India’s department responsible for combating fraud has suggested investigating Chinese phone manufacturer Xiaomi for allegedly violating business regulations and not complying with foreign investment laws.
Xiaomi is currently facing multiple tax disputes and controversies over royalty fee payments in India.
According to a report by Reuters on Wednesday, a source revealed that the Serious Fraud Investigation Office (SFIO) of the Indian government issued a memorandum in May calling for an investigation into Xiaomi’s fund flows and whether they complied with mandatory investment approvals. Authorities are currently reviewing the memorandum.
The disclosure comes as Chinese leader Xi Jinping visits India over the weekend to attend the BRICS summit.
The memorandum states, “The most crucial aspect of the proposed investigation should be to review the actual beneficial ownership of foreign investors and group entities.”
“It should be verified whether any direct or indirect beneficial ownership, control or change in control has been disclosed as required and obtained approval… a detailed investigation is recommended to be conducted by SFIO,” the memorandum added.
SFIO is conducting the review of Xiaomi based on complaints and information received through the Indian Ministry of Commerce. SFIO also calls for “coordination” with other government agencies to conduct a related analysis of overlapping violations.
A spokesperson for Xiaomi stated in a statement to Reuters that the company has not received any notification or communication from SFIO, adding, “We highly value the national law of India and always fully comply with the law.”
Both the Indian Ministry of Corporate Affairs, SFIO’s higher authority, and their spokesperson did not respond to requests for comments.
SFIO is the primary agency in India responsible for investigating corporate fraud and has the power to arrest and prosecute offenders.
As per the procedure, the proposal for SFIO’s investigation into Xiaomi needs approval from the higher authorities.
Founder of Consecro Law, Meghav Gupta, told Reuters that in such cases, the higher authorities do not have a specific timeline for decisions, which may take several months to announce. It is possible that due to insufficient evidence, the investigation may be dropped, or SFIO may be allowed to initiate the investigation, even requiring other departments to participate.
For Xiaomi, the potential investigation by SFIO could be another blow. Since 2022, SFIO has frozen Xiaomi’s assets worth 55.51 billion rupees (approximately 584 million USD) in India on allegations of illegal transfers. Xiaomi has denied these allegations but has been unable to overturn the freeze order.
The memorandum by SFIO did not provide detailed information on the specific review of Xiaomi but outlined an investigation framework with 21 contents, including the scope, methods, action plans, and the possible summoning of company executives if necessary.
SFIO stated that there should be a “significant misreporting test on financial statements and audit reports submitted to the Indian government” and added that testimony should be recorded from current and former directors, chief financial officers, and compliance officers of Xiaomi.
In 2024, India’s antitrust agency accused Xiaomi and other smartphone companies of colluding with two e-commerce companies to exclusively launch products online, violating competition laws. Xiaomi has not commented on this matter.
SFIO’s investigation proposal recommends further scrutiny of Xiaomi on this issue, stating that an assessment should be made on whether Xiaomi has “de facto control” over Indian sellers or initial launch partners while claiming that these arrangements operate independently.
SFIO said, “The investigation should focus on whether Xiaomi’s products are exclusively launched on specific e-commerce platforms… whether it contradicts the intended purpose of foreign direct investment policies applicable to e-commerce enterprises.”
According to Counterpoint Research data, Xiaomi’s market share in the Indian smartphone market has dropped from 19% to 13%, ranking fourth. Its projected revenue in India for 2025 is 2.52 billion USD, a 40% decrease from three years ago.