ED seizes Rs 5,551 cr deposits of Chinese smartphone giant Xiaomi for FEMA violation

New Delhi: The Enforcement Directorate Saturday "seized" over Rs 5,551-crore worth fund of Chinese mobile manufacturing company Xiaomi for violating the Indian foreign exchange law, officials said.

In a press release after the ED's statement, Xiaomi Technology India Private Limited said its operations in the country 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.

"Xiaomi India is a wholly-owned subsidiary of the 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 Enforcement Directorate," the agency said in a statement.

The seizure has been done under sections of the Foreign Exchange Management Act (FEMA) after a probe was launched by the federal agency against the company in connection with alleged "illegal remittances" sent abroad by the Chinese firm in February, it said.

Xiaomi began its operations in India in 2014 and started remitting the money the next year, the agency said.

"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," the ED said.

In a statement, a Xiaomi spokesperson said "as a brand committed to India, all our operations are firmly compliant with local laws and regulations".

"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," the spokesperson said.

"It is a legitimate commercial arrangement for Xiaomi India to make such royalty payments. However, we are committed to working closely with government authorities to clarify any misunderstandings," the spokesperson added.

The ED alleged such huge amounts in the name of royalties were remitted on the instructions of their Chinese "parent group" entities, it alleged.

"The amount remitted to two other US-based unrelated entities were also for the ultimate benefit of the Xiaomi group entities," the ED said.

It said while Xiaomi India procures completely manufactured mobile sets and other products from the manufacturers in India it has not availed any service from these three foreign-based entities to whom such amounts have been transferred.

"Under the cover of various unrelated documentary facade created amongst the group entities, the company remitted this amount in the guise of royalty abroad which constitute a violation of section 4 of the FEMA," it said.

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.

Earlier this month, the ED had also questioned the global vice president of the group, Manu Kumar Jain, at the agency's regional office in Bengaluru, Karnataka.