TMI Blog2023 (3) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... ey without any documentation would grab at the opportunity and accept every condition and give access to his smart phone. It is then the trouble crops up when the representatives of such mobile loan apps/companies begin to haunt the borrower threatening leakage of contents in the smart phone while seeking such repayment. It is alleged in some cases that repayment is sought 16 to 20 times more than what a borrower has to pay as EMI. It is again in public domain that several borrowers have committed suicide unable to bear the harassments of the representatives of such loan apps. The office bearers of several of these companies which control and operate such mobile loan apps are said to be entities of China or individuals from China sitting as Directors of such mobile loan apps. Therefore, it becomes necessary for an investigation, in the least to be conducted of any such company who would operate such loan apps and has transactions between each other. The investigation would be imperative, as any effort of any neighbouring nation to destabilize this country, either economically or otherwise, by any method which would touch upon the security of the nation and safety of its citizens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s show cause notice to the petitioner on 14-10-2022 in terms of Section 8 of the Act. Contending that the very search and seizure is contrary to law and the second show cause notice being based on the foundation of such search and seizure would also be contrary to law, the petitioner has knocked the doors of this court in the subject petition. 3. Heard Sri Avi Singh, learned counsel appearing for the petitioner; Sri K.N.Krishna Rao, learned counsel appearing for respondent No.1 and Sri Madhukar Deshpande, learned counsel appearing for respondents 2 to 5. 4. The learned counsel appearing for petitioner would vehemently contend that the orders which direct debit freeze are void ab initio and they are in complete disregard to the procedural safeguards inasmuch as there are no reasons to believe for directing freeze of the account of the petitioner. He would contend that procedural compliance in terms of Section 17 of the Act is mandatory and not ancillary. It is his submission that freezing of bank account of the petitioner is a draconian act which would entail serious civil consequences and if the statute directs performance of act of freezing in a particular manner, the respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch and seizure proceedings were initiated against 5 applications Razorpay Software Private Limited, Cashfree Payments India Private Limited, Paytm Payment Services Limited and Fast App Technology Private Limited. Based upon the search conducted against those Payment Gateways names of 111 entities figured. 8. The entities are now alleged to be controlled/operated by citizens of China who have gained access by using forged documents of Indians and by making few Indians as contractors of those entities. During the course of investigation, certain details were received from Rozarpay, Cashfree and Paytm payments who had huge transactions in the Merchant IDs. Based upon the said predicate offences, proceedings under the Act were initiated by the aforesaid search and seizure. The crux of the allegation against all these companies who are alleged to have dummy contractors on behalf of Chinese citizens was that they would grant small loans to individuals without any documentation, after that they direct those gullible customers to download an app and from the app seek access to the contents of smart phones, grant loans and immediately thereafter begin to blackmail those named gullible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2022. During the course of search, the details of account Numbers/Merchant IDs held in the name of various entities /persons which are being investigated under the provisions of the Prevention of Money Laundering Act, were found. Since the Merchant IDs and the account numbers found during the instant search proceedings cannot be seized, the same have been frozen by the Authorised officer by issuing an Order of Freezing under Section 17(1A) of PMLA, 2002 to M/s Cashfree Payments India Pvt.Ltd. and the concerned banks. A copy of the same has been served to Shri Om Prakash Pandey, Nodal Officer of M/s Cashfree Payments India Pvt. Ltd. by hand. As a result of search, an inventory was prepared regarding the frozen balances in the merchant IDs maintained with M/s Cashfree Payments India Pvt.Ltd. as per the details given in the Schedule A below. It was also witnessed by us that the authorized officer found various bank accounts held int eh name of certain entities/person being investigated under PMLA and M/s Cashfree Payments India Pvt.Ltd. does not have any information about the balance lying in the said bank accounts, hence, for the purpose of securing the balance lying in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 727 having mobile No.8822674063 and Aadhaar Card No. 9437-0812-5788. We, the above named panchas having been called upon by Shri Karan Sharma, Assistant Director, Directorate of Enforcement, 3rd Floor, B Block, Shanthinagar TTMC, BMTC, KH Road, Bengaluru 560 027 have presented ourselves at the office premises of M/s Razorpay Solutions India Pvt. Ltd. i.e., SJR Cyber Laskar, Hosur Road, Adugodi Bengaluru 560 030, at 10.00 hours on 2-09-2022. Here we were shown an authorization bearing No.04/PMLA/2022, issued by Dr. Manish Godara, Joint Director, Directorate of Enforcement, Bangalore under Section 17(1) of the Prevention of Money Laundering Act, 2002 (15 of 2003) and Rule 3 of the Prevention of Monoey Laundering (Forms, Search and Seizure and the manner of Forwarding the Reasons and Material to the Adjudicating Authority, Impounding and Custody and Records and the Period of Retention) Rules, 2005, authorizing Shri Karan Sharma, Assistant Director, Directorate of Enforcement to conduct search and seizure or freeze any record or property. The said officer informed us that he has reasons to believe that certain incriminating documents related to the offence of money launder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... followed. Based upon the said search and seizure, the seizure memo along with all materials is placed before the Adjudicating Authority. The Adjudicating Authority then on 14-10-2022 issues a show cause notice to the petitioner. The reasons recorded for issuing the said show cause notice, is also appended to the notice and it reads as follows: RECORDING OF REASONS U/S 8(1) OF PMLA 2002 BY THE ADJUDICATING AUTHORITY 1. The Deputy Director, Bangalore has filed an Application, received by this Authority on 26-09-2022 under Section 17(4) of PMLA in the matter of Addtec Solutions Private Limited Ors. For retention of documents /records seized and for continuation of freezing of Payment Gateway and Bank Accounts u/s 17(1A) of PMLA During searches conducted on 02- 09-2022. 