ED Seizes Rs 5,551 Crore Deposits Of Xiaomi India On Forex Breach

India's Enforcement Directorate has seized funds worth over Rs 5,551 crore from Xiaomi Corp.'s local unit for violating the country's foreign exchange laws.

The action has been taken against Xiaomi Technology India Pvt. Ltd. -- a trader and distributor of mobile phones in the country under the brand name of MI.

"Xiaomi India is 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 been seized by the Enforcement Directorate," according to a statement on Saturday.

The seizure of funds has been done under relevant sections of the Foreign Exchange Management Act, 1999, after an investigation was launched by the federal agency against the company in connection with alleged "illegal remittances" by the Chinese firm in February.

Xiaomi started its operations in India in 2014 and started the remittances from the following year, the ED said in the statement. "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."

Such huge amounts as "royalties" were remitted on the instructions of their Chinese "parent group" entities, it alleged. "The amount remitted to other two U.S.-based unrelated entities were also for the ultimate benefit of the Xiaomi group entities," the ED said.

While Xiaomi India procures completely built mobile phones and other products from manufacturers in India, it has not availed any service from these three foreign-based entities to whom such amounts have been transferred. "Under the cover of various unrelated documentary facade created amongst the group entities, the company remitted this amount in guise of royalty abroad which constitute violation of Section 4 of the FEMA," the central agency said.

The said section of the civil law of FEMA talks about "holding of foreign exchange". The ED also accused the company of providing "misleading information" to the banks while remitting the money abroad.

Earlier this month, the ED had also questioned the global vice president of the group, Manu Kumar Jain, at the agency's regional office in Bengaluru, Karnataka.