9911796707
TMI Blog2023 (3) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... be a Type-II non-deposit taking Non-Banking Financial Company (NBFC) incorporated in 2007 under the provisions of the Companies Act, 1956 and further claims to have secured and unsecured micro lending business and its primary revenue is the interest income on the loans given and other incidental fees. The petitioner claims that it is a Company wholly governed and regulated by the Reserve Bank of India under the Reserve Bank of India Act, 1934 and the relevant Rules therein. Respondents 2 to 5 who are the officers of the Enforcement Directorate, 5th respondent in particular, directs that the account of the petitioner be placed under debit freeze pursuant to a search conducted on M/s Cashfree Payments India Private Limited and M/s Razorpay Solutions India Private Limited which are Payment Gateways utilized by the petitioner for disbursal and collection of digital micro-loans to borrowers/customers. After directing debit freeze, proceedings are initiated in Original Application No.732 of 2022 by the Adjudicating Authority under the Act and issues 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely because the petitioner has used Razorpay or Cashfree which are Payment Gateways to disburse loans to lonees it would not mean that the petitioner is also involved in any of the activity of those Payment Gateways. He would seek to place reliance upon several judgments of the Apex Court and that of this court. Considering their relevance, they would be noticed in the course of this order. 7. The status of the petitioner is not in dispute. It is germane to notice certain background facts that leads to initiation of the proceedings by the Enforcement Directorate which has driven the petitioner to this Court. 15 First Information Reports are registered by the Cyber Crime Police Station, Bangalore City for offences punishable under Sections 120B, 384, 419 and 420 of the IPC against numerous entities in connection with their involvement of their extortion and harassment to public who have availed small amount of loans through mobile apps being run by several entities. Based upon the crimes so registered in those predicate offences search and seizure proceedings were initiated against 5 applications - Razorpay Software Private Limited, Cashfree Payments India Private Limited, Paytm Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at Vaishnavi Summit, No.6/B, 80 Feet Road, 1A Block,3rd Block, Koramangala, bengaluru-560 034. Here we were shown an authorization No.05 of 2022 dated 1- 09-2022 issued by Dr. Manish Godara, Joint Director, Enforcement Directorate, Bengaluru Zonal Office, under Section 17 of the Prevention of Money Laundering Act, 2002 (15 of 2003) authorizing Shri Ajay Kumar Vaidya, Assistant Director to conduct search, seizure or freezing of records/ properties related to certain entities/persons for the purpose of investigation under PMLA, 2992 at the above mentioned premise. Shri Navdeep Singh, Enforcement Officer and Shri Gowtham Dirisala, Assistant Enforcement Officer also accompanied Shri Ajay Kumar Vaidya, the authorized officer during the search. We as well as Shri Om Prakash Pandey, Nodal Officer of M/s Cashfree Payments India Pvt.Ltd., put our dated signatures on the authorization in token of having seen the same. The search started at 11.00 hrs on 2.09.2022 and concluded at 19.00 hrs on 2-09-2022. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute that the petitioner was in the business of disbursing small loans by loan agreements that would be signed between the parties. One of such agreement is also appended to the petition as an illustration. Therefore, it is a fact that the petitioner was disbursing small loans to small borrowers, through Cashfree Payments or Razorpay or any other Payment Gateway and did have an agreement with Waterelephant. Waterelephant Company is said to have had several transactions and its Directors are said to be Chinese. The link travels in this manner. It now become germane to notice the panchanama that was drawn while the office of Razorpay was searched and it reads as follows: "PANCHANAMA Panchas:- 1. Shri Imran Khan S/o Sri Aslam Khan, No.34, 80 ft. Road, Fayazbad Lay-out, Bangalore-560078 having mobile No. 7348835988 and Aadhaar Card No. 7348-0074-6032 2. Shri Shahidu Alam S/o Shri Abdul Mannan, Village-Purba Bazari, Purbo, Bazari Karimgani, Assam-788 727 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Merchant IDs and a/c nos. found in r/o the 111 entities during the search. During the course of the search, Mr. Pushkar Deshapande, Associate Director (Risk Management) in M/s Razorpay Software Pvt. Ltd. and Mr. Satyanarayana Kunapuli, Senior Vice-President (Finance) of M/s Razorpay Software Pvt. Ltd. gave their sworn statement n our presence. No threat, coercion or inducement was used by the officers for getting the said statement of Mr. Pushkar Deshpande and Mr. Satyanarayana Kunapuli. Thesearch concluded at 19.45 hours on 2-09-2022. During the entire course of search at the premises, no harm was caused to the inmates or the premises as above. During the entire search proceedings, no force/coercion was used against the inmates and also no harm was caused to inmates or to the property. During the entire proceedings, no religious sentiments were hurt. The search ended in a peaceful manner and all protocols related to Covid- 19 were 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose entitles which are involved in the commission of Scheduled offences and generation of proceeds of crime. 