BENGALURU: The Karnataka High Court rejected Xiaomi Technology India Pvt Ltd’s petition
and granted it liberty to approach Appellate Tribunal against the order of the competent authority confirming the seizure of Rs5,551.27 crore from Xiaomi’s current account by Enforcement Directorate (ED) over remittance of royalty to some foreign entities.
Justice M Nagaprasanna ruled that section 37A of FEMA does not suffer from any manifest arbitrariness to strike it down. Xiaomi had challenged the seizure and confirmation orders. They have also challenged the constitutional validity of Section 37A of the Act on grounds of manifest arbitrariness as it gives unbridled and unguided powers, and mere suspicion can lead to a seizure order.
Under Section 37A of the Act, an order was passed by the authorised officer (AO) on April 29, 2022 to seize the money and was confirmed by the competent authority on September 19, 2022.
Justice Nagaprasanna said the impugned order clearly indicates application of mind. “I decline to accept the submission that the order suffers from non-application of mind. Every submission of the petitioner is noted, considered and answered by the competent authority,” the judge said.
A company, with its roots outside India, can only challenge the constitutional validity of a law on grounds that it violates Article 14 (equality) of the Constitution, and the challenge would be restricted only to the tenets of Article 14, the court said.
Section 4 of the Act prohibits the transfer of funds outside India. Section 37A(1) mandates that upon receiving any information, if the authorised officer has reason to believe that any foreign exchange, foreign security or any immovable property situated outside India is suspected to have been held in contravention of section 4, the AO by an order seize value equivalent of the funds available in India after recording reasons in writing.
The seizure order notices that there were reasons to believe that the royalty paid by Xiaomi to Qualcomm
Inc and Qualcomm Technologies Inc are foreign exchange held outside India. During the course of their investigation, the ED found that no agreement or legal basis was available for remitting the money by Xiaomi. Neither the royalty was part of the product cost nor any work or purchase order was placed. No intellectual property rights were received. Therefore, the ED passed a seizure order invoking Section 37A(1) of the Act.