The Enforcement Directorate (ED) on Friday said it has issued show-cause notices to the Indian arm of Chinese mobile phone manufacturer Xiaomi, its chief financial officer and director Sameer B Rao, former managing director Manu Kumar Jain and three foreign banks for alleged violations of the foreign exchange law to the tune of more than Rs 5,551 crore.
The Adjudicating Authority (of the Foreign Exchange Management Act) has issued the notices to Xiaomi Technology India Private Limited, the two executives, the CITIbank, the HSBC bank and the Deutsche Bank AG under section 16 of the FEMA, the federal agency said in a statement.
A show-cause notice is issued after the completion of a FEMA probe and once it is settled, the accused may have to pay a penalty that could be three times the amount contravened.
The notices have been issued to the firm, along with Jain and Rao, the ED said.
The Adjudicating Authority has also issued show-cause notices to three banks -- Citibank, HSBC Bank and Deutsche Bank AG -- for contravention of sections 10(4) and 10(5) of the FEMA and directions issued by the Reserve Bank of India (RBI) as they allowed foreign outward remittances in the name of royalty through the banks, "without" conducting due diligence and "without" obtaining any underlying technical collaboration agreement from the company, it said.
The ED had earlier seized funds worth Rs 5,551.27 crore of Xiaomi Technology India Private Limited lying in its bank accounts under the FEMA for the "unauthorised" remittance of this amount in guise of royalty abroad by the company.
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"The competent authority, appointed under section 37A of the FEMA, has confirmed the said seizure order. The authority, while confirming the seizure, held that the ED is right in holding that foreign exchange equivalent to Rs 5,551.27 crore has been transferred out of India by Xiaomi India in an unauthorised manner and is held outside India on behalf of the group entity in contravention of section 4 of the FEMA, 1999 and the same is liable to be seized in terms of provisions of section 37A of the FEMA," it said.
The agency said the competent authority also observed that the payment of royalty was nothing but a tool for transferring the foreign exchange out of India and the same was in "blatant" violation of the FEMA provisions.
The ED said its investigation, launched last year, has found that the company had remitted foreign currency equivalent to Rs 5,551.27 crore to three foreign-based entities, including a Xiaomi group entity, in the guise of royalty.
"Under the cover of various unrelated documentary faade created amongst the group entities, the company remitted this amount in the guise of royalty abroad, which constitutes violation of section 4 of the FEMA," it said.