KTK High Court Hits at ED in Xiaomi Case, Orders Opening of Rs. 5500 crs Frozen Accounts, Decision in Case only by Competent Authority in FEMA Law within 30 days

The ED froze Xiaomi's bank accounts, alleging that it had violated section 4 of FEMA by transferring money outside the country illegally in the name of royalty payment.

Chinese mobile phone manufacturer Xiaomi's India branch has been directed to approach the 'competent authority' in connection with the Enforcement Directorate's seizure of ₹5,551.27 crore from its bank accounts and the company's attempts to secure a reprieve from the courts.

Xiaomi had approached the court after the ED froze its bank accounts alleging violation of Section 4 of the Foreign Exchange Management Act, or FEMA. The ED alleged Xiaomi had illegally transferred money outside India in the guise of royalty payments.

In response to the Chinese company's plea, on July 5, Karnataka high court Justice SG Pandit pointed out that a resolution mechanism existed within FEMA itself. "The authorised officer (in this case ED), after passing seizure order, is required to place seizure order with entire/relevant material before competent authority within 30 days from date of such seizure," the court ruled.

The authority then has 180 days to resolve the dispute. Xiaomi can appeal the competent authority's orders if it desires but cannot approach the high court at this time, it was said.

"The competent authority appointed is directed to issue notice of hearing to the petitioner, hear parties concerned and pass appropriate order... within a period of 60 days..." the court added.

On interim relief, the court asked Xiaomi to use money in the frozen accounts for its day-to-day purposes, but said no money from the accounts could be sent abroad as royalty.

The battle between Xiaomi and the ED erupted in May after bank accounts were frozen.

Xiaomi has accused the ED of recording statements 'under coercion' and filing charges - foreign exchange violations - as an 'afterthought'. The company has insisted it abides by all Indian laws and is 'fully compliant with all the regulations'. The ED called these charges 'untrue and baseless'.

The ED this week also raided smartphone makers Vivo, another Chinese company, over alleged financial irregularities and froze its bank accounts. Vivo India approached the Delhi high court on Friday to challenge it, saying the move was 'bad in law' and would harm business operations.

The court on Friday asked the ED to consider allowing Vivo to operate its bank accounts for certain payments, but posted the challenge against the freezing of its accounts for Wednesday.