Business News

Karnataka HC summons the centre on the Xiaomi petition challenging an earlier decision.

The Karnataka High Court has issued a notice to the government to appear before a division bench for an appeal filed by XiaomiIndia challenging a single bench ruling which upheld the constitutional validity of Section 37A of the foreign exchange management act, while rejecting the smartphone brand’s plea.

A division bench judge led by chief justicePrasanna B Varale asked Xiaomi India to furnish details of its day-to-day expenses needed to run its operations. This was in response to the company’s plea to pass an interim order allowing it to draw funds from its frozen accounts to continue as a going concern.

The development comes after Xiaomi India filed a writ appeal challenging the order of a single judge bench of the Karnataka High Court which upheld that the order passed by the enforcement directorate, seizing over Rs 5,500 crore of its bank assets as constitutionally valid on April 21, 2023.

The respondents to the appeal are the Union of India through the ministry of finance, along with the Enforcement Directorate and the Commissioner of Customs, Chennai.

People familiar with the matter said Xiaomi India’s appeal challenges the HC’s rejection, claiming that a Supreme Court case cited by the smartphone brand was not taken into consideration.

“Xiaomi’s counsels have argued that a Supreme Court judgement — Radha Krishnan Industries vs State of Himachal Pradesh — has not been considered by the learned single judge bench when rejecting its petition,”.

The judgement in question deals with a similar case wherein it was found that a provisional attachment order based on “subjective satisfaction, absent any cogent or credible material, constitutes malice in law.”

It further states that the power should “neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee.”

The smartphone maker also reiterated before the division bench that section 37A of FEMA is unconstitutional, arguing that it suffers from arbitrariness and gives unbridled and unfettered power to attach bank accounts on mere suspicion without any reason to believe.

The person quoted above said that since the company has challenged the constitutionality of a legislation, the court had to send a notice to the center to appear before the court.

Additionally, the erstwhile smartphone market leader asked the division bench for an interim order allowing the company to draw funds from the frozen accounts, similar to the one passed in the first round of litigation in May 2022 which put a stay on the seizure and allowed the company to operate its accounts after furnishing bank guarantees.

On June 9, the enforcement directorate’s adjudicating authority issued a showcause notice to the top officials of Xiaomi India and three banks under FEMA. This comes after it passed the seizure order in a case of alleged illegal remittances made by the company worth Rs 5,521.27 crore to Qualcomm and its parent company in Beijing under the guise of royalties.

Xiaomi India, a wholly-owned subsidiary of the China-based Xiaomi group has maintained that it has complied with all Indian laws and has done no wrong.



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