In a significant development, the Enforcement Directorate’s Adjudicating Authority has issued show-cause notices under the FEMA (Foreign Exchange Management Act) to Xiaomi Technology India Private Limited, its officials, and three banks. The case revolves around alleged illegal remittances worth 5,551.27 crores made by the Chinese company. The show-cause notices have been issued to explain the contravention of FEMA provisions and non-compliance with Reserve Bank of India (RBI) directions regarding foreign outward remittances.
Show-Cause Notices Issued to Xiaomi and Officials:
The Enforcement Directorate has served show-cause notices to Xiaomi Technology India Private Limited, Manu Kumar Jain (former managing director of Xiaomi India), and Sameer B Rao (present director and CFO of the company). The notices aim to establish their involvement in the alleged illegal remittances and seek their response regarding the FEMA violations.
Show-Cause Notices to Banks:
In addition to Xiaomi and its officials, show-cause notices have been issued to three banks, namely Citi Bank, HSBC, and Deutsche Bank AG. The notices have been served based on the alleged non-compliance with directions issued by RBI. These banks are required to explain their role in facilitating foreign outward remittances in the name of royalty without conducting necessary due diligence and without obtaining any underlying technical collaboration agreement from Xiaomi.
Background of the Case:
The case dates back to September last year when the competent authority under FEMA confirmed its order to seize? 5,551.27 crore held in the bank accounts of Xiaomi India. This order was based on the determination that the Chinese company had transferred the mentioned amount out of India in an unauthorized manner, thereby contravening FEMA regulations. The ED seized the bank accounts of Xiaomi India in April of the same year, alleging that the company had remitted an equal amount abroad disguised as royalty, which violated FEMA provisions.
Largest Confirmed Seizure Order:
The ED’s order to confiscate Xiaomi Technology India’s bank accounts, amounting to? 5,551.27 crore, is the largest seizure order confirmed by the quasi-judicial authority under foreign exchange laws. The competent authority concluded that the payment of royalty by Xiaomi India was a means to transfer foreign exchange out of India, as stated in the September order.
Initiation of Investigation:
The investigation into the alleged illegal remittances began in February this year. The ED claimed that significant amounts in the name of royalties were remitted abroad based on instructions from the parent group entities of Xiaomi India, located in China. This investigation aims to uncover the details of these remittances and establish the extent of FEMA violations.
Conclusion:
The show-cause notices issued by the Enforcement Directorate’s Adjudicating Authority to Xiaomi Technology India Private Limited, its officials, and three banks highlight the alleged illegal remittances made by the Chinese company. The investigation into this case of FEMA violation will shed light on the nature and extent of the remittances, as well as determine the involvement of the concerned parties. The outcome of this case will have significant implications for the enforcement of foreign exchange regulations and compliance with RBI directives in India.
