The Enforcement Directorate (ED) on June 9 issued show cause notices to Xiaomi Technology India and CITI, HSBC and Deutsche bank AG under Foreign Exchange Management Act (FEMA) regulations for foreign exchange violation worth Rs. 5551.27 crore, according to a press release issued by the ED. Why was the notice issued? The show cause notices have been sent to the company, Manu Kumar Jain, ex-Managing Director, and Sameer B Rao, present Director and Chief Financial Officer of the company. The adjudicating authority has issued notice to the abovementioned banks for violating Sections 10(4) and 10(5) of FEMA and directions issued by the RBI by allowing such foreign remittances, which refer to money that has been transferred to another party, usually overseas. The ED has alleged that the banks have allowed such exchanges in the name of royalty ( without conducting “due diligence and without obtaining any underlying Technical Collaboration Agreement from the company”. Royalty refers to, “payment of any kind received as consideration for the use of or right to use any intangible property like copyright, design or model, secret formula or process, trademark, trade name or for information concerning industrial and commercial experience”. Why it matters: Xiaomi, a Chinese company, has been leading the Indian smartphone market since 2017 until last year when it lost its top position to Samsung in terms of total number of units shipped for the year. Xiaomi India’s market share slipped to 17% in Q4 to 21% in Q1 in 2022. Over the past…
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