ED Issues Notices To Xiaomi India Top Officials, Three Foreign Banks For FEMA 'Violations' Of Rs 5,551 Crore

The Enforcement Directorate (ED) on Friday (9 June) issued show cause notices to Xiaomi Technology India Private Ltd, its officials, and three foreign banks for alleged violations of foreign exchange to the tune of over Rs 5,551 crore.

The adjudicating authority of the Foreign Exchange Management Act (FEMA) served the notices to Xiaomi Technology India Private Ltd, two executives, Citibank, HSBC Bank, and Deutsche Bank AG.

The notices were issued under section 16 of the FEMA.

A show cause notice is issued following completion of a FEMA probe and once it is settled, the accused may have to pay a penalty up to three times the amount contravened.

The Enforcement Directorate has issued the notices to Xiaomi, former managing director Manu Kumar Jain, and Sameer B Rao, present director and CFO of the company.

Show cause notices have also been issued to three banks — Citibank, HSBC Bank and Deutsche Bank AG — for the contravention of relevant sections the FEMA and directions issued by the Reserve Bank of India (RBI), as they allowed foreign outward remittances in the name of royalty through the banks, "without" conducting due diligence and "without" obtaining any underlying technical collaboration agreement from the company, the ED said.

The ED had earlier last year seized funds worth Rs 5,551.27 crore of Xiaomi Technology India Private Ltd. lying in its bank accounts under the FEMA for the "unauthorised" remittance of this amount in the guise of royalty abroad by the company.

"The competent authority, appointed under section 37A of the FEMA, has confirmed the said seizure order. The authority, while confirming the seizure, held that the ED is right in holding that foreign exchange equivalent to Rs. 5,551.27 crore has been transferred out of India by Xiaomi India in an unauthorised manner and is held outside India on behalf of the group entity in contravention of section 4 of the FEMA, 1999 and the same is liable to be seized in terms of provisions of section 37A of the FEMA," the ED said, reports The Hindu.

The competent authority in its September last year order also observed that the payment of royalty was nothing but a tool for transferring the foreign exchange out of India and the same was in "blatant" violation of the FEMA provisions, the agency said.

Last year, an investigation launched by the ED found that the company had sent foreign currency amounting to Rs 5,551.27 crore to three foreign-based entities. One of these entities included a Xiaomi group entity, and the remittance was done in the guise of royalty.

The company had created a variety of unrelated documentary facades among the group entities to hide the remittance of this monetary amount in the guise of royalty abroad. Such conduct goes against section 4 of the FEMA, the ED added.