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Karnataka HC orders interim stay on ED order seizing Xiaomi India’s assets

The Karnataka High Court has passed an interim order putting a stay on the Directorate of Enforcement (ED) order seizing Xiaomi India’s assets worth Rs 5551.27 crore for flouting laws under the Foreign Exchange Management (FEMA) Act.

A single judge bench of Justice Hemant Chandangoudar issued an interim stay on the seizure, since Xiaomi India operates the accounts for carrying out day to day activities of the company. The court posted the matter for further hearing on May 12.

The order copy was not available at press time but a person familiar with the matter confirmed the order. Xiaomi did not reply to ET’s emailed query.

Senior counsel Mr. S. Ganesh and Mr. Sajan Poovayya, appearing for the smartphone market leader argued that paying royalties are not a violation of the FEMA Act, and that similar payments are made by other manufacturers and dealers of smartphones to the very same company in the USA for the same technologies used by Xiaomi India.

They further submitted that such royalty payments for technology have also been considered lawful by the Income Tax Department, and is even considered a value added activity.

ED had passed an order last week stating that assets worth Rs 5551.27 crore lying in Xiaomi India’s bank accounts had been seized by the agency. The agency alleged that Xiaomi India was making payments to three foreign entities, including one under the Xiaomi group, under the guise of royalty payments.

ED also claimed the company provided misleading information while remitting the money abroad.

Xiaomi India is a wholly owned subsidiary of the China-based Xiaomi group. Cetab Titan

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