NEW DELHI: Taking cognisance of the Enforcement Directorate’s investigation, the adjudicating authority for Fema has issued showcause notices to Xiaomi Technology India Pvt Ltd, its officials and three banks — CITI Bank, HSBC Bank and Deutsche Bank AG — for allowing foreign outward remittances in the name of royalty to the tune of Rs 5,551 crore without conducting due diligence.

The ED had earlier seized this equivalent amount in the bank accounts of Xiaomi in India.“The adjudicating authority has issued showcause notices to Xiaomi Technology India Pvt Ltd, its officials and three banks under section 16 of the Foreign Exchange Management Act (Fema) on the basis of a complaint filed by the ED with respect to illegal remittances made by the company to the tune of Rs 5,551.27 crore,” the ED said on Friday.Manu Kumar Jain, ex-managing director, and Sameer B Rao, present director and chief financial officer of Xiaomi have been accused in the FEMA case.“The adjudicating authority has also issued showcause notices to three banks i.e., CITI bank, HSBC Bank and Deutsche bank AG for contravention of Section 10(4) and 10(5) of FEMA and directions issued by RBI by allowing foreign outward remittances in the name of royalty through the banks without conducting due diligence and without obtaining any underlying technical collaboration agreement from the company”, the ED has said.Earlier, the ED had seized over Rs 5,551 crore of Xiaomi India lying in its bank accounts under the provisions of Fema for alleged unauthorised remittance of this amount in guise of royalty abroad.

The competent authority under Fema has confirmed the said seizure order, the agency said.“The Authority while confirming the seizure held that ED is right in holding that foreign exchange equivalent to Rs 5,551.27 crore has been transferred out of India by the Xiaomi India in an unauthorised manner and is held outside India in contravention of Fema and the same is liable to be seized,” the ED said.The competent authority also observed that “payment of royalty is nothing but a tool to transfer the foreign exchange out of India and the same is in blatant violation of provisions of Fema”.The ED’s investigation against Xiaomi, which started last year, revealed that the company had remitted foreign currency equivalent to Rs 5,551.27 crore to three foreign-based entities which include one Xiaomi group entity in the guise of royalty.

“Under the cover of various unrelated documentary façade created amongst the group entities, the company remitted this amount in guise of royalty abroad which constitute violation of Section 4 of the Fema,” according to the ED.