The Bombay High Court has set aside the freezing of the bank accounts and payment aggregator/payment gateway accounts of Coda Payments India Pvt. Ltd., amounting to approximately ₹100 crores, holding that the Adjudicating Authority failed to record the mandatory finding under Section 8(2) of the Prevention of Money Laundering Act, 2002 (PMLA). The Court further held that where the Adjudicating Authority omits the mandatory finding as to whether the property is involved in money laundering, the Appellate Tribunal cannot subsequently supply that finding to cure the defect.

A Division Bench of Justice A. S. Gadkari and Justice Kamal Khata was hearing an appeal under Section 42 of the PMLA against the Appellate Tribunal's order affirming the Adjudicating Authority's order continuing the freezing of its bank accounts and payment aggregator/payment gateway accounts.

The proceedings arose from an ECIR registered on the basis of ten FIRs alleging offences under Sections 420 and 120-B of the IPC, concerning allegations that certain users of online games were subjected to unauthorized deductions after an initial transaction. Following searches, the Enforcement Directorate froze five identified bank accounts and merchant IDs maintained with various payment aggregators and payment gateways.

The appellant submitted that Section 8(2) of the PMLA is mandatory and that the Adjudicating Authority had failed to record an independent, reasoned finding as to whether the properties constituted 'proceeds of crime'. It was also contended that the freezing of assets worth approximately ₹100 crores was disproportionate when the amount alleged across the ten FIRs was only about ₹25 lakhs.

At the outset, the Court expressed its reservation at the Appellate Authority comprising only a Chairperson, not complying with the mandate of Section 6 of the PMLA. The Court observed that the Appellate Tribunal ought to have recorded its finding to substantiate that the composition of the bench was in accordance with law, and that it could not have simply disregarded the objection raised by the Appellant.

On the issue of Section 8, the Court noted that the requirement of ascertaining whether the property is involved in money laundering under Section 8 cannot be treated as an empty formality. The Court emphasized the distinction between recording that the material is sufficient for continuation of retention/freezing for purposes of adjudication and recording the statutory finding that the property is involved in money laundering.

“… the Authority merely states that the material shown in the O.A is sufficient to arrive at satisfaction that retention/continuation of the bank accounts and payment aggregator/payment gateways is required for the purpose of adjudication under Section 8 of the P.M.L.A. The Order however does not separately identify the property… found to be involved in money laundering…,” the Court remarked.

Hence, the Court held that the order of the Adjudicating Authority does not satisfy the express requirement of Section 8(2) of the P.M.L.A.

The Court further clarified that if a finding under Section 8 was not recorded by the Adjudicating Authority, the Appellate Tribunal could not have itself recorded the finding to cure the defect, observing:

“If an Adjudicating Authority omits the mandatory finding under Section 8(2), the Appellate Tribunal cannot thereafter supply that finding on the basis of the same material. If that were done then the statutory safeguard contained in Section 8(2) would effectively become optional.”

The Court held that the Appellate Tribunal ought to have set aside the order and required the Adjudicating Authority to undertake the exercise mandated by law. It observed that the Appellate Authority cannot ordinarily supply a mandatory statutory finding which the Original Authority was required to record after undertaking the statutory adjudicatory exercise.

The Court further disagreed with the approach in determining proceeds of crime. The Appellate Tribunal had placed reliance upon the gross revenue of and the alleged remittances outside India to decide on the question of 'proceeds of crime'.

“Gross business turnover, however, cannot by itself establish that the entirety of the turnover represents 'proceeds of crime'. The fact that money has moved from India to an overseas group entity may be relevant to an investigation. It does not, without more, establish that every amount in the company's bank accounts constitute 'proceeds of crime',” the Court observed.

The Court further found that both the Adjudicating Authority and the Appellate Authority have overstepped their jurisdiction by attaching assets of over Rs. 100 crores on the basis of a 'predicate offence' under Section 420 of the Indian Penal Code (IPC), which is a compoundable offence under law. It observed:

“We are also unable to comprehend the basis on which the E.D. has attached a sum total of Rs. 100 crores without establishing that all the transactions made on the Apps were done by minors or were on account of an unauthorized 'auto-debit'. It is impossible to comprehend that, transaction totaling to Rs 2,854 crores were all done through fraudulent auto-debit and were all unsecured payments.”

Accordingly, the Court allowed the appeal and quashed and set aside the impugned order.

Case Title: M/s Coda Payments India Pvt. Ltd. v. Dy. Director, Directorate of Enforcement [Criminal Appeal (ST) No. 13953 of 2025]

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