Last Minute Seizure of $725 million at Bank. MD Manu Jain flees, relocates to Dubai.
The Enforcement Department ED moved to seize assets of Rs $725 million (Rs 5551 crore) of Chinese smartphone maker Xiaomi in India on the evening of Friday 29th April 2022. The ED action was based on information gathered by the IT Dept on massive tax evasion by Chinese phone makers. Just before Christmas last year the Income Tax Department had conducted nation wide searches on Xiaomi, Oppo and OnePlus offices and its contract manufacturers and dealers that covered 25 cities including Delhi, Mumbai, Chennai, Bengaluru, Kolkata and Guwahati and seized data allegedly corroborating charges of tax evasion and money laundering during the searches.
Following the IT raid the ED had interrogated its Global VP Manu Kumar Jain, till recently the Managing Director of Xiaomi, at its Bengaluru office in April 2022 but had not served out a lookout notice for him as it was in the process of collecting evidence. Manu Kumar Jain an IIT Delhi and IIM Kolkata alumnus has reportedly moved to Dubai following the IT raid and is no longer available in India. With no successor named as MD Xiaomi India remains headless reportedly to avoid scrutiny.
The Financial Times reported that the Xiaomi share listed at the Hong Kong Stock Exchange tanked by as much as 6 per cent to HK$11.46 (US$1.46) before recovering. India is the biggest market of Xiaomi outside mainland China where it has sold 8 million handsets during the first four months of 2022 that helped it stay profitable as China sales slumped because Shanghai and many parts of China went under total lockdown. Investors apprehend that if the enquiry drags on for six to eight months as is normally the case for such massive money laundering investigations, the revenues and profits of the company could dry up for the current year. This because over the last 7 years Xiaomi has grown phenomenally in India with 22% market share outdoing the 30 year old popular market leader Samsung Electronics and is dependent on the Indian market for its healthy bottom line.
A week after ED’s seizure of its assets in India the Xiaomi share was quoted at HK$11.10 close to its 52 week low of HK$10.64. This despite the fact that it received a stay from a single judge bench of Karnataka HC till further hearing of the ED seizure case on the 12th of May. Other companies dependent on imports from Xiaomi and MI were also affected. Dixon Tech is Xiaomi’s manufacturing partner for LED TVs. It’s share quoted at the BSE tanked by 14% to Rs 3784.75 on Wednesday Intraday trade to close near it’s all time low. Dixon is a company engaged in making several consumer durables, lighting, home appliances, mobile phones, smart TVs and other electronic items in India and is partly dependent on Xiaomi, MI, Goldex (HK) Technology, and Syntech (HK) Technology for its supplies from China. However Dixon has also other supply lines from South Korea and Taiwan and is expected to recover from the sharp loss.
Xiaomi India which began its India operations in 2014 started remitting large amount of royalties from the year 2015 that were designed to siphon out expenses before taxes though the company did not have any such agreements or have the permission of the Government to remit such royalties. The three companies to which it remitted foreign exchange included one company sub-owned by Xiaomi. “Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities,” said the ED in a statement. In case Xiaomi is found guilty of violating FEMA’s Section 4, they may be slapped with a penalty that can be at least three times the contravened amount.
For more on this story watch this space later this week.
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