Entire Funds In Account Can't Be Presumed 'Proceeds Of Crime': Karnataka High Court In WinZO Case

Allowing the WinZO group to make the payments to its employees from the company account frozen after money laundering allegations, the Karnataka High Court has held that the entire amount in the accounts of WinZO and its subsidiaries cannot be deemed as 'proceeds of crime'.“…Apex Court has clearly held that the proceeds of crime have to be linked to a predicate offence and it is only such property which is derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence that can be regarded as 'proceeds of crime”, the Division Bench observed while referring to Vijay Madanlal Chaudhary's case.The Division Bench of Justices Anu Shivaraman and Vijaykumar A. Patil held that WinZO cannot be proceeded against under PMLA using the 'assumption' that all the recovered properties would be 'proceeds of crime' without the backing of subsisting FIRs on predicate offences to that effect.'…It is submitted that there is no contention that the entire amounts in the accounts of respondent – Zo Private Limited are generated from the amount involved in the sole surviving FIR which involves only an amount of Rs.42 Lakhs…”, the court took note of the submissions made by WinZO.ED had challenged the order dated February 02 allowing WinZO's subsidiary, Zo Private Limited, to approach the ED with a list of its employees to whom salaries are to be paid, directing the agency to verify the same and communicate it to the concerned bank, enabling the company to make payments.“…in view of the settled position that the Adjudicating Authority, under Section 8 of the PMLA has no power to order a partial defreeze in order to pay the salary due to the employees, we are of the opinion that the exercise of discretion by the learned Single Judge while relegating the respondent to its statutory remedy cannot be said to be perverse or unwarranted”, the court said upholding the single judge bench order of Justice B M Shyam Prasad.It thus dismissed ED's appeal and added, “…The predicate offence being one involving Rs. 42 Lakhs and having been registered with reference to an incident which occurred on 20.09.2024, the contention of the learned ASGI that the entire amount in the possession of the respondent - Zo Private Limited as well as its parent entity - Winzo Games Private Limited represents proceeds of crime cannot be accepted…”The petitioner company, whose account was frozen by the ED, had sought to declare that the agency's search and seizure at the office of M/s FinAdvantage Consulting [P] Limited–the petitioner's outsource accounting firm, as illegal and void. It had questioned the panchanama drawn during the search and seizure and the order dated 30.12.2025 under Section 17(1A) of the Prevention of Money Laundering Act freezing its account.According to the ED, the investigation and search allegedly revealed fraudulent practices and manipulation of gaming outcomes, causing financial loss to users. The total proceeds of crime allegedly generated by WinZO come around Rs 3522 crores from 2021 to 2025, ED had argued before the single judge bench earlier. ED also alleged that WinZO Games Private Ltd. transferred Rs 255 crores as an unsecured loan to its Indian subsidiary, Zo Private Limited, indicating fund diversion.Accordingly, under Section 17(1A) of the Prevention of Money Laundering Act, 2002 (PMLA), via an Order dated 30.12.2025, ED froze the bank accounts of WinZO Group to the extent of Rs 193 crores.As per ED's version, payment of salaries would frustrate the object of Section 17(1A) proceedings since the employees will be paid from the 'proceeds of crime' in question.The counsel appearing for WinZO Group urged the court for a strict interpretation of 'proceeds of crime'. Freezing of bank accounts can only be to the extent of related predicate offences, added the counsel. Most of the FIRs arising from the scheduled offences levelled against WinZO Group have either been closed or quashed, said the counsel. Only an FIR for 42 lakhs alleging systematic manipulation in real money games registered at Haryana survives, added the counsel.Relying on Vijay Madanlal Choudhary and Others v. Union of India and others, (2023) 12 SCC 1 and M/s. Rashmi Metaliks Ltd. and Another v. Enforcement Directorate (W.P.A 17454/2022), the respondent counsel argued that the ED cannot go beyond the scope of 'predicate offences when it comes to 'proceeds of crimes'. WinZO also submitted that accounts have remained frozen for a period of 180 days without confirmation from the adjudicating authority under PMLA. Since the accounts of the parent company and its subsidiaries have been frozen, 220 employees will be left without any avenue to receive their salaries, contended WinZO.Senior Advocate Sajan Poovayya and Advocate Rohan Kothari represented the Company. Kuloor Arvind Kamath, ASGI along with SPP Madhu N Rao appeared for the ED.Case Title: Directorate OF Enforcement v. ZO Pvt. LtdCase No: Writ Appeal No. 492 Of 2026Citation: ...

Entire Funds In Account Can't Be Presumed 'Proceeds Of Crime': Karnataka High Court In WinZO Case

Sebin James

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