Vivo vs ED: Delhi High Court Permits Chinese Smartphone Manufacturer To Operate Bank Accounts On Furnishing Bank Guarantee Worth ₹950 Crore

The Delhi High Court has directed Chinese smartphone manufacturer Vivo India to furnish bank guarantee worth Rs. 950 crore in relation to the recent raids carried out by the Enforcement Directorate in a money-laundering investigation against the company. 

Pursuant to the last order of the court, the ED had asked the petitioner to provide specific details in support of its assertion that payments of around Rs. 260 crores were to be made by the company for direct and indirect taxes and employee benefits, among other things. In response to the same, the petitioner sent a letter to the ED providing the data as required on a pen drive. The ED submitted that since the data (provided in a 5 GB pen drive) was voluminous in nature, they required some time to analyse the same.

Justice Yashwant Varma granted ED a week's time to proceed in this regard.

Meanwhile, Vivo submitted that the powers of the ED under Section 132(1) of the Income Tax Act only authorised the officers to, on the basis of information in their possession in addition to reasons to believe that an entity had committed money laundering, to seize "concealed" evidence. While producing Section 132(1)(c) of the ITA, the petitioner submitted that the section only permitted seizure of undisclosed income and property. Elaborating upon the same, the counsel for Petitioner relied upon a Division Bench judgement of the Allahabad High Court in the case of Moti Lal v. Preventive Intelligence Office, 80 Itr 418, which states that–

"The power conferred under Section 132(1) is contemplated in relation to those cases where the precise, location of the article or thing is not known to the Income Tax Department and, therefore, a search most be made for made it, and where it will not be ordinarily yielded over by the person having possession of it and, therefore, it is necessary to seize it......I am unable to accept the contention on behalf of the Income Tax Department that Section 132(3) will Include a case where the location of the article or thing is known and where ordinarily the person holding the custody of it will readily deliver it up to toe Income Tax Department. Such article or thing, I think, requires neither search nor seizure."

The petitioner, while referring to ED's freezing of its accounts as "ex-facie incorrect", submitted that the ED can only seize what they have discovered in their search operations and not Vivo's bank accounts which were already disclosed. Vivo stated that the freezing order had "denuded its financial autonomy".

Per contra, the counsel for ED submitted that the "proceeds of crimes" by its very nature are always disclosed, but it is the true nature of such proceeds which remains hidden. Thus, the ED submitted that the Motilal principles would not apply in this case. 

Vivo submitted that it was entitled to get money unconnected to the current issue, including money received via its online transactions, and carry out its business. While requesting the court to let its other operations be continued, Vivo stated that "If a corporation is not doing business, it is only inviting liability and prosecution. The lives of 9000 employees depend on the carrying of this business...We cannot be put to a civil death. Each day ED takes is another nail to our coffin."

The counsel for ED argued that the proceeds of crime were worth Rs. 1200 cr. and the money frozen in bank accounts was just Rs. 250 Cr. Thus, they could not unfreeze the accounts.

Taking this in note, the Delhi High Court directed Vivo to furnish a bank guarantee worth Rs. 950 cr. Vivo was meanwhile permitted to operate its bank accounts to the extent that a balance of Rs 250 crore is maintained in its accounts at all times. The bench also directed Vivo to submit details about its remittances to China to the ED as well.

The matter is now listed for July 28, 2022. 

CASE TITLE: Vivo Mobile India Pvt. Ltd. v. Directorate of Enforcement