The adjudicating authority for foreign exchange transactions has ruled that the remittances from India by Chinese phone maker Xiaomi were illegal and the Enforcement Directorate was justified in seizing Rs 5,551 crore from the company in connection with the case.  

The money was seized in April this year, now the authority under the Foreign Exchange Management Act (FEMA), has confirmed that ED was right in seizing Xiaomi’s funds, which the Chinese firm transferred out of India illegally,” according to an ED statement issued late on Friday.

In April, the ED said Xiaomi India sent the funds abroad “in the guise of royalty,” which was a violation of the FEMA.

“The competent authority also observed that payment of royalty is nothing but a tool for transferring the foreign exchange out of India and the same is in blatant violation of provisions of FEMA,” the ED statement said.

Xiaomi India is a fully owned arm of China’s telecom giant Xiaomi. The company commenced its operations in India in 2014 and started sending money overseas in 2015.

“Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities. The amount remitted to two other US-based unrelated entities was also for the ultimate benefit of Xiaomi group entities,” the ED said in the statement.

Xiaomi India has not used any service from the three foreign entities to whom the funds have been sent. The company also gave misleading information to banks while sending money abroad, the statement explained.

Xiaomi India had filed a plea in the Karnataka High Court against the Enforcement Directorate’s seizure of funds but the court  had dismissed the petition in July.