Big Relief For Xiaomi India: HC Allows Xiaomi To Use Seized Assets, Money For Business Operations

As a breather to Xiaomi Technology India Private Limited, the High Court of Karnataka has put a stay to the April 29 order of the Enforcement Directorate (ED). Under the provisions of the Foreign Exchange Management Act, 1999, which Rs 5551.27 crore of the company was seized by Enforcement Directorate (ED).

Stay on ED Order: Karnataka High Court

While issuing notices to the respondents including the Ministry of Finance and various officers of the ED, the vacation bench of Justice Hemant Chandangoudar stayed the ED order on Thursday.

The High Court ordered that the subsidiary of the Chinese firm Xiaomi Group, can now operate its bank accounts for carrying out the day-to-day activities of the company.

ED has accused Xiaomi, which sells mobile phones in India under the brand name MI, of violating Section 4 of the FEMA Act by transferring money in the name of ‘Technology Royalty’ to three companies outside India–two in the US and one in China.

A sum of Rs 5551.27 crore was seized by ED in the bank accounts of the company. As an action, ED initiated action for alleged illegal remittances made by the company in February 2022.

This amount was claimed by the group to be the royalties that were remitted to the said companies outside India located in the US and China. It was claimed by ED that Xiaomi India had not obtained any service from these three foreign companies.

For Xiaomi, senior advocates S Ganesh and Sajan Poovayya appeared before the High Court. They submitted there was no FEMA violation as the Income Tax department had allowed for deduction of the said payments.

They added that it one time acceptable had the ED seized the amount under Section 37A of FEMA only if it was lying in bank accounts in foreign locations.

Remittances as Technology Royalty Payments

It is from the 2016 that the Technology Royalty payments are being made by mobile phone manufacturers in India and similar such remittances to the US Company for using the same technology have been done. No action whatsoever, has been taken against them till date.

On Thursday, ED and the other respondents were not represented before the High Court. The hearing was therefore adjourned to May 12.