Kelly Choos 
The Karnataka High Court on Thursday allowed Chinese mobile phone maker Xiaomi Technology India Pvt Ltd to apply for bank overdrafts to make payments for its operations – excluding a Rs 5,500 crore fee to overseas tech suppliers which was frozen by the Enforcement Department (ED) via an order of April 29, 2022.
A single judge of the Karnataka High Court issued the order after Xiaomi approached the court on Thursday for a clarification of its May 5 order. Xiaomi argued that the May 5 high court order led banks to block all company payments, including daily payments for the purchase of ancillary items for manufacturing purposes and other purposes.
Xiaomi defenders have argued that the company should be allowed to access Rs 1,000 crore of funds in its frozen bank accounts for expenses. ED’s lawyer objected to the move and argued that the company had already transferred Rs 2,500 crore of funds from India as a fee for foreign technology providers before the court order. April 29 for a freezing of the company’s accounts.
Xiaomi defenders argued on Thursday that the company was being targeted because it was Chinese. “I am the top seller of smartphones in the country with 25% (market share). Unfortunately, I say this with prejudice to the other side, I am Chinese,” Xiaomi’s lawyer told the high court.
“The remaining 75% of smartphone vendors are paying royalties to the same party. They’ve been paying royalties for 12 years. There’s no action against them because I’m Chinese and they’re not Chinese. is the only restriction,” the lawyer explained. “They just want revenge on China, that’s the problem.”
The additional solicitor general appearing for the ED countered the argument that Xiaomi has been a Chinese company since 2014 and no action has been taken before. He said “Rs 1,500 crore was transferred in one fell swoop” by the firm at the end of April.
The high court ordered that Xiaomi India “may take overdrafts to make payments excluding royalties from such overdraft”.
Xiaomi Technology India Private Limited contacted the Karnataka High Court earlier this month, saying the technology royalty paid to three foreign companies did not violate the Foreign Exchange Management Act (FEMA).
The company argued that the payments were deemed lawful by the Department of Income Tax and that these payments were made from the 2015-2016 period. Xiaomi argued that there was no evidence showing the company held currency outside of India.
The Chinese phone maker also argued that similar payments by other mobile phone manufacturers and resellers in India to a company in the United States for the same technology had not been questioned by Indian authorities and that no action had been taken against them for violating FEMA.
The company argued that the freezing of its bank accounts for violating FEMA had disrupted its business operations and that it was unable to pay employee salaries.
In an interim order dated May 5, the Karnataka High Court suspended the ED order dated April 29, 2022 on “the condition that the petitioner shall operate the bank accounts seized under the contested order solely for the purpose of cover the expenses of carrying out the day-to-day business of the Society”.
The court order said that the stay order “shall not confer any right on the petitioner to make payment in the form of royalty or any other form to the companies located outside India.” The court released the case for hearing on May 23.
