FEMA authority approves India's biggest seizure order of 5,551.21 cr against Xiaomi

The authority, while confirming the seizure order, held that foreign exchange equivalent to Rs 5,551.27 crore has been transferred out of India by Xiaomi India in an unauthorised manner, which is held outside India on behalf of the group entity in contravention of Section 4 of the Foreign Exchange Management Act, and the same is liable to be seized in terms of the provisions of Section 37A of FEMA.

The competent authority appointed under Section 37A of the Foreign Exchange Management Act (FEMA) on Friday confirmed the seizure order of Rs 5,551.27 crore passed against Chinese phone maker Xiaomi India Private Limited by the Enforcement Directorate (ED), an ED official said.

According to the ED, this is the highest amount of seizure order in India which has been confirmed by the authority till date.

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The authority, while confirming the seizure order, held that foreign exchange equivalent to Rs 5,551.27 crore has been transferred out of India by Xiaomi India in an unauthorised manner, which is held outside India on behalf of the group entity in contravention of Section 4 of the Foreign Exchange Management Act, and the same is liable to be seized in terms of the provisions of Section 37A of FEMA.

The competent authority also observed that payment of royalty is nothing but a tool to transfer foreign exchange out of India and the same is in blatant violation of the provisions of FEMA.

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Earlier, the ED had seized Rs 5,551.27 crore of Xiaomi India lying in its bank accounts under the provisions of FEMA.

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The company unauthorisedly remitted this amount abroad under the guise of royalty, which is in violation of Section 4 of FEMA. Xiaomi India also filed a writ petition in the Karnataka High Court against the said order, which was dismissed by the court.

"Xiaomi India is a wholly-owned subsidiary of 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 us," the ED official said.

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The ED had initiated investigation in connection with illegal remittances made by Xiaomi India in February this year. The company started its operations in India in 2014 and started remitting 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.

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Such huge amounts were remitted on the instructions of its Chinese parent group entities. The amounts remitted to two other US-based unrelated entities were also for the ultimate benefit of the Xiaomi group entities.

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The ED said that Xiaomi India did not avail any service from the three foreign-based entities to whom such amounts were transferred.

The ED said that the company also provided misleading information to the banks while remitting the money abroad.

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