Xiaomi, the Chinese smartphone powerhouse, continues its legal tussle against the Enforcement Directorate’s INR 5,551 Cr seizure, arguing against FEMA violations in a high-stakes battle unfolding at the Karnataka High Court.
Legal Battle Unfolds
Xiaomi, the renowned Chinese smartphone manufacturer, is persistently challenging the Karnataka High Court’s decision upholding the Enforcement Directorate’s (ED) seizure of INR 5,551 Crores ($676 million) from its accounts. A division bench of the court recently heard Xiaomi’s appeal against a previous single-judge order supporting the ED’s action.
Arguments Before the Court
Xiaomi’s legal counsel argued vehemently before the court, asserting that the seizure was unwarranted. Focusing on Section 37 of the Foreign Exchange Management Act (FEMA), the counsel claimed that the provision did not even necessitate suspicion. Labelling Section 37A as ‘draconian and arbitrary,’ Xiaomi contended that it had no recourse but to await a decision from the competent authority 30 days after the seizure. The company also emphasized the absence of qualifications for the ‘authorized officer’ under the provision.
The counsel was quoted saying, “Why should I be deprived of my property due to arbitrary action of an officer? The worst thing that shocks me is that the officer goes scot-free, and I cannot tell him you have done it wrongly and please recall your order, you are biased against me.”
After hearing Xiaomi’s arguments, the bench, led by Chief Justice Prasanna B Varale and Justice M G S Kamal, scheduled the next hearing for January 20. The court explicitly directed that both the government and the company must conclude their arguments on the specified date.
Background and Timeline
The legal saga dates back to April 2022 when the ED initiated the seizure, alleging that Xiaomi India made remittances to foreign companies under the guise of royalties for services never rendered. Xiaomi sought relief from the Karnataka High Court, securing a stay on the ED’s seizure order in May 2022. However, in July of the same year, the ED successfully appealed the matter, asserting that Xiaomi had approached the court prematurely.
In September 2022, the competent authority under FEMA confirmed India’s largest-ever seizure, prompting Xiaomi India to seek judicial intervention once again. In April 2023, Justice M Nagaprasanna dismissed Xiaomi’s petition against the seizure, upholding the validity of Section 37A of FEMA, leading to the current appeal.
Broader Landscape
Xiaomi’s legal battle echoes the scrutiny faced by other Chinese smartphone manufacturers in India. In July 2022, the ED claimed that Vivo remitted INR 62,476 Cr to foreign entities in royalties to evade Indian taxes, a charge Vivo vehemently denied. OPPO is also under investigation for alleged tax evasion amounting to INR 4,389 Cr in India.
As the legal tussle intensifies, Xiaomi’s appeal challenges the foundation of the ED’s actions, setting the stage for a pivotal moment in India’s regulatory landscape.
