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Chinese smartphone manufacturer Xiaomi has alleged that its top executives were threatened by the officials of India’s Enforcement Directorate (ED) during a probe by the law enforcement agency.

According to a court filing, seen by Reuters, the smartphone maker alleged that the executives faced threats of “physical violence” and coercion during questioning by the ED.

Xiaomi’s filing dated May 4 stated that officials from the federal probe agency warned the company’s former India managing director, Manu Kumar Jain, current CFO Sameer B.S. Rao and their families of “dire consequences” if they did not submit statements as desired by the agency, reported the publication.

According to the filing in the Karnataka High Court, Xiaomi alleged that Jain and Rao were on certain occasions “threatened … with dire consequences including arrest, damage to the career prospects, criminal liability and physical violence if they did not give statements as per the dictates of” the ED.

They “were able to resist the pressure for some time, (but) they ultimately relented under such extreme and hostile abuse and pressure and involuntarily made some statements”, it added.

Last month, Jain was summoned to appear before the ED in a case related to the alleged violation of the country’s foreign exchange laws.

The ED office in Bengaluru was not immediately available to comment on the allegations.

A Xiaomi spokesperson refused to answer Inc42’s query, saying the matter is under legal consideration.

“The contents of the writ petition are confidential qua public at large. There seems to be want to create some sort of sensationalism without considering the impact that it will have on the ED, Govt of India and the company,” Xiaomi said in a written statement.

Xiaomi India has been under investigation since the beginning of the year. Last week, the ED seized funds worth INR 5,551.27 Cr from Xiaomi India under the provisions of the Foreign Exchange Management Act (FEMA), 1999.

The law enforcement agency said that the money was lying in the bank accounts of the Chinese smartphone giant and had been seized in connection with alleged “illegal outward remittances made by the company”.

However, as per reports from Friday (May 6), Karnataka High Court granted temporary relief to Xiaomi India in the ED probe.

Special judge Hemant Chandanagoudar in the interim order allowed Xiaomi India to operate its seized bank accounts for day-to-day activities. The next hearing in the matter is scheduled for May 12.

Xiaomi started its operations in India in the year 2014 and reportedly started remitting the money from 2015. According to the ED’s press statement, “The company has remitted foreign currency equivalent to INR 5551.27 Cr to three foreign based entities which include one Xiaomi group entity in the guise of Royalty.”

“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,” it added.

Xiaomi has said in the court that the technology royalty payment made to three companies outside India would in no way violate FEMA as the  Income Tax department had allowed it as a deduction as well as a value-added activity.

The company further claimed that in the absence of any allegation regarding foreign exchange held by it lying in a foreign country (India), the seizure order under Section 37A of FEMA could not have been issued.

In January this year, the Finance Ministry said that the Chinese smartphone company evaded tax duties worth INR 653 Cr. The investigation started after the Income Tax (IT) department initiated raids at the offices of Chinese phone manufacturers like Oppo and Xiaomi and their distribution partners and some contract manufacturing companies across the country last year.

According to a Canalys report, Xiaomi was the leading smartphone vendor in India during Q1 2022, shipping 8 Mn units of smartphones.