K'taka HC allows Xiaomi conditional use of money from ED-seized accounts

The Karnataka High Court has stayed the Enforcement Directorate's April 29 order under which it seized Rs 5,551.27 crore from Ms Xiaomi Technology India Pvt Ltd.

The ED had initiated action against the company for alleged contravention of provisions of the Foreign Exchange Management Act (FEMA), 1999.

Justice Hemant Chandangoudar on Thursday stayed the ED order dated April 29, subject to the condition that the petitioner operates the bank accounts which are seized under the impugned order for the purpose of carrying out the day to day activities of the company.

The matter has been posted for further hearing to May 12.

During the hearing on Thursday, counsel for the petitioner submitted that there was no contravention of FEMA provisions in the Technology Royalty that was paid by Xiaomi Technology India Pvt Ltd to three companies located outside India. They also submitted that Income Tax department has held such payments to be lawful.

Citing the Central government's Dispute Resolution Panel's order that the payments are a value added activity, the petitioner's counsel argued that it is a value added activity.

Petitioner's counsel also pointed out that no such action has been initiated against other mobile phone manufacturers in India, who have also made such payments, with respect to the same technology, to the same company in the US.

On April 30, the ED had announced that it has seized the amount of Rs 5,551.27 crore lying in the bank accounts of the company.

"ED had initiated investigation in connection with the illegal remittances made by the company in the month of February this year," the official statement read.

The ED charged the Indian subsidiary of the Chinese owned mobile manufacturer, of remitting foreign currency to three foreign-based entities.