Chinese handset maker Xiaomi's India unit misled its banker Deutsche Bank for years by claiming it had an agreement for payment of royalties when it had none, the Enforcement Directorate (ED) has alleged, according to a report by news agency Reuters. This comes within a week of Xiaomi India discontinuing its financial services in the country.
One of Xiaomi's four frozen bank accounts in the country is at Deutsche Bank. The handset maker has denied wrongdoing and approached an Indian court arguing its payments were legitimate and that the assets freeze, later confirmed by an appeals authority, had "effectively halted" its operations in a key market. The court in October declined any relief and the case will next be heard on November 7, the Reuters report added.
The ED froze $670 million of Xiaomi's bank assets saying an investigation found that the company made "illegal remittances" to US-based chip maker Qualcomm and other firms in the "guise" of royalties.
To recall, earlier in April, funds worth over Rs 5,551 crore of Xiaomi India were "seized" for violating the Indian foreign exchange law, according to the ED. "Xiaomi India is a wholly owned subsidiary of China-based Xiaomi group. This amount of Rs 5,551.27 crore lying in the bank accounts of the company has ben seized by the Enforcement Directorate," the agency was quoted as saying by news agency PTI.
The seizure of funds has been done under relevant sections of the Foreign Exchange Management Act (FEMA) after a probe was launched by the federal agency against the company in connection with alleged "illegal remittances" sent abroad by the Chinese firm in February. Xiaomi started its operations in India in 2014 and started remitting the money from the next year, it said.
"The company has remitted foreign currency equivalent to Rs 5,551.27 crore to three foreign-based entities which include one Xiaomi group entity, in the guise of royalty," the ED said.