Smartphone giant Xiaomi has filed an appeal in the High Court of Karnataka against the Enforcement Directorate’s (ED) seizure of Rs 5,551.27 crore from its bank accounts. A division bench consisting of Chief Justice Prasanna B Varale and Justice M G S Kamal heard the appeal on Friday and adjourned the proceedings to January 20, emphasizing that no further extensions would be granted.
The ED had ordered the seizure in 2022, accusing Xiaomi of violating FEMA (Foreign Exchange Management Act) rules by transferring money under the guise of royalty to three foreign companies—two in the USA and one in China. Xiaomi promptly approached the High Court against the ED’s action.
The single-judge order, delivered by Justice M Nagaprasanna in April 2023, upheld the validity of Section 37A of FEMA, the provision under which the ED seized the funds. However, Xiaomi was granted the liberty to appeal to the Appellate Tribunal.
In the recent hearing, Xiaomi’s legal counsel argued against the necessity of the seizure, asserting that Section 37A does not require suspicion for such actions. The counsel contended that the section, in its current form, appears “clearly draconian.” Notably, Section 37A allows the company only to wait for 30 days after the seizure for the authority to decide on the matter.
“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,” argued Xiaomi’s counsel.
The legal team urged the court to reconsider the arbitrariness and draconian nature of Section 37A. The company aims to prove that the ED’s seizure was unnecessary and challenges the qualification of the “authorized officer” to take such actions, arguing that it was not clearly prescribed.
The High Court bench has set January 20 as the deadline for concluding arguments from both Xiaomi’s counsel and the government advocate. The outcome of this appeal is awaited with anticipation, as it may have broader implications for FEMA-related actions against corporations in India.