5. Further, efforts have been made to locate many such entities at their registered address as per MCA database, however, those entities could not be found at their registered address and in some cases, the registered address could not be traced. It has also been noted that there are differences between the credentials of these entities with MCA and the credentials of these entities provided by Razorpay Payment Gateway. The associated email IDs of many such entities available with MCA, seem to be peculiar as those IDs appear to have been created with the domain of foreign countries. 6. It has been further brought on record that most of the FIRs involved in this case, have been registered on the basis of the complaint filed by various individuals who have been subjected to harassment, extortion, 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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of reply on email as aforesaid. In view of the time limitation involved, non-adherence to time schedule may result in non-placement of submission on record. Further, on receipt of reply on or before 3rd December, 2022, the applicant is required to file the rejoinder by 3rd January 2022 in the manner stated above with a copy to the respondent simultaneously. In this case the opportunity of being heard through online video conferencing is provided on 11th January, 2023 at 2.30 p.m. 14. Further, it is also brought to the notice of the applicant and respondent(s) that at least 7 days before the scheduled date of hearing i.e., on 4th January 2023 for a meaningful discussion on the main issues in the connection with case, the following are required to be submitted on the Email of the Adjudicating Authority. a. The gist of allegations against the respondents leading to 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 tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on such record or property, if required or make or cause to be made extracts or copies therefrom; (e) make a note or an inventory of such record or property; (f) examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act: (1-A) Where it is not practicable to seize such record or property, the officer authorised under sub-section (1), may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned: Provided that if, at any time before its confiscation under sub-section (5) or sub-section (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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel appearing for the petitioner that there are no reasons to believe is sans substance. The original records placed before this Court by the Enforcement Directorate would clearly indicate several reasons directing freezing of the account. It is not the total amount involved in the said freezing order. It is the money trail that is required to be investigated into which is being done against those entities with whom the petitioner and several others admittedly had transactions. Therefore, the money is transferred from the petitioner through the Payment Gateway to the borrowers. 13. The petitioner claims that he is not the Director or any Chinese citizen is involved in his company. If other companies have involved, it is not its concern. This submission is noted only to be rejected. 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 woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding timeline is provided so as to ensure that power is exercised for the purpose to which the officer is vested with such power and the adjudicating authority is also kept in the loop. In the instant case, the procedure contemplated under Section 17 of the PMLA to which reference is made above has not been followed by the officer authorised. Except issuing the impugned Communication dated 15-5-2020 to AML Officer to seek freezing, no other procedure contemplated in law is followed. In fact, the impugned communication does not even refer to the belief of the authorised officer even if the same was recorded separately. It only states that the officer is investigating the case and seeks for relevant documents, but in the tabular column abruptly states that the accounts have to be "debit 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch and seizure under Section 17 would be contrary to law. The facts that fell for consideration before the Apex Court was that there was no reason to believe, as reasons were not recorded in any of the proceedings, by the Enforcement Directorate. The records that were placed before the Apex Court also did not contain any reasons recorded by the Authorised Officer, that would demonstrate reasons to believe, for passing the said order. The Apex Court holds that in terms of sub-section (1A) of Section 17 seizure orders can be passed only, if there are reasons to believe and copy of those recorded reasons along with the material in possession of the Authorised Officer are forwarded to the Adjudicating Authority in a sealed envelope. Even this was not available before the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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