Karnataka High Court Declines to Stay FEMA Authority's Confirmation Order On Seizure of Xiaomi's ₹5551.27 crores

The Karnataka High Court on Thursday issued notice to the Centre and others on a petition filed by Xiaomi Technology India Private Limited challenging the September 19 order, passed by the Competent Authority appointed under the Foreign Exchange Management Act,1999 (FEMA), confirming the order issued by the Enforcement Directorate (ED) seizing Rs.5551.27 crores, of the company.A vacation bench of Justice N S Sanjay Gowda refused to grant interim relief as sought by the company. Senior Advocate Uday Holla had by way of interim relief sought the stay of the impugned confirmation order passed by the authority.The court had earlier temporarily stayed the seizure order dated April 29 passed by ED and allowed the mobile manufacturer to operate the bank accounts for the purpose of carrying out day-to-day activities of the company. Holla also prayed for continuation of the interim order, as, after passing of the confirmation order, the seizure has got automatically revived.Additional Solicitor General M B Nargund appearing for the respondent informed the court that the petitioner being a foreign company has no locus standi to challenge the constitutional validity of the statute. Further, he said the company has an alternate remedy of challenging the confirmation order passed by the competent authority before the appellate authority.He also submitted that "It is our specific case that the amount of about 5,500 crores which is supposed to be utilised only in the Indian market, this amount was transferred to the Qualcomm company by way of royalty, we have attached that much amount only."He alleged that "The company has used or misused the interim orders passed earlier by the high court which permitted the company to make payments to foreign entities for importing items essential to its manufacturing and selling of smartphones, excluding royalties via bank overdraft, I will demonstrate that by filing an affidavit."Following which the bench asked the company to provide a bank guarantee for 5,500 crore if it wanted the court to pass an interim order.The bench observed "Their contention is that the interim order is misused. They want to safeguard their interest, why don't you give a bank guarantee."Nargund also informed the court that as per records the company has as of now an amount of Rs 3,956 crore in their bank accounts. Earlier, there was Rs 7,000 crore plus and it has been reduced to 3,956 crore.To which the bench suggested that the seizure order would continue to the extent of the amount in the bank accounts and for the remaining amount a bank guarantee should be provided by the company if it desires for an interim order to be passed by the court.Holla then on instructions submitted that an escrow account would be opened by the company and it would deposit all the amount it received from sale of mobile phones in it from January.In response the bench said "Suppose you don't comply with this undertaking from January then the revenue department will be left high and dry." It added "It is my desire that you survive but at the same time their interest should be safeguarded. The suggestion you are giving does not really appeal to me. That I will start paying from January, as of today, if you want your operation of the bank account that money has to be safeguarded not on a promise…it is a question of money Mr Holla, it is as important to you as it is for them."Further the bench said "Come out with a better solution, then i can ask Mr Nargund to consider and pass some equitable order so that both of you can survive, but without that…Your suggestion that no harm to you … and their interest is not safeguarded. We don't know tomorrow you may say in January that sales are bad this year and I was not able to raise money….Give a bank guarantee."It added "Your solution is no solution and it is only postponing the matter and it is with many 'ifs and buts'…I am worried about the consequences of a default. If I grant an interim order the way you want it and if there is a default then the revenue will be at loss, how will they recover?"Finally the court said it would direct the respondent to file their objections to the petition and simply relist the matter for further hearing on October 14.On May 5, the court had issued an emergent notice to the respondent on the petition filed by the company.It had then stayed the ED order, subject to the company operating the seized accounts only for the purpose of carrying out day to day activities. The order of stay had been continued during the pendency of the petition and the company was even allowed to make payments to foreign entities for importing items essential to its manufacturing and selling of smartphones, excluding royalties via bank overdraft. The interim was to continue till competent authority passes its order. In July, the high court had accepted the agency's contention that the company had approached the High Court prematurely challenging the order of the Enforcement...

Karnataka High Court Declines to Stay FEMA Authority's Confirmation Order On Seizure of Xiaomi's ₹5551.27 crores

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