India's financial crime-fighting agency asked a court on Thursday to re-instate a freeze on $725 million in the Indian bank accounts of Xiaomi Corp as it investigates fund transfers by the Chinese smartphone giant.
The enforcement directorate had seized the money saying Xiaomi had illegally transferred funds abroad to three entities, including one in the Xiaomi group, describing them as payments "in the guise of royalty".
But the high court in the southern state of Karnataka put that decision on hold after Xiaomi challenged it, saying all the royalty payments were legitimate.
The hold decision would continue for now, a judge of the same court said on Thursday, adding that the agency would make a formal request later in the day to restore the freeze.
"The matter requires further hearing," added the judge, Siddappa Sunil Dutt Yadav, who set the next hearing for May 23.
A spokesperson for Xiaomi did not immediately respond to a request for comment.
Xiaomi's lawyers told the court that banks were not allowing the company to make necessary payments, even though the court had allowed it to use funds for purposes other than royalty payments.
On Thursday, the judge allowed Xiaomi to use a bank overdraft facility for such payments.
The agency's move comes after Xiaomi said in a court filing that its top executives faced threats of "physical violence" and coercion during questioning by enforcement officials, contentions that the agency has dismissed as untrue.