The Enforcement Directorate of India has just issued a demonstrative lawsuit order to Xiaomi Technology India Ltd and three foreign banks: Citi Bank, HSBC Bank and Deutsche Bank AG. An order to prove cause is the type of court order that requires one or more parties to prove or disprove something to the court. In this case, that’s a violation of the Foreign Exchange Management Act equal to the equivalent of $6.7 million.
The real breach is from Xiaomi, but the banks listed above have also received their orders as they have a role in the breach. According to ED, the banks have allowed foreign remittances without obtaining any technical cooperation agreement.
The matter dates back to 2022 when the Indian government seized the equivalent of $6.7 million from Xiaomi India’s bank accounts due to illegal capital outflows. After the ED carried out an investigation, it was concluded that Xiaomi India transferred foreign currency out of the country and held it there on behalf of the group entity. This is in direct violation of section 4 of FEMA, 1999.
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