Xiaomi in trouble as ED seizes Rs 5551.27 cr from Chinese company in India under FEMA

In a breaking development, the Enforcement Directorate on April 30 has seized Rs 5551.27 crore of the Chinese tech giant Xiaomi Technology India Private Limited. Top sources informed that the seizure of the capital was made after being found unlawfully lying in the bank accounts. While the seizure is under FEMA and in connection with the illegal outward remittances made by the company, the economic intelligence agency has initiated an investigation in connection with illegal remittances in the month of February. 

Notably, Xiaomi India is a wholly-owned subsidiary of a China-based Xiaomi group.

ED seizes Rs 5551.27 cr from Xiamoi

"The Directorate of Enforcement (ED) has seized Rs.5551.27 Crore of M/s Xiaomi Technology India Private Limited under the provisions of the Foreign Exchange Management Act,1999. This amount of Rs. 5551.27 Crore lying in the bank accounts of the company has been seized by the ED," the source told Republic Media Network. 

The company started its operations in India in the year 2014 and initiated the remittance of the money in the year 2015, the source said. Xiaomi has remitted foreign currency equivalent to Rs 5551.27 crore to three foreign-based entities which include one Xiaomi Group entity in the guise of royalty. Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities. The amount remitted to the other two US-based unrelated entities was also carried out for the ultimate benefit of the Xiaomi group entities, thus, alerting the ED to initiate action. 

Xiaomi India is a trader and distributor of mobile phones across the country under the brand name MI. While it is reported that Xiaomi India procures manufactured mobile sets and other products from the manufacturers in India, the entity has not availed any service from the three foreign-based entities to whom such amounts were being transferred.

Under the cover of various unrelated documentaries created amongst the group entities, the company remitted this amount in the guise of royalty abroad which constitutes a violation of Section 4 of the FEMA. The Company also provided misleading information to the banks while remitting the money abroad., the source added.

Xiaomi issues response after ED action

Shortly after ED's action, Xiaomi reached out to Republic Media Network and issued a statement. 

“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. 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 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.”