HC allows Xiaomi India to operate bank accounts only for day-to-day activities 

ED had on April 29 seized ₹5,551.27 crore of the company for alleged violation of FEMA provisions

The High Court of Karnataka has allowed Xiaomi Technology India Private Limited to operate the bank accounts, which were seized by the Enforcement Directorate (ED), only for the purpose of meeting the expenses for carrying out the day-to-day activities. 

While staying the ED’s order of seizure of the bank accounts, the court made it clear that this interim order shall not confer any right on the petitioner-company to make payment in the form of royalty or any other form to the companies located outside India.

Vacation bench of Justice Hemant Chandangoudar passed the interim order on Thursday on a petition filed the company, which is wholly owned subsidy of China-based Xiaomi group. 

The ED on April 29, 2022, had seized ₹5,551.27 crore of the company for alleged violation of the provisions of the Foreign Exchange Management Act (FEMA) in connection with the alleged illegal remittances made by the company.

Questioning the legality of the ED’s action, it was contended on behalf of the company that its business is disrupted and the petitioner is also not in a position to pay the salaries/ wages to its employees. It was also pointed out to the courts that the petition is maintainable without availing the alternative remedy of appeal provided under Section 19 of the Act, since the tribunal is not functioning as the vacancies to the posts are not filled up. 

The interim prayer for permission to make payments to foreign companies located outside India requires to be considered only after hearing the ED, the court said while reserving the liberty to the ED to seek for vacation/ modification of this interim order. Further hearing on the petition adjourned till May 12.

It was also argued on behalf of the company that payments of technology royalty made to three foreign companies situated outside the India is not a contravention as specified under Section 4 of FEMA and the said payments have been held to be lawful by the Income Tax Department and allowed the same as deduction/s and it was also held that it is a value added activity.