ED Issues Show Cause Notice To Xiaomi, Senior Executives Over Rs 5,551 Crore FEMA 'Violation'

The notifications were issued by the Adjudicating Authority (of the Foreign Exchange Management Act) to Xiaomi Technology India Private Limited, 2 senior executives for FEMA 'violations'.

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The Enforcement Directorate (ED) announced on Friday that it sent show-cause notices to Xiaomi India, its chief financial officer and director Sameer B Rao, former managing director Manu Kumar Jain, and three foreign banks for supposed infractions of the foreign exchange law totaling more than Rs 5,551 crore, news agency PTI reported.

The notifications were issued by the Adjudicating Authority (of the Foreign Exchange Management Act) to Xiaomi Technology India Private Limited, the two executives, CITIbank, HSBC bank, and Deutsche Bank AG under Section 16 of the FEMA, according to the federal agency.

After a FEMA investigation is finished, a show-cause notice is given, and when it is settled, the accused may be required to pay a penalty that may be three times the amount violated.

Along with the firm, Jain, and Rao have also received notifications, according to the ED.

The Adjudicating Authority has also served show-cause notices to three banks, Citibank, HSBC Bank, and Deutsche Bank AG, for violating sections 10(4) and 10(5) of the FEMA and Reserve Bank of India (RBI) directives by permitting foreign outward remittances made through the banks in the name of royalties "without" conducting adequate research and "without" acquiring any underlying technical partnership agreement from the company, it said.

For the "unauthorized" transmission of the funds by the business under the cover of royalties abroad, the ED had already frozen cash worth Rs 5,551.27 crore that Xiaomi Technology India Private Limited held in its bank accounts.

"The competent authority, appointed under section 37A of the FEMA, has confirmed the said seizure order. The authority, while confirming the seizure, held that the ED is right in holding that foreign exchange equivalent to Rs 5,551.27 crore has been transferred out of India by Xiaomi India in an unauthorised manner and is held outside India on behalf of the group entity in contravention of section 4 of the FEMA, 1999 and the same is liable to be seized in terms of provisions of section 37A of the FEMA," it said.

According to the agency, the responsible authorities further noted that the payment of royalties was nothing more than a means of sending money out of India and that it was therefore in "blatant" violation of the FEMA requirements.

According to the ED, its probe, which was started last year, discovered that the firm had sent money to three foreign-based organisations, including a Xiaomi group entity, under the premise of royalties totaling Rs 5,551.27 crore in foreign currency.

"Under the cover of various unrelated documentary façade created amongst the group entities, the company remitted this amount in the guise of royalty abroad, which constitutes violation of section 4 of the FEMA," it said.