ED issues Show Cause Notice to Xiaomi India Top Officials and 3 Banks for FEMA Violation

The Enforcement Directorate’s Adjudicating Authority has issued show-cause notices under the Foreign Exchange Management Act (FEMA) to Xiaomi Technology India Private Limited, its executives, and three banks in connection with suspected unlawful transfers made by the Chinese business totaling Rs.5,551.27 crore.

In a statement published on Friday, the federal agency stated that show-cause notices were given to the firm as well as Manu Kumar Jain, former managing director, and Sameer B Rao, current director and CFO of the company.

The Adjudicating Authority also sent show-cause notices on three banks: Citi Bank, HSBC, and Deutsche Bank AG. The notifications were issued for apparent violations of applicable FEMA requirements.

The notices were also issued to explain alleged non-compliance with RBI directions by allowing foreign outward remittances in the name of royalty through banks without allegedly conducting due diligence or obtaining any underlying technical collaboration agreement from the company, according to the agency.

The competent body under FEMA affirmed its order to confiscate Rs.5,551.27 crore held in Xiaomi India’s bank accounts in September last year.

The ED decision seizing Xiaomi Technology India’s bank accounts is the largest confirmed by the quasi-judicial authority under foreign exchange rules to date.

The agency’s competent authority ruled in September last year that the ED was correct in claiming that Xiaomi India had transferred foreign exchange worth Rs.5,551.27 crore out of India in an unauthorised manner, in violation of the FEMA, and that this amount was subject to seizure.

In April of last year, the ED seized the accounts of Xiaomi’s local operation in China. The government said that the corporation had transmitted an equivalent sum overseas under the pretence of royalties, in violation of FEMA. According to the agency, the competent body remarked in its September ruling that royalty payment was nothing more than a mechanism for transferring foreign cash out of India.

The inquiry into potential unlawful remittances began in February of this year. The ED said that “huge amounts in the name of royalties” were transmitted on the orders of the parent group companies in China.