Karnataka High Court reserves verdict in plea by Xiaomi against FEMA case

The Karnataka High Court on Wednesday reserved its verdict on a plea by Chinese technology company Xiaomi challenging an order of the Enforcement Directorate (ED) seizing seizing ₹5,551.27 crore from its bank accounts [Xiaomi Technology India Pvt Ltd v. Union of India]..Justice SG Pandit reserved order in a petition challenging an ED order that was passed on the ground that the Chinese technology company violated the provisions of the Foreign Exchange Management Act (FEMA)..Counsel for Xiaomi contended that the technology royalty payments made by the company to three foreign companies situated outside India were not in contravention of Section 4 of the FEMA. Further, the payments had been considered lawful by the Income Tax Department, which treated them as deductions, it was stated. .Technology royalty payments were made by the company from 2015-16 till date through authorised dealers, and there was no evidence to show that Xiaomi was in possessing foreign exchange outside India. Thus, the order passed by the ED using its powers under Section 37A of the FEMA was unsustainable, it was argued..The seizure of the bank accounts by the ED was disrupting the business of the company and was preventing it from paying salaries and wages to its employees, the Court was told.Another point raised was that the company was constrained to approach the High Court since the Appellate Tribunal under the Act was not functional owing to a lack of personnel..On May 5, 2022 the Court had stayed the order of the ED seizing Xiaomi's bank accounts subject to the condition that the petitioner would operate the seized bank accounts only for the purpose of meeting the expenses for carrying out the day to day activities of the company. The Court had, at that time, made it clear that its order would not confer any right on Xiaomi to make payment in the form of royalty or any other form to companies located outside India..Xiaomi was being represented by Senior Advocates S Ganesh and Sajan Poovayya, instructed by AZB & Partners' led by Senior Partner Aditya Vikram Bhat.Additional Solicitor General MB Nargund appeared for the Central government and the ED.