,551.27 crore from Chinese handset maker Xiaomi by the Enforcement Directorate for violation of the Foreign Exchange Management Act (Fema).
The seizure by ED from the company’s account was upheld by the competent authority and was subsequently challenged by Xiaomi in the HC. Justice M Nagaprasanna, while dismissing the company’s petition, held that it was valid under Section 37 A of Fema. However, liberty was granted to Xiaomi to approach the appellate tribunal and challenge the competent authority’s order under Section 37A(5).
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“We are studying the matter and waiting for the written order. We’d like to reiterate that our operations in India are compliant with all local laws and regulations,” Xiaomi India spokesperson said in a statement.
The ED had, in 2022, ordered the seizure of Rs 5,551.27 crore in the accounts of Xiaomi for allegedly violating Fema rules and transferring money in the guise of royalty to three companies outside India; two in the USA and one in China. Xiaomi had challenged the Constitutional validity of Section 37A of Fema, which entitles the authorised officer prescribed by the central government to order seizure of property held outside India for violating Section 4 of the Act.
The Court, in its judgment, has said that Xiaomi’s challenge to the Section is maintainable but since there was no arbitrariness in the Section 37A, it was “Constitutional”.
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The ED had given the seizure order to freeze the amount from the bank accounts of Xiaomi on April 29, 2022.
The competent authority confirmed the order on September 29, 2022. Xiaomi filed the petition on October 3, 2022 challenging its order.