2. Investigation under the provisions of PMLA was initiated based on 15 Nos. of FIRs registered by Cyber Crime Police Station, Bengaluru City, against numerous entities/persons in connection with their involvement in extortion and harassment of public who had availed small amount of loan through the mobile apps being run by those entities/persons. The said entities are alleged to be controll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , abuse, and torture by the entities/persons involved in those FIRs. 7. As per the preliminary enquiry made by ED office, it has been brought out that the said entities were doing their suspected/illegal business through various Merchant IDs/Accounts held with Payment Gateways/banks. So far, Razorpay Pvt.Ltd., Cashfree Payments and Paytm Payments Services Limited have been identified, which have been providing payment services to various such entities. 8. Based on the aforesaid facts, information in possession and reasons to believe Enforcement Directorate conducted search operation under Section 17 of PMLA at the premises of payment gateways and entities mentioned din the application which resulted in seizure of documents/ records and freezing of Payment Gateways and Bank accounts. 9. The Enforcement Directorate have urged in the application that the documents/records seized and Payment Gateways and Bank accounts freezed under the Panchanama dated 2-09-2022 are required to be retained till the completion of the investigation under PMLA, 2002 and for the purpose of confiscation. 10. The prayer made by the Deputy Director for retention of documents/recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conduct of search action u/s 17(1). b. The reason for retention of the seized articles. c. The source of fund for the article seized/bank a/c s frozen u/s 17(1A) along with the arguments whether the property is involved in money laundering. d. Gist of reply in response to notice u/s 8(1) not more than two pages and gist of rejoinder submitted by the Applicant not more than two pages. Note: A copy of the aforesaid recording of reasons u/s 8(1) of PMLA, 2002 to be sent along with the notice to the respondents. (Emphasis added) The reasons recorded are that FIRs were registered against several companies which alleged that such entities were incorporated by appointing dummy Directors on behalf of Chinese citizens. Many Indian citizens had been made Directors in these entities on the instructions of such Chinese entities without making those Indian citizens aware that they were appointed as Directors. Therefore, those companies were completely controlled by Chinese entities or individuals is the prima facie material in the investigation. The transactions with the aforesaid five Payment Gateways is through Waterelephant and Waterelephant had an agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) of Section 8 or Section 58-B or sub-section (2-A) of Section 60, it becomes practical to seize a frozen property, the officer authorised under sub-section (1) may seize such property. (2) The authority, who has been authorised under subsection (1) shall, immediately after search and seizure or upon issuance of a freezing order, forward a copy of the reasons so recorded along with material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period, as may be prescribed. (3) Where an authority, upon information obtained during survey under Section 16, is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in writing, enter and search the building or place where such evidence is located and seize that evidence: Provided that no authorisation referred to in sub-section (1) shall be required for search under this sub-section. (4) The authority seizing any record or property under sub-section (1) or freezing any record or property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The matter is still at the stage of investigation and what is issued is a show cause notice directing the representative of the petitioner to appear before the Adjudicating Authority. The petitioner would have all the opportunities to urge all these grounds urged now before the Adjudicating Authority in reply to the show cause notice. The projection of procedural aberration by the petitioner would not entitle entertainment of the petition, as there is link in the money trail against the petitioner, as the transactions have admittedly happened between Waterelephant and the Payment Gateways and the agreement did subsist with the petitioner and the Waterelephant. In the considered view of this Court, this is enough circumstance for the Adjudicating Authority to issue a notice to the petitioner. Unless the said notice is without jurisdiction, entertainment of the petition at this juncture is not warranted at the hands of this court. 14. Insofar as the judgments relied on by the learned counsel appearing for the petitioner are concerned, much emphasis is laid on the judgment rendered by the Apex Court in the case of OPTO CIRCUIT INDIA LIMITED v. AXIS BANK AND OTHERS (2021) 6 SCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebit freezed/stop operations . It certainly is not the requirement that the communication addressed to the Bank itself should contain all the details. But what is necessary is an order in the file recording the belief as provided under Section 17(1) of the PMLA before the communication is issued and thereafter the requirement of Section 17(2) of the PMLA after the freezing is made is complied with. There is no other material placed before the Court to indicate compliance with Section 17 of the PMLA, more particularly recording the belief of commission of the act of money-laundering and placing it before the adjudicating authority or for filing application after securing the freezing of the account to be made. In that view, the freezing or the continuation thereof is without due compliance with the legal requirement and, therefore, not sustainable. ... 14. This Court has time and again emphasised that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner alone and in no other manner. Among others, in a matter relating to the presentation of an election petition, as per the procedure prescribed under the Patna High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Court. In the case at hand, the Authorised Officer has recorded reasons for directing freezement of account and has transmitted the same to the Adjudicating Authority. Therefore, the said judgment in the case of OPTO CIRCUIT is distinguishable on the facts obtaining the case at hand without much ado. Thus tumbles down the sheet anchor of the learned counsel appearing for the petitioner. 15. All other judgments are with regard to the power of the Enforcement Directorate to conduct search and seizure. Since the petitioner has to answer the notice issued by the Adjudicating Authority, any further reference being made to the case of the petitioner is likely to prejudice his case before the Adjudicating Authority. It is for the petitioner to submit his reply in defense and thereafter it is for the Adjudicating Authority to consider the same and pass appropriate orders in accordance with law. The petitioner cannot presume or assume that the Adjudicating Authority would not render justice to the case of the petitioner meeting all the contentions that he would raise before the Adjudicating Authority by way of reply to the show cause notice. I do not find any warrant to interfere a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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