Explained: Why ED seized Xiaomi's assets worth Rs 5,551 crore

Xiaomi India landed up in legal trouble on Saturday as the Enforcement Directorate seized a whopping Rs 5,551.27 crore saved in the company's bank accounts in India. The agency said Xiaomi TechnologyIndia Pvt Ltd-- a wholly-owned subsidiary of the China-based Xiaomi group-- was found in contravention of the Foreign Exchange Management Act, which lays down rules for the transfer and receipt of foreign funds in the country. "ED has seized Rs.5551.27 Crore of M/s Xiaomi Technology India Private Limited lying in the bank accounts under the provisions of Foreign Exchange Management Act, 1999 in connection with the illegal outward remittances made by the company," the agency said in a statement.

What's the case against Xiaomi about?

Earlier this month, the Enforcement Directorate had called the company's global vice president, Manu Kumar Jain, for questioning in the case. He was questioned by an investigating officer in Bengaluru.

The Indian Express reported earlier this month an ED source had told the daily that money was sent by the company to China via a third country, violating the FEMA rules and RBI's guidelines. The official further said that around Rs 3,000 crore had been sent to the country three years ago.

The agency had asked Jain to send out documents related to Xiaomi's shareholding, source of funds and vendor contracts. It also asked him to furnish the record of payments made to Indian management and remitted abroad.

The seized amount of Rs 5551.27 crore is lying in the bank accounts of Xiaomi Technology India Pvt Ltd, which started its operations in India in 2014 and started remitting the money in 2015, news agency ANI reported.

According to the Enforcement Directorate, Xiaomi India remitted foreign currency to three abroad-based companies as royalty.

"Such huge amounts in the name of Royalties were remitted on the instructions of their Chinese parent group entities. The amount remitted to other two US-based unrelated entities were also for the ultimate benefit of the Xiaomi group entities," said the ED.

The federal agency, as per ANI, said Xiaomi India had not availed any service from the three foreign-based entities.

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

What was Xiaomi's defence?

Xiaomi had denied any wrongdoing. "We give paramount importance to the laws of the land. We are fully compliant with all the regulations and are confident of the same. We are cooperating with authorities with their ongoing investigation to ensure they have all the requisite information," a company spokesperson said earlier this month.

(With inputs from ANI, PTI)