Officials from the Enforcement Directorate warned the company’s former India managing director, Manu Kumar Jain, current Chief Financial Officer Sameer B.S. Rao, and their families of “dire consequences” if they did not submit statements as desired by the agency, Xiaomi’s filing dated May 4 stated.
The Enforcement Directorate has termed the charges as untrue and baseless. “The officials of the Xiaomi India deposed their statements before ED under FEMA voluntarily in the most conducive environment on various occasions. The statements were deposed by them on the basis of documents/information provided by the company during the course of investigation. Their statements corroborate with the written replies submitted to ED and the materials on record,” the agency said in a statement.
ED said no complaint was filed by the Xiaomi officials at any point of time during recording of statements at various occasions, adding that there was no coercion or threat to the officers of the company at any point of time.
Xiaomi has been under investigation since February and last week the Indian agency seized $725 million lying in the company’s India bank accounts, saying it made illegal remittances abroad “in the guise of royalty” payments.
Xiaomi has denied any wrongdoing, saying its royalty payments were legitimate. On Thursday, a judge heard Xiaomi lawyers and put on hold the Indian agency’s decision to freeze bank assets. The next hearing is set for May 12.
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The company alleges intimidation by India’s premier enforcement agency when executives appeared for questioning multiple times in April.
Jain and Rao were on certain occasions “threatened … with dire consequences including arrest, damage to the career prospects, criminal liability and physical violence if they did not give statements as per the dictates of” the agency, according to the filing in the High Court of southern Karnataka state.
The executives “were able to resist the pressure for some time, (but) they ultimately relented under such extreme and hostile abuse and pressure and involuntarily made some statements,” it added.
Xiaomi declined to comment citing pending legal proceedings. Jain and Rao did not respond to Reuters queries.
Jain is now Xiaomi’s global vice president based out of Dubai and is credited for Xiaomi’s rise in India, where its smartphones are hugely popular.
Xiaomi was the leading smartphone seller in 2021 with a 24% market share in India, according to Counterpoint Research. It also deals in other tech gadgets including smart watches and televisions, and has 1,500 employees in the country.
FIGHT OVER REMITTANCES
Many Chinese companies have struggled to do business in India due to political tensions following a border clash in 2020. India has cited security concerns in banning more than 300 Chinese apps since then and also tightened norms for Chinese companies investing in India.
Tax inspectors raided Xiaomi’s India offices in December. On receiving information from tax authorities, the Enforcement Directorate – which probes issues such as foreign exchange law violations – started reviewing Xiaomi’s royalty payments, court documents show.
The agency last week said Xiaomi Technology India Private Limited (XTIPL) remitted foreign currency equivalent of 55.5 billion rupees ($725 million) to entities abroad even though Xiaomi had “not availed any service” from them.
“Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities,” the agency said.
Xiaomi’s court filing alleges that during the investigation, Indian agency officials “dictated and forced” Xiaomi India CFO Rao to include a sentence as part of his statement “under extreme duress” on April 26.
The line read: “I admit the royalty payments have been made by XTIPL as per the directions from certain persons in the Xiaomi group.”
A day later, on April 27, Rao withdrew the statement saying it was “not voluntary and made under coercion”, the filing shows.
The directorate issued an order to freeze assets in Xiaomi’s bank accounts two days later.
Xiaomi has said in a previous media statement it believes its royalty payments “are all legit and truthful” and the payments were made for “in-licensed technologies and IPs used in our Indian version products.”
Its court filing stated Xiaomi is “aggrieved for being targeted since some of its affiliate entities are based out of China”.
Not Permitted to File Retraction: CFO Rao
The investigating agency rejected the contention that it had extracted statements through such intimidation.
“It appears the allegation now made after passage of substantial time is an afterthought,” it said. “The allegations are baseless and far from the facts.” There was no coercion or threat made against the executives of the company at any point of time, the ED said.
The agency said company executives didn’t file any complaints during the recording of statements, the last of which was made on April 26. The statements of Manu Kumar Jain, former managing director of Xiaomi India, was recorded on three days, including April 26. Jain is currently global vice president at Xiaomi.
“The officials of Xiaomi India deposed their statements before ED under Fema voluntarily in the most conducive environment on various occasions,” the ED statement read.
However, Xiaomi’s writ petition said CFO Rao wrote a letter on April 25 putting on record that “he was not being permitted to file a retraction” of the undertaking made under duress.
In an interim order passed on May 5, the Karnataka High Court barred Xiaomi India from making royalty or other payments to companies outside India. The court also stayed ED’s seizure of the company’s assets worth more than ₹5,551.27 crore. It posted the matter for further hearing on May 12.
