Exclusive-Xiaomi accuses the Indian agency of threats of “physical violence” during the investigation

By Aditya Kalra and Abhirup Roy

NEWDELHI -Chinese smartphone maker Xiaomi Corp has alleged its top executives were threatened with “physical violence” and coercion during questioning by India’s financial crime agency, according to a court filing seen by Reuters.

Law Enforcement Branch officials have warned the company’s former Indian chief executive, Manu Kumar Jain, current chief financial officer Sameer BS Rao, and their families of “disastrous consequences” if they do not submit not the statements desired by the agency, Xiaomi’s filing dated May 4. declared.

After the Reuters article was published, the Law Enforcement Branch released a statement claiming that Xiaomi’s allegations were “false and baseless” and that company executives had “voluntarily filed in the ‘most conducive environment’.

Xiaomi has been under investigation since February, and last week the Indian agency seized $725 million from the company’s Indian bank accounts, claiming it was making illegal money transfers overseas.” under cover of royalties”.

Xiaomi denied any wrongdoing, saying its royalty payments were legitimate.

On Thursday, a judge heard from Xiaomi’s lawyers and suspended the Indian agency’s decision to freeze bank assets. The next hearing is scheduled for May 12.

The company alleges intimidation by the law enforcement agency when executives appeared for questioning on multiple occasions in April.

Jain and Rao have on some occasions been “threatened…with dire consequences including arrest, damage to career prospects, criminal liability and physical violence if they fail to make statements in accordance with the dictates” of the agency. , according to the High Court filing. from the southern state of Karnataka.

Leaders “were able to withstand the pressure for a while, (but) they eventually caved under such extreme and hostile abuse and pressure and unwittingly made statements,” he added.

In its statement to the media, the Directorate of Law Enforcement said it was a “professional agency with a strong work ethic and there was no coercion or threat against leaders. of the company at any time”.

Xiaomi declined to comment citing ongoing legal proceedings. Jain and Rao did not respond to questions from Reuters.

Jain is now Xiaomi’s global vice president based in Dubai and is credited with bringing Xiaomi to prominence in India, where its smartphones are hugely popular.

Xiaomi was the top smartphone seller in 2021 with a 24% market share in India, according to Counterpoint Research. It also sells other tech gadgets, including smartwatches and televisions, and has 1,500 employees in the country.

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Many Chinese companies have struggled to do business in India due to political tensions following a border clash in 2020. India has cited security concerns by banning more than 300 Chinese apps since then and has also tightened standards for Chinese companies investing in India.

Tax inspectors raided Xiaomi’s Indian offices in December. After receiving information from the tax authorities, the Law Enforcement Branch – which investigates issues such as foreign exchange law violations – began looking into Xiaomi’s royalty payments, according to court documents.

The agency said last week Xiaomi Technology India Private Limited (XTIPL) handed over foreign currency equivalent to 55.5 billion rupees ($725 million) to overseas entities, even though Xiaomi did not “receive any service” from them.

“Such huge sums in the name of royalties were paid on the instructions of their Chinese parent group entities,” the agency said.

Xiaomi’s court filing alleges that during the investigation, Indian agency officials “dictated and forced” Xiaomi India CFO Rao to include a phrase in his “under extreme duress” statement on April 26.

The line read: “I accept that the royalty payments were made by XTIPL as instructed by some people in the Xiaomi group.

A day later, on April 27, Rao retracted the statement saying it was “unwilling and made under duress,” according to the filing.

Management issued an asset freezing order on Xiaomi’s bank accounts two days later.

Xiaomi said in a previous statement to the media that it believes its royalty payments “are all legitimate and truthful” and that the payments were made for “licensed technologies and IP addresses used in our Indian version products”. .

Its court filing said Xiaomi was “aggrieved to have been targeted since some of its affiliated entities are based outside of China.”

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