The Enforcement Directorate (ED) has issued show-cause notices to Xiaomi Technology India Private Limited, its executives, and three foreign banks over alleged foreign exchange law violations exceeding ₹ 5,551 crore. This article explores the details of the case, the violations, and the potential penalties.
The ED’s investigation revealed that Xiaomi India remitted ₹ 5,551.27 crore to foreign-based entities under the guise of royalty payments. The show-cause notices were served to Xiaomi India, its CFO Sameer B Rao, former MD Manu Kumar Jain, and the financial institutions Citibank, HSBC Bank, and Deutsche Bank AG. The notices address non-compliance with section 16 of the Foreign Exchange Management Act (FEMA).
The three banks are suspected of contravening sections 10(4) and 10(5) of the FEMA by allowing foreign outward remittances for royalty payments without conducting due diligence or obtaining technical collaboration agreements. Funds worth ₹ 5,551.27 crore were seized from Xiaomi India’s bank accounts under the FEMA. The ED concluded that this amount was transferred out of India in an unauthorized manner.
The remittance of royalty payments was deemed a violation of FEMA provisions as it served as a mechanism to transfer foreign exchange out of India.Upon settling the case, penalties could amount to three times the total contravention amount, as per FEMA regulations. The competent authority appointed under section 37A of FEMA confirmed the seizure order, stating the ED’s justification for seizing the funds held outside India on behalf of the group entity. The violations highlight the significance of conducting due diligence and obtaining necessary agreements while facilitating outward remittances.
