Karnataka HC: Xiaomi files appeal against ED's seizure of Rs 5,551.27 cr

A division bench of the High Court of Karnataka on Friday heard an appeal filed by smartphone maker Xiaomi challenging a single-judge order which had upheld the Enforcement Directorate's seizure of Rs 5,551.27 crore from its bank accounts.

The bench of Chief Justice Prasanna B Varale and Justice M G S Kamal heard the arguments submitted by the counsel for the company before adjourning the hearing to January 20.

The Court specified that there would be no further extensions and both the company's counsel and the government advocate were expected to complete their arguments on that date.

The counsel for the company argued that the seizure was unnecessary and under Section 37A of FEMA even the necessity of suspicion is not required. Even the qualification of the "authorised officer" to take action was not prescribed.

The court was told that Section 37A "seems to be clearly draconian", as for 30 days after the seizure the company has to only wait for the authority to decide on it.

"Why should I be deprived of my property due to arbitrary action of an officer? Worst thing which shocks me is that the officer goes scot-free and I cannot tell him you have done it wrongly and please recall your order, you are biased against me," the counsel argued.

The counsel argued that Section 37A was arbitrary and draconian.

The Enforcement Directorate had in 2022 ordered the seizure of Rs 5,551.27 crore in the accounts of Xiaomi for violating FEMA rules and transferring money in the guise of royalty to three companies outside India; two in the USA and one in China. The company approached the HC against this order.

The HC ordered it to approach the Competent Authority under FEMA. The Competent Authority upheld the seizure. Xiaomi then approached the HC again. In April 2023, Justice M Nagaprasanna dismissed the petition holding that Section 37A of FEMA was valid.

However, liberty was granted to Xiaomi to approach the Appellate Tribunal.