Xiaomi accused the Enforcement Directorate of threatening “physical violence” during the investigation

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Chinese smartphone maker Xiaomi has claimed its top executives were threatened with “physical violence” and coercion during questioning by India’s Financial Crimes Agency, according to a court filing seen by Reuters.

Enforcement Directorate officials warned the company’s former Indian CEO Manu Kumar Jain, current Chief Financial Officer Sameer BS Rao and their families of “impending consequences” if they fail to make statements as required by the agency, Xiaomi’s May 4 filing specified.

The Enforcement Directorate did not immediately respond to a request for comment.

Xiaomi has been under investigation since February, and last week the Indian regulator seized $725 million (around Rs.5,570 billion) in the company’s Indian bank accounts and said it had made illegal transfers abroad “under the guise of royalties.”

Xiaomi has denied any wrongdoing and has stated that its royalties are legitimate. On Thursday, a judge heard Xiaomi lawyers and put the Indian authority’s decision to freeze bank assets on hold. The next hearing is scheduled for May 12th.

The company claims it was intimidated by India’s top law enforcement agency when executives appeared for questioning multiple times in April.

Jain and Rao were on specific occasions “threatened with dire consequences, including arrest, loss of career prospects, criminal liability and physical violence, if they failed to testify as the agency dictates,” according to the Southern Karnataka State High Court filing .

The executives “were able to resist the pressure for some time, (but) they finally relented under such extreme and hostile abuse and pressure and involuntarily made some statements,” she added.

Xiaomi declined to comment, citing pending court cases. Jain and Rao did not respond to Reuters inquiries.

Jain is now Xiaomi’s global vice president based in Dubai and is credited with leading Xiaomi’s rise in India, where its smartphones are hugely popular.

According to Counterpoint Research, Xiaomi was the top smartphone seller in India in 2021 with a 24 percent market share. It also trades in other tech gadgets like smartwatches and televisions and has 1,500 employees in the country.

FIGHT FOR TRANSFERS

Many Chinese companies are struggling to do business in India due to political tensions following a border dispute in 2020. India has cited security concerns as it has since banned more than 300 Chinese apps and also tightened norms on Chinese companies investing in India.

Tax inspectors raided Xiaomi’s offices in India in December. After receiving information from tax authorities, the Enforcement Directorate — which investigates issues such as foreign exchange law violations — began investigating Xiaomi’s royalty payments, court documents show.

The agency said last week that Xiaomi Technology India Private Limited (XTIPL) had remitted US$725 million (around Rs.5,570 billion) in foreign currency equivalents to companies overseas, although Xiaomi had “not engaged in any services” from them have.

“Such huge amounts in the name of royalties were transferred on the instructions of their Chinese parent companies,” the agency said.

Xiaomi’s court filing alleges that during the investigation, Indian agency officials “dictated and coerced” Xiaomi India CFO Rao to record a verdict as part of his statement “under extreme duress” on April 26.

The line read, “I acknowledge that XTIPL’s royalties were paid according to the instructions of certain people in the Xiaomi group.”

A day later, on April 27, Rao retracted the statement, saying it was “not made voluntarily and under duress,” the filing shows.

The directorate issued an order freezing assets on Xiaomi’s bank accounts two days later.

Xiaomi has said in a previous media statement that it believes its license fees are “all legitimate and truthful” and the payments were made for “in-licensed technologies and IPs used in our Indian version products.”

The court filing said Xiaomi was “offended that some of its affiliated companies are based in China.”

A Xiaomi spokesman provided Gadgets 360 with the following statement regarding their reported allegation:

“The content of the written petition is confidential as it is generally public. It seems to create a kind of sensationalism without considering the impact this will have on the ED, the Indian government and the company. This matter is a matter for the court and under the consideration of the court. We decline to comment on it. We reserve our rights in all respects and will take steps recommended to us to protect our reputation.”

© Thomson Reuters 2022




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