The central probe agency’s Enforcement Directorate (ED) today seized over Rs 5,500 crore from Chinese smartphone giant Xiaomi for violating India’s foreign exchange law. The action has been taken against Xiaomi Technology India Private Limited. However, the company has maintained that all its operations are “firmly compliant” with local laws and regulations.
The company (also known as Xiaomi India) is a trader and distributor of mobile phones in the country under the brand name MI.
The ED seized Rs 5,551.27 crore from the company’s bank accounts under the provisions of the Foreign Exchange Control Act, 1999.
Soon after the news broke, Trinamool MP Mahua Moitra attacked the Center saying that Xiaomi was allowed to donate Rs 10 crore to the “opaque” PM CARES fund and that her party’s questions on the same had u “walling” in the Senedd.
ED freezes ₹5,500 crore assets from Chinese smartphone giant Xiaomi over Forex law violations.
The same allowed Xiaomi to donate ₹10cr to the opaque PMCARES fund.
There was a stone wall on all our questions in parliament!
— Mahua Moitra (@MahuaMoitra) April 30, 2022
The central audit agency had initiated an investigation in connection with “illegal payments” made by the company in February this year.
The company started its operations in India in 2014 and started remittance in 2015. So far it has transferred foreign currency amounting to Rs 5,551.27 crore to three foreign-based entities, which includes one group entity Xiaomi, in the form of royalty, said an audit agency.
“Such huge amounts in the name of royalties were sent as per the instructions of their Chinese parent group entities,” the ED said. The amount transferred to the other two unrelated US entities was also said to be for the ultimate benefit of the Xiaomi group entities.
Xiaomi has claimed that all its royalty payments are “legitimate and correct”.
“We have carefully studied the order from the government authorities. We believe that our royalty payments and statements to the bank are all legal and correct. These royalty payments made by Xiaomi India were for the technologies and the Licensed IPs used in our Indian version product,” he said in a statement.
Xiaomi India is a merchant and distributor of mobile phones in India under the brand name MI. It procures the completely manufactured mobile sets and other products from the manufacturers in India. “He has not availed any service from the three foreign entities to whom such amounts have been transferred,” the ED said.
Under the cover of various unrelated documentary facades created among the group entities, the company paid this amount in the form of foreign royalty in violation of Section 4 of the FEMA.
That section of the FEMA civil law talks about “holding foreign exchange.” The ED also accused the company of providing “misleading information” to the banks while sending the money abroad.