A reliable source reported on Monday that about 84 percent of the seized royalty remittances were made to US-based chip maker Qualcomm Group after the Enforcement Directorate (ED) seized nearly Rs 5,551.3 crore from Xiaomi India for illegal remittances to foreign entities under the Foreign Exchange Management Act (FEMA).
Approximately Rs 4,663.1 crore was paid to Qualcomm via appropriate banking channels, according to sources close to the development.
Qualcomm chipsets are used in the majority of Xiaomi devices, and the Chinese company pays royalties to the US-based company to license various patents and intellectual property (IP) beyond just using its chipsets.
Patent infringement can be enforced against any smartphone or consumer electronics company that does not pay royalties.
Nevertheless, Xiaomi did not use any third-party services, according to the ED.
According to the watchdog, “Xiaomi India has not benefited from any services provided by the three foreign-based entities to whom such amounts have been transferred.”.
Xiaomi India said in a statement that it could not comment on the matter as it is in court.
IANS was informed that the matter is subjudice and is being considered by the court of law. The company declined to comment.
Xiaomi India was recently granted an overdraft from a bank and permitted to make payments following an order by the Karnataka High Court.
However, technology royalties would not be paid.
In addition to extending the interim order until May 23, Vice Chancellor Justice S. Sunil Dutt Yadav stated that now the matter is between the banks and the petitioner company.
A conditional stay had been granted on the order of seizure of Rs 5,513.3 crore handed down by the Enforcement Directorate on April 29.
After the Foreign Exchange Management Act of 1999 was invoked, the ED took the necessary action.
Xiaomi India was targeted because it is a Chinese company, and other companies are allowed to pay royalties. Senior advocate S. Ganeshan countered that Xiaomi is a Chinese company, and others are allowed to pay royalties to technology companies.
On May 5, he requested clarification on the earlier interim order, arguing that banks were not allowing Xiaomi to send remittances in foreign currencies for imports.
In order to manufacture and market smartphones, the company must pay foreign companies.
According to Xiaomi, royalty payments made to three companies abroad would not be a violation of the FEMA Act since they were considered value-added activities by the Information Technology Department.