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2025 (11) TMI 1100
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....ellant(s) : Mr. Pulkit Prakash, Adv., Mr. Arjun Mohan, Adv. Ms. Arushi Sharma, Adv. For S. No. 1-4, 7 Counsel appeared For S. No. 5 Mr. Abhinav Raguvanshi, Proxy Counsel For S. No. 6 Mr. Anish Raj, Adv. and Mr. Prabhat Kumar Rai, Adv. For No. 8 Counsel appeared For S. No. 9 For the Respondent(s) : Mr. Abhimanyu Kaul, Adv. ORDER The batch of appeals have been filed under Section 26 of the Prevention of Money Laundering Act, 2002 ('the Act of 2002') challenging the order dated 26.12.2022 passed by the Adjudicating authority confirming the provisional attachment order. The impugned order was passed against multiple defendants before the Adjudicating Authority however the appeals have been filed by few and accordingly, we would be dealing with the issues raised by the appellants before us. Brief facts of the case: 2. It is a case where 43 FIRs have been registered for the offences under the Indian Penal Code,1860 and Information Technology Act, 2000 (in short, the 'the Act of 2000'). The Cybercrime PS, Rachakonda had registered 5 FIRs for offence under section 417, 419, 420 of the Indian Penal Code, 1860 (in short, 'IPC') and section 66-C, 66-D of the Act of ....
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....ed to NBFC by the RBI and acted as de-facto NBFC. For each loan, 15-25% was deducted in the guise of processing charges. The complaints were lured into availing unsecured loans at high interest rates and processing charges. The NBFC was used for lending over and above, 5 times to limit of their Net owned Funds (NOF) in violation of the RBI regulations. The respondent has attached the bank accounts linked to the Merchant IDs to secure the proceeds of crime. 7. The appellants are the NBFC's and the Fintech companies. The allegations on the NBFC are that they had entered into service agreement without due diligence and further allowed the fintech companies to misuse the data of the borrowers. The fintech companies/ service providers took all the control of the lending business through mobile application and accessed vulnerable data of the borrowers to harass and charge exorbitant interest rates and processing charges. The description of each of the appellant is as under: Name of the company Description M/s Conroy Financial Private Limited Fintech Company M/s Diversity Weekday Technology India Pvt. Ltd Fintech Company M/s Constant Blue Fintech Private Ltd Fin....
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....s CIBIL and accordingly loan was disbursed. The appellants conducted regular audits of the processes and even discontinued the services of the Fintech companies which have not followed the guidelines. 13. The learned counsel for the NBFC appellants submitted that they had entered into agreement with service providers as per the Outsourcing of Financial Services directions 2017 issued by the Reserve Bank of India for outsourcing activities in relation to digital lending. 14. The guidelines provide that primary responsibility and compliance risks cannot be shifted to the service provider but does not state that the risk associated with lending cannot be transferred and thus, there is no misuse of license issued to the NBFC and violation of the RBI guidelines. 15. The appellants did not argue on any other issue despite opportunity given to them and prayed for set aside of the order on the grounds raised before us. Arguments of the Counsel for the respondent: 16. The Ld. Counsel for the respondent has contested the appeal. Elaborate arguments were made in reference to all the issues and would be referred while recording our findings in reference to the issues raised by t....
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....y. As per the payment gateways, most of the mobile applications/ APPs claimed to have a MOU with one or more Indian NBFCs. 20. The appellant NBFC's and the fintech companies have largely relied upon the service agreement entered into between the two parties to shift the liability. We find that appellants in Appeal No. FPA-PMLA-5490/HYD/2023 My Salary Dost Fintech Private Limited and in Appeal No. FPA-PMLA-5565/HYD/2023 M/s Kudos Finance & Investment Pvt. Ltd. entered into agreement and is part of record before us. The appellants other than the one referred above have not placed the agreement before us, thus, an adverse inference would be taken against them. 21. We would illustratively be referring to the agreements placed before us by the appellants. At this stage it would be relevant to quote the relevant work duties of the parties under the agreement in Appeal No. FPA-PMLA-5490/HYD/2023 My Salary Dost Fintech Private Limited and is under: "SCOPE OF WORK The Marketing Partner shall provide in the NBFC, services, which shall include the following: DIGITAL MEDIA MARKETING AND NETWORKING a Marketing Through social media platforms such as Facebook, Twitter, You....
