It all started in December last year when Enforcement Directorate (ED) officials raided Xiaomi’s offices on the pretext of financial irregularities. The officials from income tax and ED had credible intelligence inputs of concealed income and tax evasion. All of it led to the screening of royalty payments made by the Indian entity – Xiaomi Technologies India Private Limited (XTIPL) – to the group.
The company was quick to respond and refuted all the claims of any wrongdoings. However, the statements didn’t find many takers among the ED and Income Tax department as they already smelled a rat.
While the government officials were busy putting blocks in place to make a list of uncomfortable questions based on the documents they seized, another notable development started happening at Xiaomi’s end. The poster boy of Xiaomi’s growth in India – Manu Kumar Jain – silently moved to Dubai. It was quite unusual, rather shocking, as the company is widely popular to make the most of social media and PR for every negligible to significant development related to the company. Shifting Manu Jain, a synonym of Xiaomi in India, was undoubtedly the biggest development that the company decided to stay tight-lipped about.
Within a few months of ED raiding Xiaomi’s office and seizing many documents, Manu Kumar Jain moved to Dubai, UAE from Bangalore, India. A closer look at his LinkedIn profile reveals a few other eye-catching ‘developments’ as well. Jain, who was leading the growth of Xiaomi in India and holding the position of Managing Director of Xiaomi technologies India, was elevated to Global VP – Xiaomi Technologies, the main holding company, after the departure of Hugo Barra in early 2017. However, as per his current profile, he only holds the position of Global VP and served as Managing Director of Xiaomi Technology India (XTIPL) until September 2021. Surprisingly, there is no announcement from the company about his successor until now. The company has neither denied nor confirmed Jain’s position with respect to India operations.
The blazing social media guns of Manu Kumar Jain have also gone silent now. Popular for his hyperactive nature on social media, his last post was seen more than a month ago. Contrary to his style, Manu was nowhere to be seen in any of the recent Xiaomi events held in India. All the events are being hosted by his colleagues who belong to the mid and senior levels of the executive team of Xiaomi India.
Did he already sense the presence of a few unwelcome guests about to knock on the door armed with some really uncomfortable and itchy questions?
The noose was tightened, and stress was at its peak as ED was keeping a close eye on each and every development related to top executives of Xiaomi Technologies India.
In April 2022, ED summoned Manu Kumar Jain to appear before the investigating officers in Bengaluru. He was also asked to furnish multiple financial documents related to the company. This was the third time when Jain was summoned by the ED after he failed to appear on the two previously. There was no chance of any goof-up this time.
ED recorded Jain’s statements on four occasions, April 13, April 14, April 21, and April 26. In a parallel exercise, the agency also recorded the statements of B.S. Rao, Chief financial officer (CFO) – Xiaomi Technologies India, on March 25, April 14, April 19, April 21, April 22, and April 26.
ED came into action almost immediately after recording the statements. On April 29, ED froze nearly $725 million (a whopping INR 5,551.27 crore) from Xiaomi’s Indian bank account. The ED accused the company of allegedly violating the Indian foreign exchange law (Foreign Exchange Management Act) and remitted the amount to its foreign entities without availing any services from them.
“Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities,” the agency said.
“Xiaomi India procures the completely manufactured mobile sets and other products from the manufacturers in India. Xiaomi India has not availed any service from the three foreign-based entities to whom such amounts have been transferred,” the agency added.
However, barely a few days after, on May 04, 2022, Xiaomi came down heavily on ED officials accusing them of threatening their employees with “physical violence” and coercion during the interrogation. As per the complaint filed by the company, its top executives, including Manu Kumar Jain, and their families were warned of facing ‘dire consequences’ if they deny submitting statements as per the agency.
As per the court filing by Xiaomi, on April 26, Indian agency officials “dictated and forced” S.B. Rao, CFO – Xiaomi India, to include a sentence as part of his statement under extreme duress.
“I admit the royalty payments have been made by XTIPL as per the directions from certain persons in the Xiaomi group,” Rao stated to ED.
Refuting all such claims, ED labeled the allegations “baseless”.
“The officials of Xiaomi India deposed their statements before ED under FEMA voluntarily in the most conducive environment on various occasions,” the agency said.
The rift between the dominant smartphone company in India and regulatory agencies is out in the open now. Even though Jain’s quiet departure to Dubai and unearth of alleged financial irregularities at Xiaomi are coincident, the timing of his decision triggers a lot of speculations.
Whatever may be the reality, it’s going to be quite a bumpy ride for Xiaomi in India. For a very long time, Jain kept Xiaomi safe from the wrath of Indian authorities with his charismatic style of functioning despite the geopolitical tension between China and India since mid of 2020. Many leading/popular apps, including TikTok, WeChat, and UCBrowser, have been banned by Indian authorities since then.
In India, Xiaomi is in hot water now; Manu’s departure from India at a time when his presence is needed the most in the country gives rise to a lot of speculations and unwanted discussions. Has he ‘timed’ it well? Will Xiaomi be able to sail through this testing time successfully? Indeed, a difficult question to answer at this moment!
All eyes are set on May 14, 2022, when the next hearing is scheduled. We may, or may not, get enough food for thought then, but may get a clear hint about which way the wind is blowing!