An Indian court on Thursday refused to lift a freeze on Xiaomi’s $676 million (nearly Rs 5,500 crore) assets, even as the Chinese smartphone group said the enforcement action had “effectively shut down” the company’s operations in its key Indian market.
India’s federal financial crime agency, the Enforcement Directorate (ED), froze Rs 5,551 crore worth of Xiaomi’s assets in April, alleging that the company made illegal transfers to foreign entities by passing them off as royalty payments. Last week, an appellate body upheld the seizure.
Xiaomi, which denies wrongdoing, has challenged the asset freeze in the High Court of the southern state of Karnataka. In its legal filing, the company said the freeze was “grossly disproportionate and has effectively halted the company’s operations.”
Xiaomi and Samsung are the market leaders in India’s smartphone market, the second largest in the world after China, based on facts from Counterpoint, each with an 18 percent stake.
On Thursday, Xiaomi’s lawyer Udaya Holla attempted to lift the freeze by asking the court for damages. However, the court said the company must first provide bank guarantees to cover the $676 million in assets that have been frozen.
Holla told the court that such bank guarantees would mean the entire amount would have to be deposited, making it difficult for the company to operate, pay salaries and purchase inventory before the Hindu festival of Diwali, when consumer sales in India increase.
The judge refused immediate relief and adjourned the case until October 14.
Nargund MB, one of the Additional Solicitor Generals of India, representing the Enforcement Directorate, urged the court not to grant immediate compensation to Xiaomi and also sought the bank guarantees.
Xiaomi did not immediately respond to a request for comment.
Xiaomi has previously said that all royalty payments are legitimate and fair and that the company will “continue to use all means to protect its reputation and interests”.
Many Chinese companies have struggled to do business in India due to political tensions following a border clash in 2020. India has since banned more than 300 Chinese apps, including popular ones like TikTok, over security concerns and has imposed stricter rules on Chinese companies investing in India.
© Thomson Reuters 2022
