ED withdraws rupees. 5,551 Crore Xiaomi India in the case of alleged currency violation

Funds worth more than Rs 5,551 crore of Chinese mobile device maker Xiaomi India have been “confiscated” for violating India’s foreign exchange law, the Enforcement Administration said on Saturday.

The lawsuit was filed against Xiaomi Technology India Private Limited. The company (also called Xiaomi India) is a seller and distributor of mobile phones in the country under the Mi trademark.

“Xiaomi India is a wholly-owned subsidiary of the Chinese Xiaomi group. This amount of Rs 5,551.27 crore lying in the company’s bank accounts was confiscated by the Enforcement Administration,” the agency said in a statement.

The confiscation of the funds was carried out in accordance with the relevant sections of the Foreign Exchange Management Act (FEMA) after the federal agency launched an investigation against the company in connection with alleged “illegal money transfers” sent abroad by a Chinese firm in February.

Xiaomi started its operations in India in 2014 and started transferring money the following year. “The company transferred foreign currency equivalent to Rs 5,551.27 crore to three overseas entities, which include one Company of the Xiaomi group, under the guise of royalties,” the report said.

It is alleged that such huge sums on behalf of the royalties were transferred at the behest of their Chinese “parent group” organizations. “The amount transferred to two other unrelated entities in the U.S. was also intended for the ultimate benefit of Xiaomi group companies,” the report said.

It says that although Xiaomi India buys fully manufactured mobile devices and other products from manufacturers in India, it did not use any services from these three foreign companies to which such amounts were transferred. “Under the guise of various unrelated documentary facades created among the group companies, the company transferred this amount under the guise of royalties abroad, which is a violation of Section 4 of FEMA,” the report said.

This section of FEMA’s civil law refers to the “withholding of foreign currency”. The ED also accused the company of providing “false information” to banks when transferring money abroad.

Earlier this month, ED also questioned the group’s global vice president, Manu Kumar Jain, at the agency’s regional office in Bangalore, Karnataka.

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