Madras HC upholds ED action on Xiaomi under FEMA
The financial crimes probe agency had alleged that Xiaomi Technology India Pvt Ltd had remitted abroad foreign exchange worth ₹5,521 crore between 2015 and 2022 in the form of royalty payments to parent companies in violation of the law, and attached equivalent funds of the company in April 2022. The seizure was confirmed by an adjudicating authority or AA (a special director rank officer in ED) in September that year, which also issued a notice to the company stating it has 'formed an opinion' that an inquiry should be held in this case.
Xiaomi India and its chief financial officer, Sameer B S Rao, through a batch of petitions, challenged the attachment, AA's formation of opinion under FEMA rules and the complaint filed by ED in June 2023.
Declining to quash the proceedings, justice N Anand Venkatesh said in his order on June 25, 'It is not necessary for this Court to go deep into the reasons arrived at by the first respondent while forming an opinion. This Court only wanted to satisfy itself as to whether the first respondent had applied his mind and formed an opinion. Prima facie, there is application of mind on the part of the first respondent and at that stage, since it is the commencement of the proceedings towards actual adjudication, even a strong suspicion is enough to form an opinion.'
Underlining why courts should not interfere in such cases, justice Venkatesh said - 'To understand it from the standpoint of view of criminal jurisprudence, it is more in the nature of taking cognizance of a complaint or a police report where strong suspicion is enough to proceed further with the trial. In cases of this nature, the courts must be wary while interfering with the further proceedings since the adjudication proceedings is at the nascent stage and only after formation of the opinion, the notices are provided with an opportunity of personal hearing to defend themselves'.
'....this court is not inclined to interfere with the opinion formed by the first respondent (AA) under Rule 4(3) of the FEMA Rules,' the order adds.
The high court, however, directed the ED to allow Xiaomi to inspect all the investigation records stating that 'Only if those documents are furnished to the petitioners (Xiaomi), they will be able to effectively defend themselves during the adjudication proceedings'.
'Hence, the missing documents from the entire record of investigation shall also be traced and furnished to the petitioners,' the order added.
While seizing Xiaomi Technology India Private Limited's funds worth ₹5,551.27 crore in April 2022, ED had alleged that the company unauthorisedly remitted this amount in guise of royalty abroad which constitute violation of Section 4 of the FEMA.
'Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities. The amount remitted to other two US based unrelated entities were also for the ultimate benefit of the Xiaomi group entities,' the ED had said then.
Asserting that remittances began from 2015, a year after the company launched its operations in India, ED said 'Xiaomi India is a trader and distributor of mobile phones in India under the brand name of MI. It procures completely manufactured mobile sets and other products from the manufacturers in India. It has not availed any service from the three foreign based entities to whom such amounts have been transferred.'
'Under the cover of various unrelated documentary façade created amongst the group entities, the company remitted this amount in guise of royalty abroad which constitutes violation of Section 4 of the Foreign Exchange Management Act (FEMA). The company also provided misleading information to the banks while remitting the money abroad,' ED, which started a probe against Xiaomi in February 2022, said at that time.
HT has reached out to Xiaomi for a comment.
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