ED Seizes Rs
5,500 crore of Xiaomi in FEMA Case
The Enforcement
Directorate (ED) said it
seized Rs 5,551.27 crore belonging to Xiaomi
Technology India Pvt Ltd (Xiaomi India) on Saturday,
nearly a fortnight after it questioned Manu Kumar Jain, the company’s
global vice president. The company is being investigated for alleged violations
of the Foreign Exchange Management Act (FEMA) since February pertaining
to suspected illegal remittances made by it, the ED said in a statement.
Xiaomi India is
a wholly owned subsidiary of the China-based Xiaomi Group. “This amount of Rs 5,551.27 crore lying in the bank accounts of the company
has been seized by the ED,” the agency said. Sources said the agency is
investigating the company’s foreign funding, shareholding, financial statements
and related activities. Jain’s statement had been recorded at the agency’s
Bengaluru office.
ED has seized Rs.5551.27 Crore of M/s Xiaomi Technology
India Private Limited lying in the bank accounts under the… https://t.co/MjSMASCe9J — ED (@dir_ed) 1651311063000
The company
denied any wrongdoing and said it would cooperate with government agencies.
“As a brand
committed to India, all our operations are firmly compliant with local laws and
regulations. We have studied the order from government authorities carefully,”
said a Xiaomi spokesperson. “We believe our royalty payments and statements to
the bank are all legit and truthful. These royalty payments that Xiaomi India
made were for the in-licensed technologies and IPs (intellectual property) used
in our Indian version products. It is a legitimate commercial arrangement for
Xiaomi India to make such royalty payments. However, we are committed to
working closely with government authorities to clarify any misunderstandings.”
ED’s probe is
part of the larger action undertaken by various law and revenue enforcement
agencies following an alert by intelligence agencies against Chinese firms.
Indian agencies have been pursuing Chinese entities over alleged money
laundering and other violations in the past few months, having banned several
China-based apps following border tensions last year.
The development
comes two years after the Indian government had banned short-form video apps TikTok and SnackVideo in 2020,
but a similar app — Zili — continues to be operated
by Xiaomi, which also sells devices under the Mi
brand name.
The Ministry of
Corporate Affairs (MCA) recently registered more than 700 cases across the
country against companies that have Chinese nationals as promoters and
directors over suspicious transactions or dubious credentials. The intelligence
inputs from the home ministry stated that these firms were misused for various
purposes, including evasion of taxes and money laundering, sources said. The
cases have been registered by the Registrar of Companies (RoC)
at local police stations under various sections of the Indian Penal Code (IPC)
and the Information Technology (IT) Act. Sources added that the maximum number
of cases have been registered in Delhi, followed by Bengaluru and Mumbai.
Other than the
ED and MCA, the income tax department has also taken action against Chinese-owned
smartphone companies.
According to
the ED, in the case of Xiaomi India, the company started its local operations
in 2014 and began remitting money in 2015. The company has remitted foreign
currency equivalent to Rs 5,551.27 crore to three
foreign-based entities that include one Xiaomi Group unit as royalty payments.
“Such huge
amounts in the name of royalties were remitted on the instructions of their
Chinese parent group entities. The amount remitted to other two US-based
unrelated entities were also for the ultimate benefit of the Xiaomi Group
entities,” the statement added.
Xiaomi India
procures completely manufactured mobile sets and other products from local
manufacturers and has not availed of any service from the three foreign-based
entities to which such amounts have been transferred, the agency said.
“Under the
cover of various unrelated documentary façade 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,” the ED
said.
The ED probe
follows investigations carried out by the income tax (IT) department, which had
raided Xiaomi and other smartphone players in the past, people familiar with
the development told ET. Tax sleuths said they had seized data allegedly
corroborating charges of tax evasion during the searches.
The I-T department said its searches had brought to the fore a
unique modus operandi whereby foreign funds were introduced into the books of
the Indian company. However, the source of such funds was “of doubtful nature,”
it said. “The quantum of such borrowings is about Rs
5,000 crore, on which interest expenses have also been claimed,” it added.
It had also
said that one of the Xiaomi companies had inflated expenses and payments on
behalf of associated enterprises, which led to a reduction in taxable profits
of the mobile handset manufacturer in India. “Such an amount could be in excess
of Rs 1,400 crore,” it said.