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...., Loan Period, Platform Fees, Minimum and Maximum Loan Amount, Delay Charges, Overdue Fees, GST, Recovery from Borrowers, etc. must be agreed and confirmed by the NBFC in Writing. All Loan products must include the following: Loan Sanctioned Amount Actual Disbursement Amount after all deductions Loan Period Platform Fee without GST GST Amount Any other deductions like payment gateway charges etc. Rate of Interest (Per day basis) Late Payment Penalty Disclose the upfront to the customer with the name of NBFC and sanctioned letter with all terms and condition of the loan Store data in encrypted format like Aadhar no, pan no and any other access taken from borrowers with consent. Marketing partner has to ensure and undertake to inform the borrowers should know above details before they apply for the loan. b) Customer Service - Marketing Partner will be required to appoint a Nodal Officer and further Nodal Officer will hear an appeal in case if any borrower raises an issue. The reporting of Nodal Officer shall always be and deemed to be the CEO of the Marketing Partner Company. The Nodal officer of Marketing Partne....
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....oned by the borrower as reference. e. The SMS and Email format to be used by Marketing Partner for addressing Customers by its collection agents be subject to prior-approval the NBFC via email. Penalty Clause- The marketing partner hereby agreed to honour the penalty clause within 7 days from the notice by the NBFC and further marketing partner shall be fully liable for its own non-compliance or misrepresentation of the law. Data Storage & Privacy Protection Marketing Partner shall ensure to keep data server in India, will store borrowers data collected via the digital leading apps in encrypted format and any non-compliance will attract penalty of Rs. 50,00,000 (Rs. Fifty Lakh Only) and further marketing partner and its affiliate shall be solely liable for legal consequences as per the applicable laws. ii. Collection - If in any case, Except for debt recovery, Marketing Partner make any directly/indirectly contact via call/mail/Message to borrowers and his family/relatives or black mail, threat of revealing or publicizing either substantially true or false information about borrower unless certain demands are met by the borrowers or foun....
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....in Schedule 2. 2.5. The Service Provider shall provide statements, and invoices at the end of the last day of the month to NBFC towards the consideration the Service Provider would earn, and the said consideration, if not disputed by the NBFC shall be paid within a period of 10 days from the date of the invoice. The said consideration is subject to and inclusive of the GST under the applicable laws, and tax deduction at source. 2.6. If the Service Provider engages the services of collection agents for recovery of loans extended by the NBFC, it shall do so on behalf of the NBFC. The costs of engaging such collection agents and any other costs in relation to the processing of the loan or in the process of collection of the loan, shall be mutually decided by both the Parties. The Service Provider shall ensure that legal and technical requirements are complied with, while entering into such contracts with the agents and/or engaging them. The Service Provider shall also ensure that the collection agents adhere to applicable laws, judgement and any directions and guidelines issued by the RBI or any other govt agency including but not limited to the RBIs Directions on Ma....
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....efund such amount to the Disbursement Escrow Account of the Service Provider and the Service Provider will refund such amount to the relevant Borrower, once such claim of the Borrower has been resolved/settled by the NBFC. 3.6. The NBFC reserves its right not to extend any loan, advance or credit to any Customer. The NBFC shall have the discretion to charge any Borrower any ROI that the NBFC may specify at its sole discretion, not exceeding the maximum rate pre-scribed under law or under any direction or guidelines prescribed by the RBI. XXXXXX Indemnification and Remedies 7.1. Indemnity: The Service Provider shall indemnify, defend and hold harmless the NBFC, its officers, directors, employees, agents and representatives, from and against any and all claims, liability, damage, loss or expense, loss of business or goodwill, directly arising from any third- party claim arising due to fraud, negli-breach by the contractors of any representation, warranty or undertaking provided by the Ser-vice Provider under this Agreement. 7.2. Security Deposit and Remedies for Default: i. The Service Provider will conduct in depth, accurate and update....
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....reement, refund the un-utilized portion (if any) of the Security Deposit to the Service Provider. The Service Provider may appoint collection support agencies in order to help the NBFC to collect the outstanding loan amount post the due date of any loan, the said collection support agencies, shall get the required authorizations from the NBFC. XXXXX 16. Data Protection. System Security and Compliance 16.1. The Service Provider shall ensure that there are proper encryption and security measures at their respective websites and other software/digital applications to prevent any data security breach pertaining to Customer data or transactions contemplated under this Agreement and shall adhere with all applicable guide-lines. The Service Provider shall ensure that all Customer data and data related to the financial transactions which take place under this Agreement are hosted/stored/maintained in India and is not capable of being accessed outside India without prior de- identification/anonymization. 16.2. The Service Provider will ensure that they comply with the specifications under the Information Technology Act, 2000 and the rules thereunder an....
