Xiaomi approaches Karnataka HC again over seizure of assets

PTI, Oct 8, 2022, 8:29 AM IST

Chinese consumer electronics company Xiaomi Technology India Private Limited has once again approached the Karnataka High Court. In a petition filed on October 3, the company has challenged the September 29, 2022 order of the Foreign Exchange Management Act (FEMA) Competent Authority which confirmed the April 29 seizure order of the Enforcement Directorate (ED).

The ED had earlier this year ordered the seizure of ₹5,551.27 crore in the accounts of Xiaomi for allegedly violating FEMA rules and transferring money in the guise of royalty to three companies outside India. The company had approached the HC earlier this year against this order. The HC had, however, ordered it to approach the Competent Authority under FEMA. On Thursday, the vacation bench of Justice N S Sanjay Gowda heard the petition by Xiaomi. Xiaomi sought an interim order but had not produced the Competent Authority’s order copy. It sought for dispensation of the same.

The HC however ordered, “Request made for dispensation of production of certified copies of impugned seizure order is granted subject to production of the certified copies within a period of four weeks.” Notices for the respondents, Ministry of Finance and Directorate of Enforcement were ordered to be issued. Additional Solicitor General M B Nargund and advocate Madhukar Deshpande pointed out to the HC that the company had to approach the Appellate Authority against the Competent Authority order, rather than approach the HC. In the new petition, Xiaomi has challenged the Competent Authority’s order on grounds that representative of a foreign bank was not allowed to be examined during the hearing.

The company’s advocate argued that since the petition has also challenged the validity of Section 37A of FEMA which relates to assets held outside India by a company, the petition was maintainable. On the other hand, Deshpande submitted that the company had already withdrawn most of the money that was seized. The HC had in the petition filed earlier this year allowed the company to use the money for its day-to-day activities but forbade it to use it to make payment of royalties. The advocate pointed out that there was only ₹1,900 crore in the accounts from the earlier ₹5,551.27 crore. The court orally observed that an interim order in favour of the company cannot be granted unless it provides a bank guarantee for the entire amount that was originally ordered to be seized by the ED. The hearing of the case was adjourned to October 14.