Xiaomi India is a trader and distributor of mobile phones in India under the brand name MI.
Central probe agency Enforcement Directorate (ED) today seized over Rs 5,500 crore from Chinese smartphone giant Xiaomi over violations of the Indian foreign exchange law. The action has been taken against Xiaomi Technology India Private Limited. The company has, however, claimed that all its operations "are firmly compliant" with local laws and regulations.
The company (also called Xiaomi India) is a trader and distributor of mobile phones in the country under the brand name MI.
The ED seized Rs 5,551.27 crore from the bank accounts of the company under the provisions of the Foreign Exchange Management Act, 1999.
Soon after the news broke, Trinamool MP Mahua Moitra attacked the Centre saying Xiaomi was allowed to donate Rs 10 crore to the "opaque" PM CARES fund and her party's questions on the same were "stonewalled" in the Parliament.
The central probe agency had initiated an investigation in connection with "illegal remittances" made by the company in February this year.
The company started its operations in India in 2014 and started remitting the money in 2015. It has so far 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, the probe agency said.
"Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities," the ED said. The amount remitted to the other two US-based unrelated entities was also reportedly for the ultimate benefit of the Xiaomi group entities.
Xiaomi has claimed that all its royalty payments are "legit and truthful".
"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 said in a statement.
Xiaomi India is a trader and distributor of mobile phones in India under the brand name MI. It procures the completely manufactured mobile sets and other products from the manufacturers in India. "It has not availed any service from the three foreign-based entities to whom such amounts have been transferred," the ED said.
Under the cover of various unrelated documentary facades 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 said section of the civil law of FEMA talks about "holding of foreign exchange." The ED also accused the company of providing "misleading information" to the banks while remitting the money abroad.