BENGALURU: The Enforcement Directorate (ED) on Friday stated that it has issued showcause notices to Xiaomi Technology India Private Limited, its officials and three banks under Section 16 of the Foreign Exchange Management Act (FEMA) for alleged foreign exchange violations to the tune of Rs 5,551.27 crore.
In an official release issued on Friday, the ED stated that the showcause notices have been issued to the company along with Manu Kumar Jain, ex-managing director, and Sameer B Rao, present Director and Chief Financial Officer (CFO) of the company. “The adjudicating authority has also issued showcause notices to three banks -- Citibank, HSBC Bank and Deutsche Bank AG for contravention of Section 10(4) and 10(5) of FEMA and directions issued by the Reserve Bank of India (RBI) by allowing foreign outward remittances in the name of royalty through the banks without conducting due diligence and without obtaining any underlying technical collaboration agreement from the company,” charged the ED.
Earlier, the ED had seized Rs 5551.27 crore lying in Xiaomi Technology India Pvt Ltd's bank accounts under the provisions of FEMA for the unauthorised remittance of an equivalent amount abroad by the company in the guise of royalty.
“The competent authority, appointed under Section 37A of the FEMA, has confirmed the seizure order. The authority while confirming the seizure held that the ED is right in holding that foreign exchange equivalent to INR 5,551.27 crore has been transferred out of India by Xiaomi India in an unauthorised manner and is held outside India on behalf of the group entity in contravention of Section 4 of the
FEMA and the same is liable to be seized in terms of provisions of Section 37A of the Act. The competent authority also observed that payment of royalty is nothing but a tool to transfer the foreign exchange out of India and the same is in blatant violation of provisions of FEMA,” the ED added.
The ED had initiated an investigation in connection with the illegal remittances made by the company last year. During the investigation under FEMA, it was found that 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. “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 violation of Section 4 of the FEMA,” the central agency added.