Home/ News / India/  Why Chinese companies and ED don't see eye to eye

Mumbai: After Xiaomi, another Chinese smartphone manufacturer, Vivo India, has dragged India’s largest law enforcement agency, the Enforcement Directorate (ED), to the Delhi high court in a matter pertaining to alleged money laundering.

The high court on Friday asked ED to respond to Vivo’s appeal challenging the freezing of its bank accounts and to rule on the company’s request for authorization to operate the accounts within a week.

Findings in the probe

On Thursday, the ED conducted search and seizure across 48 locations of Vivo and 23 related entities on allegations that the sale proceeds of the India arm were transferred out of the country to show losses and avoid paying taxes.

The agency blocked nearly 119 bank accounts linked to Vivo’s India business and its associates that were holding 465 crores, as a part of the alleged money laundering by the smartphone maker.

These 23 companies were found to have transferred huge amounts of funds to Vivo India. “Out of the total sale proceeds of 1,25, 185 crores, Vivo India remitted 62,476 crore that is almost 50% of the turnover out of India, mainly to China," an ED statement said. These remittances were made in order to disclose huge losses in Indian incorporated companies to avoid payment of taxes in India, ED alleged.

“The employees of Vivo India, including some Chinese Nationals did not cooperate with the search proceedings and had tried to abscond, remove and hide digital devices which were retrieved by the search teams," ED said. This was cited as one of the main reasons for the enforcement agency's action on the Chinese firm.

Vivo’s petition

Vivo submitted in the petition that ‘grave injustice’ will be caused to the company due to ED’s decision. It will also negatively impact the reputation and business operations of the company, it claimed.

Besides, the freezing of the bank accounts will have a negative impact on the petitioner’s operations in India and around the world and impede any current or future business operations that the petitioner conducts through these bank accounts, the petitioner added.

Vivo argued that if funds in its bank accounts continue to be under a freeze, the company would be further in breach of the law if unable to pay its statutory obligations to the competent authorities under various laws.

“The freezing also prevents the payment of salaries to the thousands of employees of the company," Vivo said in its 97-page petition.

Vivo in its representation made to the probe agency highlighted that monthly payments of around 2,826 crore have to be made towards statutory dues, salaries, rent, monies for daily business operations, etc., including a refund of monies to consumers who have cancelled online orders and servicing of finance facilities from various banks.

Xiaomi probe

In April, a similar investigation was carried out by the Enforcement Directorate against Xiaomi India under which it seized nearly 5, 551 crores from the company that was lying in the company’s bank account under the provisions of Foreign Exchange Management Act 1999. ED started its investigation in connection with the illegal remittances made by the company earlier in February this year.

Following this, Xiaomi approached the Karnataka High Court against the probe agency.

The high court granted partial relief to the firm by staying the 29 April seizure orders.

The company in the petition also alleged that senior executives Manu Kumar Jain, former India Managing Director and Sameer Rao, chief financial officer of Xiaomi India, along with their respective families have been threatened with dire consequences including arrest, damage to career prospects, criminal liability and physical violence by the agency.

ED, however, rejected all the claims made by the Chinese firm and called them outrightly ‘baseless. The matter is sub-judice before the court.

What the Chinese embassy said

Strongly condemning the ED raids over the Chinese multinational, Wang Xiaojian, spokesperson for Chinese embassy in India on Wednesday said the frequent investigations by Indian authorities into Chinese enterprises “chill the confidence and willingness of market entities from other countries, including those from China to invest in India".

Even as China-India economic and trade co-operation is based on mutual benefit and win-win results, the Chinese government has always asked its companies to comply with local laws and regulations in their overseas operations, the embassy claimed, adding the Chinese government will firmly support its companies to maintain their legitimate rights and interests.

“The frequent investigations by Indian authorities into Chinese enterprises not only disrupt normal business activities and damage the goodwill, but also impede the improvement of business environment in India," the spokesperson said.

China expects the Indian side to investigate and enforce law in compliance with laws and regulations while also providing a fair, just and non-discriminatory business environment for Chinese companies to operate and invest in India, he added.

Priyanka Gawande
Priyanka Gawande is a senior legal correspondent at Mint. She has worked as legal reporter for four years with both television and digital mediums. Based in Mumbai, she reports on disputes across sectors including banking, corporates and finance. This also includes insolvency and bankruptcy cases and intellectual property rights (IPR) litigation. Her focus also comprises tracking capital markets and disputes relating to securities law. Previously, Priyanka worked with Informist Media for 2.5 years covering major insolvency and bankruptcy cases and corporate developments. She started her career in journalism with Business Television India (BTVi) where she reported on primary markets, banking, finance and insurance companies.
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Updated: 10 Jul 2022, 06:09 AM IST
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