The Karnataka High Court has rejected Xiaomi’s attempt to challenge the seizure of INR 5,551 Cr ($676 Mn) by Indian authorities for violating FEMA guidelines.
The seizure was ordered by the Competent Authority under the Foreign Exchange Management Act, 1999 (FEMA) in April 2022, alleging that Xiaomi India had made remittances to foreign companies under the pretext of royalties for services it never received from them. The Enforcement Directorate (ED) ordered the seizure, which was confirmed by FEMA in September 2022.
Xiaomi has maintained that its royalty payments were legitimate and related to its sales, and that its operations in India are compliant with local laws and regulations. The Chinese smartphone maker had previously stated that it would take all necessary measures to safeguard its interests and reputation in India. However, the Karnataka High Court has now denied its plea altogether.
Xiaomi is not the only Chinese smartphone manufacturer under the lens of Indian financial authorities. Vivo has also been accused of remitting INR 62,476 Cr to foreign parties, mostly Chinese companies, in the form of royalties to avoid paying taxes in India, while OPPO has been alleged to have evaded tax to the tune of INR 4,389 Cr in India.
Chinese companies in India have faced challenges since the Indian Army clashed with the People’s Liberation Army of China at the Galwan border in 2020. Since then, the Indian government has banned around 300 Chinese apps and barred Chinese telecom makers from selling products to Indian telcos to ensure national security.
Xiaomi’s case highlights the need for companies to comply with local laws and regulations, especially in sensitive sectors such as finance and technology. As countries around the world continue to grapple with the challenges posed by globalization and the rise of China, it is likely that such cases will become increasingly common.
Companies must be prepared to navigate complex legal environments and ensure that they operate in a manner that is transparent and compliant with local laws and regulations.