Aditya Kalra & Abhirup Roy

NEW DELHI, (Reuters) – Chinese smartphone manufacturer Xiaomi (OTC) Corp claims that its top executives were threatened with physical violence and coercion by India’s financial crime fighter agency during their questioning. According to a court filing, Reuters has seen.

The Enforcement Directorate officials warned Manu Kumar Jain (ex-India managing director), and Sameer B.S., the current Chief Financial Officer, of the consequences. Rao and their families were warned of “dire consequences” by Enforcement Directorate officials if they failed to provide statements in the required manner, Xiaomi filed on May 4.

An immediate response was not received from the Enforcement Directorate to our request for comment.

Xiaomi was under investigation in February. The Indian agency took $725 million from the Indian bank accounts of the company. They claimed it sent illegal money abroad, “under the pretense of royalties” payments.

Xiaomi denies any wrongdoing but said that its royalty payments are legitimate. A judge heard the lawyers of Xiaomi and held off on Indian Agency’s request to freeze bank assets. The May 12 hearing is the next.

According to the company, it was subjected to intimidation from India’s top enforcement agency during multiple interviews with its executives in April.

Jain, Rao and others were “threatened…with dire consequences including arrest and damage to their career prospects and criminal liability, and physical violence” if the agents did not require them to give statements, as stated in the High Court filing from the southern Karnataka State.

According to the report, although they were capable of resisting pressure for some time (but ultimately gave way under extreme pressure and abuse) and involuntarily made certain statements,”

Xiaomi did not respond to queries due to legal proceedings. Reuters inquiries were not answered by Jain or Rao.

Jain, Xiaomi’s vice president global based in Dubai is responsible for the rise of Xiaomi in India where it is hugely successful.

According to Counterpoint Research, Xiaomi was India’s top smartphone seller with 24% of the market. The company also sells other gadgets such as smart watches, televisions and more than 1,500 workers in India.

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China has had difficulties doing business with India because of political tensions after a 2020 border dispute. India has since banned over 300 Chinese apps, and also tightened Indian investment norms.

In December, tax inspectors searched Xiaomi’s India office. The Enforcement Directorate, which examines questions such as foreign currency law violations, received information about Xiaomi’s India offices in December. Court documents indicate that it began to review the royalty payments.

According to the agency, Xiaomi Technology India Private Limited (XTIPL), remitted 55.5 billion Rupees ($725 Million) in foreign currency equivalent to entities outside India despite Xiaomi having “not used any service”.

According to the agency, “Such large amounts were made in the name and honor of royalties on instructions from their Chinese parent entities.”

The court filing by Xiaomi alleges that officials from India forced the Xiaomi India CFO Rao (under extreme duress) to add a sentence during the probe.

It read, “I accept the royalty payments were made by XTIPL in accordance with the instructions from certain people within the Xiaomi group.”

Rao retracted the statement on April 27th by stating that it had been “not voluntary and taken under coercion”, according to the filing.

Two days later, the directorate ordered that assets be frozen in Xiaomi bank accounts.

Xiaomi previously stated in a press release that its royalty payments are “all legit and true” and were paid for Indian-version products.

In a court filing, it stated that Xiaomi has been “targeted” since its affiliates are based in China.