RBI outsourcing limits and proceeds of crime issues arise where an NBFC cedes core lending and recovery control.

An NBFC that outsources customer onboarding, KYC, application processing, disbursal mechanics, collections and recovery to fintech service providers may be treated as ceding core lending control, because RBI outsourcing directions permit only limited support outsourcing and require the NBFC to retain ultimate sanctioning, compliance and operational control. Where the lending structure routes funds through merchant accounts, deducts processing fees and is associated with alleged abusive recovery practices and other unlawful activity, the resulting sums may be characterised as proceeds of crime for enforcement action. The text states that, on the facts described, the outsourcing model and the fund flow supported attachment and related findings.

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Issues: (i) Whether the appellant NBFC had outsourced core lending and recovery functions in violation of RBI outsourcing directions, and (ii) whether the attachment and related findings based on the alleged proceeds of crime could be interfered with.

Issue (i): Whether the appellant NBFC had outsourced core lending and recovery functions in violation of RBI outsourcing directions.

Analysis: The service agreement and app-based lending model showed that the fintech/service providers were not confined to incidental support functions. They handled customer identification, KYC collection, processing of applications, disbursal mechanics, collections, recovery, and control of the lending platform. The arrangement effectively placed the core business of lending and recovery with the service providers, while the NBFC derived revenue without retaining meaningful control over the outsourced activities. The RBI outsourcing framework permits limited outsourcing but prohibits delegation of core management and sanctioning functions and requires the NBFC to retain ultimate control, due diligence, and compliance responsibility. On the facts found, the model was held to be a misuse of the outsourcing permission and contrary to RBI directions.

Conclusion: The issue was answered against the appellant and in favour of the respondent.

Issue (ii): Whether the attachment and related findings based on the alleged proceeds of crime could be interfered with.

Analysis: The material on record, including the complaints, FIRs, investigation findings, merchant-account routing, deductions as processing fees, abusive recovery practices, and the flow of funds through the app-based lending structure, supported the conclusion that the funds represented proceeds generated through the alleged scheduled offences. The Tribunal accepted the respondent's case that the bank accounts linked to the merchant IDs were traced to the alleged unlawful gains and that the appellant's explanations did not displace the factual basis for the impugned action.

Conclusion: The issue was answered against the appellant and in favour of the respondent.

Final Conclusion: The appeal failed on merits, and the Tribunal sustained the impugned order and the consequential attachment-related findings.

Ratio Decidendi: An NBFC cannot lawfully outsource its core lending, sanctioning, and recovery functions in a manner that cedes effective control to fintech service providers, and where the lending model is used to generate and route unlawful gains through such arrangements, the resulting funds may be treated as proceeds of crime for enforcement action.

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