Explained: What the Vivo-ED case in the Delhi High Court is all about

The Enforcement Directorate (ED) had frozen the bank accounts of Vivo, after search-and-seizure operations at the company’s premises. The ED alleges tax evasion and money laundering by Vivo.

Vivo is the second Chinese mobile company, after Xiaomi, to face ED wrath over foreign remittances.

While Xiaomi was charged with violation of Foreign Exchange Management Act (FEMA), action against Vivo has been carried out under the Prevention of Money Laundering Act (PMLA).

Another Chinese smartphone maker, Oppo, has also come under the scanner, with the Directorate of Revenue Intelligence (DRI) alleging custom duty evasion worth Rs 4,390 crore.

Vivo, on July 13, won an interim relief from the Delhi High Court, which allowed it to operate its bank accounts, frozen by the ED. However, the company itself is not off the hook.

Moneycontrol explains what the case is all about.

What did Vivo say in its plea to the Delhi High Court?

During a search-and-seizure operation by the ED on Vivo’s premises and its associate companies, the agency had put a debit freeze on all bank accounts linked to Vivo. This action of freezing bank accounts was challenged by the company.

On July 8, Vivo’s urgent petition was taken up for hearing by the court. The company sought the court’s direction to the ED to lift the debit freeze on its bank accounts and allow it to operate them.

The plea by Vivo informed the court that the company had approached the ED first, and it was now knocking on the court’s doors as it did not get an urgent consideration of its request from the agency.

Vivo’s case for a defreeze of its accounts hinged primarily on the need for it to discharge its monetary obligations.

With a debit freeze on its accounts, Vivo would be unable to pay salaries, statutory dues such as customs, duties and taxes, or to pay refunds to customers for cancelled orders, and carry out day-to-day operations, it said.

Terming a situation like this as a “commercial and civil death for the company,” Vivo said if it is not allowed to make payments to meet its obligatory dues, it will invite more and more prosecution from different parties.

At first, the court asked the ED to consider Vivo’s representation. On July 13, the court granted interim relief to Vivo, seeing that the agency had not decided upon the issue.

Vivo has been allowed to operate its bank accounts after securing a sum of Rs 1,200 crore – the suspected proceeds of crime quantified by the ED so far.

To secure this sum, the court asked the Chinese smartphone manufacturer to furnish a bank guarantee of Rs 950 crore with the ED within a week.  It also asked the company to maintain a balance of Rs 251 crore in the bank accounts, which was there at the time of freezing of the account.

What is ED’s case against Vivo?

The agency’s search-and-seizure operation against Vivo and its associate companies was prompted by a First Information Report (FIR), alleging money- laundering. The FIR, filed months ago, had claimed that a former director of Vivo, had set up shell companies for money-laundering.

ED also claimed that Vivo had allegedly remitted 50 percent of its turnover to China in order to evade taxes in India.

The high court was informed by the ED’s counsel that during the search and seizure, “suspected proceeds of the crime, to the tune of Rs 1,200 crore, had been found.” It is for this reason that this money was required to be secured before allowing Vivo access to its accounts.

The ED also pressed for Vivo from making foreign remittances. The company, however, offered to volunteer data on a weekly basis and information of its remittances, arguing that it has obligations towards royalty payments and interest on external commercial debt. The court asked Vivo to furnish details of all its remittances to the ED.

So what happens next?

For Vivo, this is a respite, but the probe against the company will continue. The company will also continue fighting the case on the debit freeze of its accounts in the Delhi High Court.

The case will be heard next on July 28.