The Karnataka High Court Wednesday reserved its verdict in a plea filed by Xiaomi Technology India Private Limited against a move by the Enforcement Directorate (ED) for seizure of bank accounts of Xiaomi over alleged violation of the Foreign Exchange Management Act (FEMA) of 1999 to the tune of Rs 5,500 crore. Xiaomi India approached the high court last month stating that the payment of Rs 5,500 crore to three foreign companies since 2016 did not contravene the FEMA law. The ED has rejected claims by Xiaomi Technology India Private Limited, the Indian arm of the Chinese cell phone maker Xiaomi, that royalty payments to the tune of Rs 5,500 crore made by Xiaomi India to three foreign firms from the year 2016 had been found to be legal by the Income-Tax department in India. The ED has also disputed claims that the Rs 5,500 crore transferred out of India since 2016 were royalty payments since the contracts for technology royalties are signed by Xiaomi Hong Kong and not Xiaomi India – a seller of Xiaomi phones. Xiaomi India has challenged the ED move to seize its bank accounts in India on the grounds that the royalty payments had been held to be lawful by the Income-Tax Department and considered as expenses of the firm. The firm has also argued that 84 per cent of the Rs 5,500 crore was paid to US technology firms Qualcomm Inc and Qualcomm Tech as royalty for use of their technology in Xiaomi phones while the remainder was paid to Beijing Xiaomi Mobile Software Co Ltd. Xiaomi Technology India has argued that there is no evidence to show that the firm is holding foreign exchange outside India which would amount to a violation of the FEMA. The Chinese phone manufacturer has argued that similar payments by other manufacturers and dealers of mobile phones in India to the US companies for use of the same technology had not been questioned by Indian authorities and that no steps had been taken against them for FEMA violations. Earlier on May 5, the Karnataka High Court stayed the April 29, 2022 order of the ED on “the condition that the petitioner shall operate the Bank accounts which are seized under the impugned order only for the purpose of meeting the expenses for carrying out the day to day activities of the Company”. The Court order stated that the stay order “shall not confer any right on the petitioner to make payment in the form of royalty or any other form to the companies located outside India.”
