Troubles have mounted in recent months for Xiaomi India and the company’s former India managing director Manu Kumar Jain amid raids by the Enforcement Directorate (ED) and the scrutiny of the tax sleuths.
It started in December last year when Xiaomi's India office was raided in an investigation over alleged income tax evasion. This came after the geopolitical tension between India and China escalated.
However, Xiaomi was not the only company to face the heat.
There has been a crackdown on the China-based entities and apps in India following border tensions between the neighbours last year.
India also banned the short-video platform TikTok, mobile game PubG, and several other apps linked to China citing national security.
Amid all this, Jain tried it all to keep Xiaomi ahead in the competitive Indian smartphone market.
Jain, an alumnus of IIM-Calcutta and IIT-Delhi, has been the face of the Chinese brand from the time it started its operations in India in 2014.
Within 3 years of its presence in the country, Xiaomi became the top mobile player in the country.
Xiaomi's first launch was so successful the Flipkart site crashed as so many people looked to buy its smartphone.
The sale was so huge that Xiaomi quickly announced a second sale in the same month and this time Flipkart had to build a new tech platform – in just one week – to handle the traffic that was sure to come its way.
Since then, Jain was really active on the microblogging site Twitter and would of post on the new launches and the company's plans.
In a post on LinkedIn, Jain even shared how Xiaomi’s marketing innovation and not marketing costs make all the difference for the company. As of 2020, Manu Kumar Jain’s net worth is predicted to be at $5 million.
Xiaomi, which owns the RedMi and Mi brands, remained India's top smartphone seller in 2021, with a 24 per cent market share, according to Counterpoint Research, ahead of Apple, Samsung, and others.
How Things Changed For Xiaomi and Manu Kumar Jain
Things have changed for the worse for Jain and Xiaomi in the past few months.
Earlier last month, Jain, the global vice-president of Xiaomi appeared before ED in connection with a probe linked to alleged contravention of the foreign exchange law. Jain’s statement had been recorded at the agency’s Bengaluru office.
Last week, the Enforcement Directorate (ED) said it seized Rs 5,551.27 crore belonging to Xiaomi Technology India Pvt Ltd (Xiaomi India), nearly a fortnight after it questioned Manu Kumar Jain, the company’s global vice president.
The company is being investigated for alleged violations of the Foreign Exchange Management Act (FEMA) since February pertaining to suspected illegal remittances made by it, the ED said in a statement.
“This amount of Rs 5,551.27 crore lying in the bank accounts of the company has been seized by the ED,” the agency said.
The company, however, denied any wrongdoing and said it would cooperate with government agencies.
“As a brand committed to India, all our operations are firmly compliant with local laws and regulations. We have studied the order from government authorities carefully,” said a Xiaomi spokesperson.
“We believe our royalty payments and statements to the bank are all legit and truthful. These royalty payments that Xiaomi India made were for the in-licensed technologies and IPs (intellectual property) used in our Indian version products. It is a legitimate commercial arrangement for Xiaomi India to make such royalty payments. However, we are committed to working closely with government authorities to clarify any misunderstandings.”
As per media reports, Jain has quietly changed base from Bengaluru to Dubai.
According to the ED, the company began remitting money in 2015 and has remitted foreign currency equivalent to Rs 5,551.27 crore to three foreign-based entities that include one Xiaomi Group unit as royalty payments, Economic Times reported.
“Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities. The amount remitted to other two US-based unrelated entities were also for the ultimate benefit of the Xiaomi Group entities,” the statement said.
Allegations Against Xiaomi
The company remitted this amount in guise of royalty abroad which constitute violation of Section 4 of the FEMA. The company also provided misleading information to the banks while remitting the money abroad,” the ED said.
The ED probe follows investigations carried out by the income tax (IT) department, which had raided Xiaomi and other smartphone players in the past. The raids were conducted in over 25 cities across India, including Delhi, Mumbai, Chennai, Bengaluru, Kolkata and Guwahati.
Tax sleuths said they had seized data allegedly corroborating charges of tax evasion during the searches.
The sleuths of the Directorate of Revenue Intelligence searched the factories of Foxconn India's unit (specifically Bharat FIH), and Dixon Technologies --- both are contract manufacturers for Xiaomi.
Later, raids by tax inspectors were conducted at places belonging to Xiaomi and Oppo across the country.
It had also said one of the Xiaomi companies had inflated expenses and payments on behalf of associated enterprises, which led to a reduction in taxable profits of the mobile handset manufacturer in India.