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....otential qualifying borrower the approval or rejection of his/her/its loan application; 7. arranging execution of the loan agreement(s) between the NBFC and the qualifying Customer(s); 8. monitoring the loans, the credit rating and credit- worthiness of the qualifying Customer; the Service Provider shall regularly monitor the payment schedule for each loan disbursed and track the payment history of each Borrower (and collections in the NBFC's repayment account) and maintain reports of such information for the NBFC. 9. assisting with collections/recovery of principal and interest payments; 10. attending to service requests/product related queries from Customer or Borrowers, and; 11. Other related services as may be mutually agreed between the Parties in writing. B. Customer Identification and Loan Processing 1. The Service Provider shall assist the NBFC Identify prospective Customer for the loans as specified in Schedule 3, based on the eligibility criteria provided by the NBFC that may be revised from time to time. 2. The Service Provider shall seek requisite consents and permissions from the Customer, to c....
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....ndling Customer issues relating to the loans extended, this shall be facilitated by the Service Provider through the Platform. 2. At the NBFC's request, the Service Provider shall, within Fifteen (15) days, pro-vide such information and prepare and submit to the NBFC such other documentation as may be necessary to evaluate the Services performed under this Agreement. SCHEDULE 2 Calculation of Commission A. Commission 1. The NBFC acknowledges that the Service Provider offers all loan products under this arrangement and specified under Schedule 3, to the Customer/Borrower on a subscription fee basis. The NBFC shall charge the ROI to the Service Provider as per the calculation below and deposit the balance after deducting taxes to the Service Provider's account. 2. The Service Provider understands and acknowledges that the ROI charged shall at all times be subject to the ceiling rate Imposed by the RBI, and in no case shall exceed the maximum rate allowed by the RBI. • An upfront fee of INR 3,00,000 will be charged towards technology integration and resource mobilization. • Apart from the above-men....
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....es not go further and one cannot apply for the loan. Details/permissions/documents are taken by the app such as, (i) Name, (ii) Email, (iii) Mobile number, (iv)Mailing address (v) Family details (vi) University/college details; (vii) PAN (vii) Aadhar (ix) Face picture (x) Bank card information (xi) Access to location (xii) Access to contacts stored in mobile (xii) Access to media, photos and files in mobile The companies also state in the agreement that the data can be shared with the third parties for various reasons. 25. The agreement between the NBFC and fintech companies is under a co-lending model wherein, the fintech companies were flush with funds, provide funding to the NBFC under the pretext of 'Performance Guarantee' and the amount is disbursed for loan to the borrowers. The NBFC gets guaranteed revenue in accordance with the service agreement entered into with the fintech companies on revenue sharing basis in the form of service fees ranging from 0.4% to 0.5% on total disbursement through the mobile apps or minimum commitment on monthly basis of the amount sp....
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....g Company (Reserve Bank) Directions, 2016 dated 1.9.2016, RBI has stipulated that the NBFCs shall lay out appropriate internal principles and procedures in determining interest rates and processing and other charges and directed to follow Fair Practices Code in this regard. The effective interest rate of more than 150% per annum cannot be said to come under fair practices. In fact the companies were deeply involved in the commission of crime. 28. The counsel for the appellants made a reference to the guidelines titled as Outsourcing of Financial Services, 2017 issued by the RBI to permit the NBFC to outsource the lending procedure. The relevant paras of the guidelines are reproduced herein: "Relevant Guideline 1: NBFCs are not allowed to outsource core management functions including Internal Audit, Strategic and Compliance functions and decision-making functions such as determining compliance with KYC norms for opening deposit accounts, according sanction for loans and management of investment portfolio. They are only allowed to outsource activities such as financial services include applications processing (loan origination, credit card), document processing, marketing....
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....ed hereunder: "12. It is submitted that appellant is not an accused thus his property could not have been attached in reference to the FIR and ECIR registered against others. Before referring the legal issues, we have given brief background of the case which indicates that appellant is a recipient of the 'proceeds of crime' to the extent of Rs.78,96,700/- directly from the students who have made serious allegations against Pirtpal Singh and Gurinder Singh of M/s Seabird International Pvt. Ltd. for cheating them and extracting money to the tune of Rs.7.56 crores in the name of arranging visa for international study in Australia. The appellant was in possession of the 'proceeds of crime' and in the light of the aforesaid, it was liable to be attached. A reference of Sections 2(1)(u), 3 and 5 of the Act of 2002 would be relevant and are quoted hereunder: "2(1)(u)"proceeds of crime" means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property [or where such property is taken or held outside the country, then the property equivalent in value held within t....
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....y for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed: Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report or complaint has been made or filed under the corresponding law of any other country: Provided further that, notwithstanding anything contained in [first proviso], any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money- laundering is not attached immediately under this Chapter, the non-attachment of the property is likel....