No relief for Xiaomi over Rs 5,551 crore asset freeze

The competent authority, formed under the Foreign Exchange Management Act, 1999 (FEMA), confirmed the order of the ED to seize the assets of the smartphone company on September 19.
Xiaomi mobiles (Photo | EPS)
Xiaomi mobiles (Photo | EPS)

The Karnataka High Court on Thursday refused to stay FEMA competent authority’s confirmation of the Enforcement Directorate’s (ED) order to seize Xiaomi Technology India Private Limited’s bank assets worth over Rs 5551.27 crore. The competent authority, formed under the Foreign Exchange Management Act, 1999 (FEMA), confirmed the order of the ED to seize the assets of the smartphone company on September 19.

The court orally told Xiaomi that it cannot pass an interim order in favour of the company unless it furnishes a bank guarantee for Rs 5,551.27 crore. It posted the next hearing to October 14, 2022. Contending that that the competent authority passed the order without application of mind and no opportunity was given to examine representatives of a bank, Xiomi questioned constitutional validity of Section 37-A of FEMA on the ground that it is vague as it allows confiscation without adjudication of guilt of violation of FEMA.

The Additional Solicitor General of India M B Naragund, representing ED, contended that Xiaomi has withdrawn substantial amount out of the seized amount and only Rs 3,900 is available as balance in the seized account as on October 4, 2022. The company has to approach the appellate authority against the order of the competent authority, he argued.

The competent authority, while confirming the seizure of Rs 5551.27 crore, held that the ED is right in holding foreign exchange equivalent to INR 5551.27 crore which 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 FEMA. The company unauthorisedly remitted the amount in guise of royalty abroad which constitute violation of Section 4 of the FEMA, the ED claimed.

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