Is Xiaomi Relocating Its India Operations To Pakistan? What Chinese Mobile Maker Has To Say?
The Chinese electronics manufacturer Xiaomi Technology India Private Limited is once again making headlines. One of the top players in India’s smartphone market, the company rose to prominence thanks to its cheap, widely-appreciated products. Nonetheless, the Indian government’s attention has been drawn to the firm because of legal problems.
As a result of infractions of Indian foreign currency regulations, the Enforcement Directorate (ED), a central investigating agency, seized more than Rs 5,500 crore from Xiaomi, catapulting the business into the spotlight.
After the Enforcement Directorate froze its assets worth 5,551.27 crores for allegedly violating Foreign Exchange Management Act rules, rumours began to circulate that Chinese mobile company Xiaomi might relocate its operations from India to Pakistan. Following the freezing of its $676 million in assets, the Chinese mobile manufacturer may relocate its operations from India to Pakistan, according to a tweet by South Asia Index, which cited unnamed sources.
This tweet is totally fabricated and without any foundation. Xiaomi first set foot in India in 2014, and in a little, over a year we began our Make in India initiative. The vast majority of our cell phones and all of our televisions originate from India. “We will take all means to safeguard our reputation from false & misleading charges,” Xiaomi tweeted in response.
The Chinese smartphone maker returned to the Karnataka high court on Friday to appeal the FEMA competent authority’s September 29 ruling, which confirmed the ED’s April 29 seizure order and froze the company’s assets. For allegedly breaking FEMA laws and moving money under the pretence of royalty to three firms outside India, the central investigation agency had ordered the seizure of assets.
The Chinese smartphone manufacturer has petitioned the appellate order on the grounds that a witness for the foreign bank was not given the opportunity to testify.
The petition was maintainable, according to Xiaomi’s legal team, because it also questioned the constitutionality of Section 37A of FEMA concerning a company’s assets located outside of India. The mobile manufacturer was given permission by the high court earlier this year to utilize the money for operating expenses, but not for paying royalties.
What’s the story?
To put it simply, Xiaomi India is a retailer and distributor of MI-branded mobile phones in the Indian market. Xiaomi India sources fully assembled mobile sets and other devices from manufacturers in India. In 2014, the firm launched its India operations
On April 30th, the ED announced that it had confiscated over Rs 5,500 crore worth of assets from Xiaomi India, citing the company’s unlawful transactions with foreign organizations disguised as royalty payments.
According to ED’s accusations, Xiaomi India transferred large cash from three firms, one of which was a Xiaomi group entity, under the guise of royalties. In the course of its investigation, ED learned that Xiaomi India had been sending home foreign cash equal to Rs 5,551.27 crore ever since 2015, a full year after it had launched operations in India.
According to ED, the transfer was made by Xiaomi India under the directives of the Chinese parent company. The statement explained that the money transferred to two other companies in the United States was ultimately used to benefit the Xiaomi group.
According to India’s central body for combating financial crime, Xiaomi India did not hire any of the three overseas companies that received the Rs 5,550 crore. The company has been sourcing domestic suppliers for some time now. The ED further claims that Xiaomi India lied to banks in order to transfer the funds outside.
The response and defence of Xiaomi
Xiaomi India has spoken out in defence of the company, saying that it abides by Indian law. These Xiaomi India royalties were for in-licensed technologies and intellectual property (IP) used in our Indian edition goods. Xiaomi India’s payment of royalties is consistent with a standard commercial contract. The corporation issued a statement after ED’s decision saying, “We are dedicated to working together with government authorities to clear any ambiguities.”
The organization challenged the September 29, 2022 ruling of the Foreign Exchange Management Act (FEMA) Competent Authority, which validated the April 29, 2022 seizure order of the ED, before the Karnataka High Court earlier this month. In January of this year, the corporation appealed to the HC about this directive. Nonetheless, it was directed by the HC to contact the FEMA-designated Competent Authority.
A new petition
On October 7, Xiaomi filed a fresh appeal contesting the order of the Competent Authority, arguing that a representative of a foreign bank should have been permitted to be interviewed. The company’s lawyer contended that the petition was admissible since it also raised questions about the constitutionality of Section 37A of FEMA, which applies to a company‘s overseas holdings.
In other cases
As of December of 2021, the Income Tax agency had already issued a notice for tax evasion. In a statement released in December 2021, the Central Board of Direct Taxes (CBDT) highlighted that the business had remitted more than Rs 5,500 crore to and on behalf of its foreign group companies in the form of royalties.
Directorate of Revenue Intelligence (DRI) issued three show cause notices to Xiaomi India a week after the raids for the demand and collection of duty totalling Rs 653 crores. DRI claimed in its statement that it has discovered Xiaomi India had avoided paying customs duties by undervaluing shipments.
Exactly what is at stake?
According to Mobile Devices Monitor data from 2021, Chinese companies own a disproportionate share of the Indian smartphone industry. Xiaomi holds over 23%, Vivo about 15%, Realme around 15%, and Oppo around 10%. According to Counterpoint Research, Xiaomi has 24% of the Indian smartphone market in 2021. There were rumblings the corporation would relocate to Pakistan as a result of mounting legal battles.
In response to a tweet from South Asia Index calling rumours of Xiaomi moving its operations to Pakistan “false and baseless” due to legal complications, Xiaomi has said that the rumours are unfounded and that the company is a shining example of the Make in India movement, with 99 per cent of its smartphones and 100 per cent of its TVs being produced in India.
edited and proofread by nikita sharma