New Delhi: Xiaomi India is weighing all options, including legal ones, to defend against the Law Enforcement Directorate (ED) action to seize the smartphone maker’s assets worth of Rs 5551.27 crore in connection with an investigation under the Foreign Exchange Management Act (FEMA), 1999, a person briefed has said.
According to the ED, the Indian smartphone market leader has handed over the equivalent of Rs 5,551.27 crore in foreign currency under cover of royalty payments to three foreign entities, including one that belongs to the Xiaomi group.
Xiaomi India is a wholly owned subsidiary of China’s Xiaomi Group which sells smart connected consumer electronics including smartphones, smart watches and other IoT devices.
The company did not comment specifically on ET’s question regarding its legal options and reiterated its official statement denying any wrongdoing and being honest with its royalty payments. “The royalties paid by Xiaomi India were for licensed technologies and IP addresses used in our Indian version products.”
Legal experts say the Chinese smartphone maker has few options in terms of legal recourse against the ED action. For one, the company can still appeal, but that can only happen once the charge sheet is filed. However, an extreme course of action would be to file a writ petition in a high court with jurisdiction over ED’s actions.
“Xiaomi will have to prove to the High Court that the government agency’s action is in bad faith, bad in law and beyond its jurisdiction,” Anupam Shukla, a partner at Pioneer Legal, told ET.
However, doing so could run the risk of antagonizing authorities, legal experts said. So unless the company has evidence of bad faith intent, Xiaomi may choose to cooperate with the investigation now, Shukla added.
In its statement on Saturday, Xiaomi said it was “committed to working closely with government authorities to clarify any misunderstandings.”
The ED action falls under special powers granted to the agency under sections of the FEMA Act of 1999, which allow management to seize assets equivalent to the amount suspected of being held offshore in violation. provisions of the law. The law gives Xiaomi India the option to appeal to the Special Director (Appeals) once the charge sheet is filed.
According to brand experts and market analysts, ED’s action may tarnish the brand’s image in the country a little, but its position in the market should not be affected.
“If you look at all of Xiaomi’s current and future consumers, I’d say it’s highly likely that around 5-7% of people will rethink the brand because of what happened in the FEMA case, but then for 93% of the market it will be business as usual,” brand expert Harish Bijoor told ET.
However, Navkendar Singh, research director at IDC, expects no impact on the company’s brand image and market share.
“Make in India, PLI, etc. is based on all these companies coming in and making India a manufacturing hub and an export hub. I don’t foresee any impact on the market or sales or even on perception. Considering the anti-China sentiment couldn’t do much two years ago, it’s not much,” Singh said.