FEMA violations alleged: ED seizes Rs 5,551 crore deposits of Xiaomi

Company says all payments ‘legit & truthful’.

xiaomi ed
Xiaomi started its operations in India in 2014. (Reuters)

The Enforcement Directorate said on Saturday it has seized Rs 5,551 crore bank deposits of Chinese mobile manufacturing firm Xiaomi Technology India for violating the foreign exchange management Act (FEMA). “ED has seized Rs 5551.27 crore of Xiaomi Technology India Private Limited lying in the bank accounts under the provisions of FEMA, 1999, in connection with the illegal outward remittances made by the company,” the ED statement said.

Xiaomi reacted by stating its operations are compliant with Indian laws, and it believes the royalty payments “are all legit and truthful”. It added it will work with Indian authorities to “clarify any misunderstandings”.

The government has been acting tough against Chinese firms ever since the Indo-China border skirmish. All Chinese apps were banned and investments by companies based in China need prior government approval, besides Chinese telecom equipment manufacturers losing business in India due to strict norms laid down by the government. Further, the government’s productivity-linked incentive schemes are aimed at wooing global manufacturers in areas of electronics, technology and other manufacturing spheres to relocate their bases from China to India.

Xiaomi India is a wholly-owned subsidiary of China-based Xiaomi Group. The seizure of funds has been done under relevant sections of the FEMA after a probe was launched by the agency against the company in connection with alleged ‘illegal remittances’ sent abroad by the Chinese firm in February.

Xiaomi started its operations in India in 2014. “The company has remitted foreign currency equivalent to Rs 5,551.27 crore to three foreign-based entities, which includes one Xiaomi group entity, in the guise of royalty,” the ED said. Such huge amounts in the name of royalties were remitted on the instructions of their Chinese ‘parent group’ entities, it alleged. “The amount remitted to other two US-based unrelated entities were also for the ultimate benefit of the Xiaomi group entities,” the ED said.

The agency said while Xiaomi India procures completely manufactured mobile sets and other products from the manufacturers in India, it has not availed any service from these three foreign-based entities to whom such amounts have been transferred. “Under the cover of various unrelated documentary facades created amongst the group entities, the company remitted this amount in the guise of royalty abroad, which constitute a violation of section 4 of the FEMA,” it said. The ED also accused the company of providing ‘misleading information’ to the banks while remitting the money abroad.

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