Court upholds freezing order & show cause notice challenged by NBFC linked to alleged money laundering activities

The court upheld the freezing order and show cause notice challenged by a non-deposit taking NBFC, emphasizing the need for investigation into alleged money laundering activities linked to Chinese-controlled entities involved in extortion and harassment through mobile loan apps. The court found procedural compliance under Section 17 of the PMLA and allowed the petitioner to present defenses before the Adjudicating Authority. The petition was dismissed, and the freezing order's validity was maintained pending proceedings before the Adjudicating Authority.

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Issues Involved:
1. Legality of the freezing order dated 02-09-2022.
2. Procedural compliance under Section 17 of the Prevention of Money Laundering Act, 2002 (PMLA).
3. Validity of the show cause notice issued to the petitioner.

Issue-wise Detailed Analysis:

1. Legality of the Freezing Order:
The petitioner, a non-deposit taking Non-Banking Financial Company (NBFC), challenged the freezing order issued by the Assistant Director, Directorate of Enforcement, under Section 17(1-A) of the PMLA. The order was a result of a search conducted on Payment Gateways (Cashfree Payments India Private Limited and Razorpay Solutions India Private Limited) used by the petitioner for disbursing and collecting digital micro-loans. The petitioner contended that the freezing order was void ab initio, lacked procedural safeguards, and was issued without reasons to believe, thus violating Section 17 of the Act.

2. Procedural Compliance under Section 17 of PMLA:
The petitioner argued that the procedural requirements under Section 17 of the PMLA were mandatory and not ancillary. The petitioner claimed that no search was conducted at their office, and no seizure occurred from their premises. The respondents countered that the reasons to believe were recorded in the file and that the freezing order was based on substantial evidence linking the petitioner to entities involved in extortion and harassment through mobile loan apps. The court noted that the original records showed several reasons for freezing the account, emphasizing the need to investigate the money trail involving the petitioner.

3. Validity of the Show Cause Notice:
The petitioner also challenged the show cause notice issued by the Adjudicating Authority under Section 8 of the PMLA. The respondents argued that the investigation was ongoing and that the petitioner had the opportunity to present their case before the Adjudicating Authority. The court observed that the petitioner had transactions with entities controlled by Chinese nationals and that the investigation was necessary to uncover the extent of the alleged money laundering activities. The court found no procedural violation in issuing the show cause notice and held that the petitioner could raise their defenses before the Adjudicating Authority.

Conclusion:
The court rejected the petition, upholding the freezing order and the show cause notice. The court emphasized the importance of the investigation in light of the allegations of extortion and harassment through mobile loan apps, many of which were controlled by Chinese entities. The court found that the procedural requirements under Section 17 of the PMLA were met and that the petitioner had the opportunity to present their case before the Adjudicating Authority. The writ petition was dismissed, and the freezing order remained subject to the proceedings before the Adjudicating Authority.

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