The Enforcement Directorate (ED) has seized Rs 5,551.27 crore of Chinese smartphone distributor Xiaomi Technology India Private Limited under the provisions of the Foreign Exchange Management Act. Xiaomi India is a wholly-owned subsidiary of China-based Xiaomi Group.
The ED had initiated investigation in connection with the illegal remittances made by the company in February, the agency said in a statement.
“The company started its operations in India in 2014 and began remitting the money from 2015 onwards. The company has remitted foreign currency equivalent to Rs 5,551.27 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 other two US-based unrelated entities was also for the ultimate benefit of the Xiaomi group entities,” it said.
Xiaomi India, the ED said, is a trader and distributor of mobile phones in India under the brand name of MI. Xiaomi India procures completely manufactured mobile sets and other products from the manufacturers in India. The Xiaomi India has not availed 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 the guise of royalty abroad which constitutes violation of Section 4 of the FEMA. The company also provided misleading information to the banks while remitting the money abroad,” it added.
Earlier this month, the ED had summoned the global vice president of the company, Manu Kumar Jain, for questioning in a probe linked to contravention of the FEMA.
The ED had then asked Jain, the former India head of Xiaomi, to furnish a number of financial documents linked to the company by appearing in person or by sending it through an authorised representative.
The ED’s regional office in Bengaluru had sought from Jain documents related to Xiaomi’s shareholding, source of funds, vendor contracts, and payments made to Indian management and sent abroad.
Proceedings under the FEMA are civil in nature and the final penalty, post adjudication, can be at least three times the amount contravened under the law.
Premises of Xiaomi and a few other Chinese mobile manufacturing companies were raided across the country by the Income Tax Department in December last year on charges of tax evasion.
The Government has also banned some smart phone applications owned by Xiaomi, which has emerged as a lead player in the Indian smartphone market, on security grounds.