Karnataka High Court has rejected China-based Xiaomi Corp's petition challenging the seizure of Rs 5,551 crore by the Enforcement Directorate (ED).

Last year, the ED froze Rs 5,551 crore worth of Xiaomi assets on the grounds that the business had sent money abroad illegally while disguising the transfers as royalties. An appellate body confirmed the seizure last week.

The court noted that as Article 14 of the constitution is person-centric, Xiaomi India's challenge to its constitutional legitimacy is viable on that ground.

The court noted that a petitioner need not be a citizen to contest the core of Article 14, which grants everyone the right to equality and equal treatment under the law.

Also Read: ED seizes Rs 5,551 crore assets from Xiaomi Technology India under FEMA

Section 37A of the Foreign Exchange Management Act (FEMA) was upheld as constitutionally legitimate by the court, which noted that the section does not suffer from evident arbitrariness.

However, the court gave Xiaomi India the right to appeal in accordance with section 37A (5) of the legislation.

Xiaomi has previously said its royalty payments were all legitimate and truthful, adding it will "continue to use all means to protect the reputation and interests."

Also Read: Xiaomi scam: FEMA authority clears biggest-ever asset freeze in India

Three years ago, India banned over 100 Chinese-owned apps as tensions between the countries soared over border clashes. In June 2020, Indian and Chinese troops fought with clubs, stones and fists along a disputed section of their border, leaving 20 Indian and four Chinese soldiers dead.

Since February 2021, both countries have withdrawn troops from some sites, but they still maintain a presence. In March last year, Chinese Foreign Minister Wang Yi travelled to New Delhi to discuss expediting the disengagement of troops and the possibility of de-escalating the situation.

Political tensions that have existed since the 2020 conflict have made it difficult for many Chinese businesses to conduct business in India. In addition to tightening regulations for Chinese businesses investing in India, India has since banned more than 300 popular Chinese apps, including TikTok, citing security concerns.

Also Read: Xiaomi loses a lot of customers amid crackdown by ED