Fema authority nod to Xiaomi seizure: ED | The Financial Express

Fema authority nod to Xiaomi seizure: ED

The agency said the Chinese firm remitted foreign currency equivalent to Rs 5,551.27 crore to three entities — one Xiaomi Group company and two US-based unrelated entities — in the guise of royalty.

Fema authority nod to Xiaomi seizure: ED
The agency charged that Xiaomi India did not avail any service from the three foreign-based entities to whom such amounts have been transferred.

The competent authority under the Foreign Exchange Management Act (Fema) has approved an order of seizure of over Rs 5,551 crore worth of deposits of Chinese mobile phone manufacturer Xiaomi. This is the highest amount frozen till date in the country, the Enforcement Directorate (ED) said on Friday.

The agency said the Chinese firm remitted foreign currency equivalent to Rs 5,551.27 crore to three entities — one Xiaomi Group company and two US-based unrelated entities — in the guise of royalty.

The ED had first issued the order of seizure of these bank deposits on April 29 under the Fema and later sent it for approval of the competent authority, as required under the law that regulates foreign exchange violations.

A competent authority under the Fema is an officer appointed by the central government to adjudicate an ED seizure order issued under the law. Such an officer should not be below the rank of a joint secretary.

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The statement said the authority, while confirming the seizure order, held that the ED is “right in holding” that foreign exchange equivalent to Rs 5,551.27 crore has been transferred out of India by Xiaomi India in an “unauthorised” 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 avail any service from the three foreign-based entities to whom such amounts have been transferred.

“Under the cover of various unrelated documentary facade 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,” it alleged.

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The agency said the competent authority also observed that the payment of royalty is nothing but a tool to transfer the foreign exchange out of India and the same is in “blatant violation” of the provisions of Fema.

Xiaomi started its operations in India in 2014 and started remitting the money from the year 2015, the probe found.

Xiaomi India is a trader and distributor of mobile phones in India under the brand name of MI. It procures completely manufactured mobile sets and other products from the manufacturers in India.

It had also filed a writ petition before the Karnataka high court against the order issued by the ED in April, which the agency said, was “dismissed” by the court on July 5.

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