Karnataka High Court


Karnataka High Court: S G Pandit, J. declared the present writ petition filed by XIAOMI India under Article 226 of the Constitution of India as premature as Section 37 of Foreign Exchange Management Act (‘FEMA'), 1999 provides complete mechanism to decide the alleged contravention of Section 4 of FEMA, 1999.

XIAOMI Technology India Private Limited incorporated under the provisions of the Companies Act, 2013 engaged in the trading of mobile phones, electronic gadgets and other accessories under the brand name of Xiaomi. Petitioner is a beneficiary of Qualcomm Inc. and its proprietary and licensed intellectual property, particularly Standard Essential Patents (SEPs) which are patents essential for functioning of the mobile phone that are used in the mobile phones sold by it and therefore, pays royalty for it. Enforcement Directorate (‘ED') alleged that petitioner made certain foreign remittances in the name of royalty to foreign based entities in violation of the provisions of FEMA, 1999 and initiated investigation. Pursuant to which, the Authorized Officer passed seizure order under Section 37-A(1) of FEMA, 1999 which is impugned in the present writ petition.

Additional Solicitor General submitted that since the petitioner has not used any technology or IPR of the Qualcomm or Beijing Xiaomi Mobile Software Company Limited, petitioner could not have paid any royalty, thus violating provisions of Section 4 of FEMA, 1999.

The issue under consideration before the Court is with regard to its maintainability as Section 37 FEMA, 1999 has alternate remedy regarding the alleged violation.

Placing reliance on Raj Kumar Shivhare v. Directorate of Enforcement (2010) 4 SCC 772, the Court noted that FEMA, 1999 is a complete Code in itself and is an act to consolidate and maintain law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange management in India.

The Court observed that Section 37-A FEMA, 1999 provides special mechanism to determine the violation of Section 4 of FEMA, 1999. Thus, in light of the provision the moot question that whether the payments made by the petitioner to Qualcomm and Beijing Xiaomi Mobile Software Company Limited could be considered as royalty and attract Section 4 FEMA, 1999 is a question of fact which the Competent Authority has to decide appreciating or considering material placed by the petitioner as well as respondents. Thus, the Competent Authority could determine the same while passing order under Section 37-A (3) of FEMA, 1999.

The Court stayed the impugned order subject to operation of seized bank accounts only for the purpose of meeting daily expenses and held “At this stage, examining sufficiency of reason or otherwise under Article 226 of the Constitution of India would prejudice the case of either of the parties. It is best left to the Competent Authority to examine the same when it considers the entire issue under sub-Section (3) of Section 37-A of FEMA, 1999.”

The Court further directed the Competent Authority to dispose of the same expeditiously but not later than 60 days in light of halt of day to day activities of the petitioner due to seizure order.

[Xiaomi Technology India Private Limited v. Union of India, WP No. 9182 of 2022, decided on 05-07-2022]

Advocates who appeared in this case :

Senior Advocate Sajjan Poovaiah and Adv. Vikaram Bhat, Advocates, for the Petitioner;

ASG M B Nargund and CGC Madhukar Deshpande, Advocates, for the Respondent.

*Arunima Bose, Editorial Assistant has reported this brief.

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