INDIA: The Adjudicating Authority has issued show cause notices to “Xiaomi Technology India Private Limited”, based on a complaint by the Enforcement Directorate (ED) alleging illegal remittances made by the company to the tune of Rs. 5551.27 crore.
“Adjudicating Authority” is an officer appointed by the Central Government under sub-section (1) of Section 16 of the Act, under the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000.
The notices have been issued to the Xiaomi, its officials—Manu Kumar Jain, ex-Managing Director; Sameer B Rao, present Director and Chief Financial Officer of the Company—and three banks under Section 16 of the Foreign Exchange Management Act 1999, read the official statement issued on June 9.
The banks that have issued show cause notices include CITI Bank, HSBC Bank, and Deutsche Bank AG for contravention of Sections 10(4) and 10(5) of FEMA and directions issued by RBI by allowing foreign outward remittances in the name of royalty without due diligence and without obtaining any underlying technical collaboration agreement from the company.
The ED had earlier seized Rs. 5551.27 crore of “Microsoft Technology” lying in its bank accounts under the provisions of FEMA for unauthorised remittance of this amount in the guise of royalty abroad by the company. Subsequently, the “Competent Authority”, appointed under Section 37A of FEMA, confirmed the seizure order.
The Authority, while confirming the seizure, held that the ED is right in holding that foreign exchange equivalent to Rs 5551.27 crore was transferred out of India by Xiaomi India in an unauthorised manner and was held outside India on behalf of the group entity in contravention of Section 4 of the FEMA and was liable to be seized under Section 37A of the said act.
The competent authority also observed that the payment of royalty was nothing but a tool to transfer foreign exchange out of India, and the same was in blatant violation of the provisions of FEMA. The ED had initiated an investigation in connection with the illegal remittances made by the company last year.
During the investigation, it was found that the company remitted foreign currency equivalent to Rs. 5551.27 crore to three foreign-based entities, which included one Xiaomi group entity in the guise of royalty, under the cover of various unrelated documentary façades created amongst the group entities, in violation of Section 4 of the FEMA.