India's Serious Fraud Investigation Office has recommended a detailed probe into Xiaomi's India operations, covering fund flows, beneficial ownership of foreign investors and group entities, and exclusive e-commerce launch arrangements. The memorandum, drafted in May, awaits approval from the Ministry of Corporate Affairs with no fixed timeline, while Xiaomi's India revenue has fallen 40% to $2.52 billion and 40.661% of its Hong Kong-listed shares are out on loan.
India's corporate fraud watchdog wants to open a formal case against Xiaomi's local unit, testing whether money moved out of the country without the approvals New Delhi began demanding of Chinese investors in 2020. The Serious Fraud Investigation Office set out its case in a memorandum drafted in May and reviewed by Reuters, covering Xiaomi Technology India Private Limited and its related entities, with a decision now resting with the Ministry of Corporate Affairs.
"There is no timeline in such cases for the ministry to decide — it can take months," said Meghav Gupta, founder of Indian law firm Consecro Law. "The ministry may not find enough to proceed or can allow SFIO to start the probe. It can also ask other departments to look into the matter."
Xiaomi said it has received no notice or communication from the SFIO. "We accord paramount importance to the laws of the land and comply with them fully at all times," a company spokesperson said. Spokespersons for the SFIO and the Ministry of Corporate Affairs did not respond to queries.
The exposure is already measurable. Xiaomi's India revenue was $2.52 billion in 2025, 40% below the level of three years earlier, and its smartphone share has fallen to 13% from 19%, putting it fourth behind Samsung and Apple, according to Counterpoint Research. The company has also failed to overturn a 55.51 billion rupee ($584 million) freeze on its Indian bank assets imposed by the Enforcement Directorate in 2022 over alleged illegal remittances, which Xiaomi denies. In Hong Kong, 01810.HK closed 1.895% lower, with $1.29 billion of stock shorted and a short-selling ratio of 40.661% as at Sept. 9, according to AASTOCKS data.
The memorandum sets out a 21-point investigation framework covering scope, method and action plan, and allows the SFIO to summon executives. Financial statements and auditor reports filed with the Indian government should "be tested for material misstatement," the agency wrote, adding that statements from current and former directors, chief financial officers and compliance officers should be recorded. The SFIO is India's primary corporate fraud investigator and holds statutory powers to arrest and prosecute.
The most sensitive thread is ownership. "The most important part of the proposed investigation should be examination of the beneficial ownership of foreign investors and group entities," the memorandum said. "The investigation should verify whether any direct or indirect beneficial ownership, control, or change in control was disclosed and approved as required." That language reaches beyond the Indian subsidiary: a finding on undisclosed control of group entities would touch Xiaomi's wider foreign investment structure, not just its local sales arm.
The e-commerce component carries separate risk. The SFIO wants to test whether Xiaomi held de facto control over Indian sellers and launch partners while presenting those relationships as arm's-length, and whether preferential and exclusive launches on Amazon and Flipkart "defeated the intent of the FDI policy applicable to e-commerce." India's antitrust agency made a parallel allegation in 2024, naming Xiaomi among smartphone makers that worked with the two platforms on exclusive online launches in breach of competition rules. Amazon and Flipkart deny the allegations; Xiaomi has not commented on that matter.
The legal backdrop is India's 2020 amendment to its foreign direct investment policy, known as Press Note 3, which required prior government approval for any investment from a country sharing a land border with India — in practice, China. The rule followed deadly clashes in the Galwan Valley in June 2020 that killed at least 20 Indian soldiers. Xiaomi and other Chinese firms said the approval regime caused operational delays. New Delhi relaxed some restrictions earlier this year as the two governments worked to stabilise the border, and Chinese President Xi Jinping is expected in India this weekend for a BRICS summit.
That timing cuts both ways. A probe recommendation surfacing days before Xi's visit gives New Delhi a lever in a relationship it is simultaneously trying to repair, and it gives Xiaomi's short sellers a headline to trade against. The stock's 40.661% short-selling ratio is unusually high for a large-cap Hang Seng constituent, meaning any formal escalation — or any signal that the ministry has declined to proceed — will be amplified by crowded positioning in both directions.
For holders, the near-term question is procedural rather than financial. The Ministry of Corporate Affairs can approve the probe, reject it for insufficient grounds, or refer the matter to another department, and no deadline governs that choice. Xiaomi's next scheduled disclosure and any Indian court hearing on the frozen 55.51 billion rupees are the events that will show whether the SFIO file is moving. Until the ministry rules, the memorandum is a recommendation, not an investigation — but it is a recommendation that names fund flows, beneficial ownership and e-commerce control in a single document.
This article is for informational purposes only and does not constitute investment advice.
