The formation of an opinion under Rule 4(3) of the FEMA Rules does not necessitate written reasons, and is the commencement of inquiry where all defenses must be presented.

ORDER :

(N. ANAND VENKATESH, J.)

The subject matters of challenge in all these writ petitions filed by (a) a corporate entity and (b) its Director and Chief Financial Officer are (i) the complaint dated 02.6.2023 given in writing by the second respondent under Section 16 (3) of the Foreign Exchange Management Act, 1999 (for short, the FEMA ) to the first respondent, (ii) the show cause notice dated 09.6.2023 issued by the first respondent under Rule 4(1) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 (for brevity, the FEMA Rules), (iii) the opinion formed by the first respondent under Rule 4(3) of the FEMA Rules, (iv) the act of proceeding further with the inquiry by informing the petitioners about the contraventions of the provisions of the FEMA , the FEMA Rules and the Regulations, etc., under Rule 4(4) of the FEMA Rules and (v) the denial of inspection of the entire original record of investigation including the unrelied documents and (vi) for a direction to provide the certified copies of the same.

2. Heard the learned Senior Counsel appearing on behalf of the petitioners and the learned Additional Solicitor General assisted by the Special Public Prosecutor appearing for the respondents.

FACTS :

3. The case of the petitioners is as follows :

(i) The petitioner company is engaged, inter alia, in the business of procurement, supply and distribution of Xiaomi branded products in India. It was incorporated on 07.10.2014 as a subsidiary of (a) M/s.Xiaomi Singapore PTE Limited, which holds 99.95% of shares and (b) M/s.Xiaomi HK Limited, which holds 0.05% of shares.

(ii) To facilitate its business, the petitioner company entered into royalty agreements with two companies based at United States of America namely (a) M/s.Qualcomm Incorporated and (b) M/s.Qualcomm Technologies Inc. (for short, the Qualcomm Entities) as well as its group company viz. M/s.Beijing Xiaomi Mobile Software Company Limited. The petitioners paid a total sum of Rs.5,551.27 Crores towards royalty agreements for the period from 2016 to 2022.

(iii) The petitioners relied upon the Subscriber Unit Licence Agreement (hereinafter referred to as the SULA) dated 27.10.2010, the Multi-product Patent Licence Agreement dated 01.10.2017 (for short, the MPLA-1), the Multi-product Patent Licence Agreement dated 01.1.2018 (for short, the MPLA-2), the Master Software Agreement (MSA) dated 19.11.2010 and the Licence and Royalty Arrangement Agreement (LRAA) dated 01.12.2017 made effective from 01.4.2017.

(iv) The second respondent commenced an investigation against the petitioners in the year 2022 and in exercise of the powers conferred under Section 36A of the FEMA , the second respondent provisionally attached certain sums of money totalling to approximately Rs.5,551 Crores being the aggregate amount of royalty paid during the period from 2016 to 2022 owing to an alleged contravention of the provisions of Section 4 of the FEMA . This seizure order was confirmed by the Competent Authority by order dated 19.9.2022 and the same was put to challenge before the High Court of Karnataka and it is pending.

(v) On 02.6.2023, the second respondent filed a complaint before the first respondent under Section 16