Seizure of Rs 5,500 crore by ED against Chinese phone-maker Xiaomi confirmed by authorities

The authority found that the money sent out as royalties to Chinese and American entities was transferred in violation of FEMA regulations.

FPJ Web DeskUpdated: Friday, September 30, 2022, 08:35 PM IST
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The ED's crackdown on Xiaomi is under the Foreign Exchange Management Act (FEMA) in connection with illegal remittances made by the firm in February this year. /Representational Image |

Xiaomi is the leading smartphone company in India with a 20 per cent market share and has also scaled up manufacturing in India. With 99 per cent of its handsets and 100 per cent of smart TVs made in India, the Chinese firm has created 50,000 jobs in India. But now the phone-maker has run into trouble with Indian authorities, over the unauthorised transfer of funds out of India.

Remittance, not royalties

Under the Foreign Exchange Management Act (FEMA) a seizure order of Rs 5,500 crore passed by the Enforcement Directorate (ED) against Xiaomi has been confirmed. The competent authority added that foreign exchange equivalent to the amount seized was transferred as royalties, which it described as a way to send money outside India in violation of FEMA regulations. After starting operations in India Xiaomi started sending remittances in 2015 to three entities, among which one is based out of China and is a unit of its own parent group.

No grounds for paying royalties

The ED had earlier slammed Xiaomi in court saying that since it’s a reseller and distributor of smartphones made by third-party manufacturers in India, it can’t send royalties to overseas entities. Based on this violation, ED seized assets of Xiaomi in local banks, and the company had to approach the competent authority, which has ruled against it.

Xiaomi has also surged past Samsung in the global market with a 29 per cent market share and had paid Rs 4,663 crore from the supposed royalties to American chipmaker Qualcomm. But the ED has said that the entire amount was a part of remittances, which were meant to benefit its Chinese parent company.

More setbacks ahead?

Apart from this setback, Xiaomi also faces a Rs 653 crore notice from Indian authorities, for evasion of import duty. Earlier when anti-China sentiment threatened sales, Xiaomi had even covered its outlets with ‘made in India’ banners.

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