K’taka HC tells Xiaomi to approach competent authority under FEMA over assets frozen by ED

The High Court of Karnataka has directed Xiaomi Technology India Pvt Ltd to approach the competent authority appointed under the Foreign Exchange Management Act (FEMA) regarding its dispute with Enforcement Directorate (ED) over seizure of Rs 5,551.27 crore in its bank accounts.

The ED had frozen the bank accounts of the Chinese mobile phone major, alleging that section 4 of FEMA was violated by the company by transferring money outside the country illegally in the name of royalty payment.

Xiaomi had approached the High Court against this order. In its judgement on July 5, Justice S G Pandit pointed out that the resolution mechanism was in the FEMA Act itself.

“The authorised officer, after passing seizure order, is required to place the seizure order with entire/relevant material before the competent authority within a period of 30 days from the date of such seizure,” the High Court said. The authorised officer in this case is ED.

The court said Xiaomi has to approach that competent authority first. The authority has 180 days to resolve the dispute. The company can file an appeal against the orders of the competent authority but cannot approach the High Court at this juncture, the court said.

The court, however, directed the competent authority to resolve the matter within 60 days.

“The competent authority appointed is directed to issue notice of hearing to the petitioner, hear the parties concerned and pass appropriate order either confirming or setting aside the seizure order within a period of 60 days from the date of making available a copy of this order,” it said.

The court, however, continued the interim relief granted to the company to use the money in the frozen accounts for its day-to-day purposes, and no money from the accounts would be sent abroad as royalty.

“Interest of justice would be met, if the interim order is continued till orders are passed by the competent authority as stated above. The interim order passed by this court on May 5, 2022, and clarified on May 12, 2022, would enure to the benefit of the petitioner, till the competent authority passes order under sub-section (3) of Section 37-A of FEMA,” the High Court said in its judgment.