An Indian court has ruled against Chinese smartphone maker Xiaomi in a case involving the seizure of assets worth $676 million, sources told Reuters on Friday. Last year, India’s federal financial crime agency had frozen Xiaomi’s assets, alleging that the company made illegal remittances to foreign entities by disguising them as royalty payments.
According to the Enforcement Directorate of India, Xiaomi, which came to the country in 2014, began moving money abroad unlawfully in 2015 while providing misleading information to banks. The Chinese company allegedly transferred Rs 5,551.27 crore in foreign currency to three businesses, including a Xiaomi group entity, under the premise of royalty — money paid to the owner of a product or patent that a third-party exploits. However, Xiaomi has denied the allegations.
Xiaomi’s actions, according to the agency, violate Section 4 of the Foreign Exchange Management Act (FEMA), which restricts who can acquire, hold, own, possess, or transfer any foreign exchange, foreign security, or immovable property situated outside India.
Implications Of This Decision For Xiaomi And Other Foreign Companies
The court’s decision is a significant blow to Xiaomi, one of India’s fastest-growing smartphone brands. Xiaomi has invested heavily in India in recent years, setting up manufacturing facilities, creating jobs, and launching a wide range of affordable smartphones to cater to the country’s price-sensitive consumers.
The case highlights the increasing scrutiny and regulatory challenges faced by foreign companies operating in India, especially China. With a push for self-reliance and stricter enforcement of financial regulations, Indian authorities have been cracking down on alleged violations by foreign companies, including those related to tax evasion, money laundering, and foreign exchange rules.
The seizure of Xiaomi’s assets is seen as a warning to other foreign companies operating in India to ensure compliance with local laws and regulations. It also underscores the need for companies to have robust internal controls and risk management measures in place to mitigate potential legal and financial risks.
Due to political tensions following a border skirmish, Chinese enterprises have found it difficult to do business in India since 2020. Since then, India has banned over 300 Chinese apps, including popular ones like TikTok, citing security concerns. Many Chinese companies like WeChat and Alibaba have also faced scrutiny and restrictions in recent years due to concerns over data privacy, national security, and compliance with local laws.
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