Co-lending and service agreements outsourcing core lending found impermissible, generating proceeds of crime; fintechs' data misuse attracted criminal liability

Whether the co-lending/service agreements amounted to outsourcing core lending and generated proceeds of crime: the AT held that fintech firms funded disbursements under the guise of "performance guarantees" while NBFCs received guaranteed revenue via service fees without investing, thereby outsourcing core lending functions in breach of RBI master directions and circulars; consequence-agreements treated as impermissible outsourcing and as generating proceeds of crime (appeal dismissed on this issue). Whether misuse of borrower data and conduct attracted criminal liability under IPC/IT Act: the AT found fintechs provided loan facilities (not mere software), misused personal data to harass and extort for recovery, attracting sections 417, 419, 420 IPC and 66C/66D IT Act; consequence-criminal liability affirmed (appeal dismissed on this issue).

---

---

Issues: (i) Whether the provisional attachment confirmed by the Adjudicating Authority under Section 5 of the Prevention of Money Laundering Act, 2002 against the appellants (NBFCs and fintech/service providers) was valid though the appellants were not named as accused in the FIRs; (ii) Whether the contractual/service-agreement model and conduct of the appellants (outsourcing, control of lending apps, revenue sharing/FLDG) amounted to involvement in scheduled offences/proceeds of crime and breach of RBI outsourcing guidelines such as to justify attachment.

Issue (i): Whether provisional attachment under Section 5 PMLA can be made in respect of persons not named as accused.

Analysis: The Tribunal examined statutory definitions and provisions defining "proceeds of crime" and the attachment regime and relied on precedent interpreting the scope of Section 5 to cover "any person" in possession of proceeds derived from scheduled offences. The Tribunal considered whether material in possession of the authorised officer provided recorded reasons to believe that the appellants were in possession of proceeds of crime and whether non-naming as accused precluded attachment.

Conclusion: The provisional attachment was valid and could be made against persons not named as accused where material establishes possession or involvement with proceeds of crime; this issue is decided against the appellants.

Issue (ii): Whether the contractual scheme and operational conduct of the NBFCs and fintech/service providers established sufficient involvement in the generation or handling of proceeds of crime and violative outsourcing of core functions.

Analysis: The Tribunal analysed the terms of the service agreements, scope of services (including app control, data capture, loan processing, collections), the revenue sharing/FLDG arrangements, evidence of high effective interest/processing fees and use of call centres, and relevant RBI outsourcing directions. The Tribunal found that the agreements and practical operation conferred effective control of lending and recovery on service providers, enabled capture and misuse of borrower data, and resulted in a business model generating proceeds through the scheduled offences; it also held that the arrangements outsourced core NBFC activities contrary to RBI guidance.

Conclusion: The Tribunal concluded that the appellants' contractual model and conduct amounted to involvement with proceeds of crime and breaches of regulatory outsourcing norms; this issue is decided against the appellants.

Final Conclusion: The adjudicatory findings sustain the confirmation of provisional attachment under the PMLA against the appellants; the appeals are dismissed.

Ratio Decidendi: Where material shows a person (even if not named as accused) is in possession of or involved in processes connected with proceeds of crime, provisional attachment under Section 5 of the PMLA is permissible; contractual allocation of tasks that in practice vests control of core lending and recovery activities with service providers can establish involvement in generation and handling of proceeds of crime and justify attachment.

---