Show Cause Notices to “Xiaomi Technology India” under FEMA Act

By Raju Vernekar
Mumbai, June 12:

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 company, 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, the official statement issued on June 09 read.
The banks who have issued show cause notices include:  CITI bank, HSBC Bank and Deutsche bank AG for contravention of Section 10(4) and 10(5) of Foreign Exchange Management Act (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 seized Rs.5551.27 crore of  the “ Xiaomi Technology” lying in its bank accounts under the provisions of FEMA, for unauthorised remittance of this amount in guise of royalty abroad by the company, earlier. Subsequently the \Competent Authority, appointed under Section 37A of the FEMA, confirmed the seizure order.
The Authority while confirming the seizure held that ED is right in holding that foreign exchange equivalent to Rs 5551.27 crore was transferred out of India by the Xiaomi India in an unauthorised manner and it was held outside India on behalf of the group entity in contravention of Section 4 of the FEMA and it was liable to be seized under section 37A of the said act.
The Competent Authority also observed that payment of royalty was nothing but a tool to transferr the foreign exchange out of India and the same was in blatant violation of provisions of FEMA.
The ED had initiated investigation in connection with the illegal remittances made by the company last year. During 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 façade created amongst the group entities, in violation of section 4 of the FEMA.


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