In a setback to Xiaomi, the leading smartphone company, the Karnataka High Court on Thursday refused to stay the order on seizure of assets worth over Rs 5551 crore, under the Foreign Exchange Management Act (FEMA) by the Enforcement Directorate's (ED).
Senior Advocate Uday Holla, appearing for Xiaomi through interim relief had sought the stay of the impugned confirmation order passed by the authority. But, it was refused by a vacation bench of Justice N S Sanjay Gowda.
The competent authority formed under FEMA had confirmed the order of the ED to seize the assets of the smartphone company on September 19. They said that the company had transferred the mentioned amount as royalties in foreign exchange. This according to them is sending money outside India and it is in violation of FEMA regulations.
In its order last week, the competent authority held that the ED is right in holding a foreign exchange of Rs 5,551.27 crore. The smartphone company then moved to the Karnataka High Court on October 5 and the matter was heard in court on Thursday.
Holla requested the court to extend its May 5 order where the court allowed the company to operate its bank accounts for only day-to-day activities as the company cannot even do this after the competent authority’s order.
In counter the Centre’s counsel said the company has no locus standi to challenge the provisions of FEMA and if the company is aggrieved by the order then they should approach the appellate tribunal under FEMA.
According to the Centre, the amount of about 5500 crore that was supposed to be used in the Indian market was transferred to Qualcomm, an American multinational corporation for royalty payments.
Countering the argument Xiaomi India said that over 84 per cent of the amount sent was the royalty payment made to Qualcomm. They also added that without this technology, smartphone manufacturing in India was not possible.
After the arguments, the court said that it would pass an interim order if Xiaomi furnishes a bank guarantee of 5500 crore. The smartphone company said that it would set up an escrow account and it would transfer the amount they received from mobile sales from January.
The court asked the company to come up with a better solution as the one suggested by them doesn’t safeguard the interest of both the parties. The court in the end said that it would direct the respondent to file their objections to the petition and then relist the matter on October 14.
