Karnataka HC Rejects Xiaomi’s Petition Against INR 5,551 Cr

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In March 2021, the Enforcement Directorate (ED) seized assets worth INR 5,551 crore ($773 million) from Xiaomi subsidiary entities in India. The ED alleged that the company violated the Foreign Exchange Management Act (FEMA) by not taking government permission to send funds to China. In response, Xiaomi filed a petition in the Karnataka High Court challenging the seizure. However, in April 2022, the court rejected Xiaomi’s petition and upheld the ED’s action. The court found that Xiaomi had violated FEMA regulations and that the company had failed to disclose the true purpose of the remittances to Chinese authorities. The court also dismissed Xiaomi’s contention that it had not been given an opportunity to present its case before the ED’s seizure order was passed.

The seizure of assets was seen as a setback for Xiaomi, which is one of the largest smartphone manufacturers in India. However, the company stated that it had sufficient cash reserves to cover any losses resulting from the seizure and that it remained committed to its operations in India. In 2020, the Directorate of Revenue Intelligence (DRI) had seized Xiaomi’s consignment containing smartphones and other electronic devices worth INR 5,551 crore at the Bengaluru international airport, alleging that the company was undervaluing its imports and not paying customs duty. Xiaomi had challenged the seizure in the Karnataka High Court, arguing that the company had followed all applicable laws and that the DRI had exceeded its jurisdiction in seizing the goods.

In its recent judgement, the Karnataka High Court rejected Xiaomi’s petition and upheld the DRI’s seizure of the consignment. The court found that Xiaomi had deliberately undervalued its imports and evaded customs duty, and that the company’s actions were not in compliance with the applicable laws and regulations. The court also noted that Xiaomi had not cooperated fully with the DRI during its investigation, and had failed to produce all the relevant documents and information.

The judgement is a setback for Xiaomi in India, where it is one of the leading smartphone brands and has a significant market share. The company has stated that it will comply with the court’s order and pay the necessary customs duty and penalties.