An investigation carried out by India accused Chinese smartphone manufacturer Xiaomi Corp’s unit in India of misleading its banker Deutsche Bank. According to the probe report, the smartphone maker has been doing this for years by asserting that it had a deal for payment of royalties when in reality, there was nothing as such as per the legal documents.
Now, Xiaomi is at loggerheads with the Enforcement Directorate (ED), India’s primary financial crime fighting agency, ever since it seized $670 million of Xiaomi’s bank assets on the pretext of an investigation that found the smartphone seller guilty of making “illegal remittances” to a US based chip firm Qualcomm as well as others in the deception of royalties.
However, Xiaomi has denied any such allegations to be true and has reportedly moved to the High court in southern Karnataka state, claiming that its payments were not illegal or deceptive and that the seized assets- later assessed by an appeals authority- had effectively terminated its operations in an important market. But in October, the court did not grant any relief to the company and the next hearing of the case shall be on November 7.
Based on the data published by Counterpoint, Xiaomi and Samsung are the most prominent leaders in the Indian smartphone market, which is the world’s second biggest after China. Both the companies have an 18 per cent share each.
Xiaomi’s lawyer Udaya Holla sought to finish the asset seizure and demanded relief from the court, but the court said that the company must present bank guarantees worth $676 million.
The lawyer said that such bank guarantees would mean depositing the whole amount, which will disrupt the normal functioning of the company.
As per the court documents, which constituted the enforcement agency’s findings, an executive from the Deutsche Bank confirmed to the federal agents in April that the country’s law demanded the drawing up of a legal contract between Qualcomm and Xiaomi India to make royalty payments, which already existed according to what the latter told the bank.
According to the documents, the bank told the investors that Xiaomi did not share the agreement because of confidentiality reasons.
At the time of the probe, Xiaomi’s India CFO Sameer B.S. Rao and its managing director, admitted that no such agreement existed between Xiaomi India and Qualcomm, and that the royalties were remitted as per the orders received from the company’s executives in China.
The Enforcement Directorate mentioned in its report that Xiaomi India “provided misleading information to the bank. They did share the agreement with the bank which they referred (to) as the basis of payment. This shows….their intention of remitting the money outside India as per the whims and fancies of the Chinese parent.”
Deutsche Bank’s spokesperson refused to comment on the matter.