AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 718
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....the appellants companies before us and accordingly, we would be dealing with the issues raised by it. 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 2000. It is on the complaints that the appellants are charging exorbitant interest along with high processing fee and GST charges on the loans availed by the complainants. One Jiya Liang Infotech Pvt. Ltd. made agreements with companies namely Bienance Infrastructure Technology, Ajaya Solutions Private Limited and Taelde Technology Private Limited providing tele-caller services for recovery of loan dues. Those companies were doing online instant loan lending business. It sanctioned personal unsecured loans to the borrowers through digital apps and provided customer data to M/s Jiya Lian Infotech Pvt. Ltd. The said company was calling the borrowers and threatening them to repay the loan on higher rate of int....
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....h 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 Pawan Finvest Pvt. Ltd. NBFC Uu Cash Technologies Pvt. Ltd. Fintech Company M/s BCL Enterprises Ltd. NBFC M/s Care India Finvest Ltd. NBFC Arguments of the counsel for the appellants: 8. The learned counsel for the appellant NBFCs submitted that the mobile apps were managed by third party service providers. The prospective borrowers downloaded and installed the apps and enter their requirements for loan along with identification documents. The process was undertaken with consent of the borrowers and the sanction letter issued after acceptance of the request for loan included all the essential details such as interest rate, loan tenure, processing fees, other charges, terms and conditions etc. 9. The appellant NBFCs submitted that fintech companies were responsible for digitalizing ....
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.... agreement to show independent contractor relationship between the NBFCs and fintech companies. 14. 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. 15. 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 NBFCs and violation of the RBI guidelines. 16. The counsel for the appellant fintech company in appeal no. 7144/HYD/2023 has argued that the recovery for loan was not outsourced to a call center and it was done by a pop-up notification in the loan application itself. It further referred to allegations in FIR No. 1136/2020 and 2457/2020 and argued that the respondent could not draw any nexus to the appellant fintech or its associated NBFCs with the allegations in the FIR. 17. The appellants did not argue any other issue despite opportunity given to them and pray....
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....anctioned within the duration of 7 days to 14 days. 21. At the time of loan, they captured the mobile data of the customers and their phone contact data. They employed call centers who were notorious in chasing online and through threat calls to the customers and their relatives to recover the micro loans with high interest. The appellants by way of commission of the scheduled offences has generated proceeds of crime collected by cheating and extorting the borrowers by misusing the personal data and images and threatening them with abusive language and obscene messages amounting to Rs. 8,19,61,25,594/- and the respondent in PAO No. 16/2022 has attached property amounting to Rs. 1,05,32,91,868/- which were lying in the account held in their name with the banks. The NBFCS s have received share profit of around 0.5 to 1% of the total loan amount disbursed without spending any amount. The impugned order was passed against many NBFCs and fintech companies however, we will only be dealing with the attachment in the name of the appellants before us. 22. The modus operandi of this fraud reflects that multiple mobile applications were involved in sanctioning instant micro loans and th....
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....n 7 days after the end of the last day of the month to NBFC towards the consideration the Ser vice 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. 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, judgements and any directions and guidelines issued by the RBI or any other govt agency including but not limited to the RBIs Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services by NBFCs. Additionally, the Service Provider shall ensure that the collection agents appointed by the Service Provider do n....
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.... 3.5. In the event any excess payment is made by the Borrower to the NBFC through the Repayment Account or any other refund is due to the Borrower, the NBFC shall refund such amount to the Disbursement Escrow Account 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 prescribed under law or under any direction or guidelines prescribed by the RBI. 3.7. Service provider ensure that under no circumstances the amount payable by the customer towards interest, penal interest, processing charges will exceed 100% of the loan amount originally advanced to the customer. SCHEDULE 1 SCOPE OF SERVICES A. Services The Service Provider shall provide the following Services subject to and in accordance with the terms and conditions contained in this Agreement: 1. marketing and creating visibility of the credi....
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....l be responsible to keep the information of the Customer/Borrower as confidential. The NBFC Indemnifies the Service Provider and agrees that Service Provider shall not be liable for any dis- closure by the NBFC to any third parties or any claim from the Customer/Borrowers or its representatives, if such disclosure is not attributable to the Service Provider. 3. Subject to Clause A, the Service Provider shall provide the NBFC with details of the Customer it has identified, along with the Customer background check data and credit reports generated by the Service Provider in order for the NBFC to evaluate the eligibility of the Customer to avail of loans. 4. All final credit decisions shall be taken solely by the NBFC in accordance with its internal risk assessment standards and policies. The NBFC shall finally under-write and issue loans at its discretion. The NBFC shall be at liberty to reject any Customer Identified by the Service Provider if the NBFC is of the reasonable opinion that the credit profile of such Customer does not match its Internal credit and risk policy. In the event the NBFC rejects any prospective Customer, upon the Service Provider's reques....
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....reement which is reproduced above. The agreement showcases a free hand to the fintech companies to operate in the lending business which is a core-activity of the NBFCs and in return, NBFCs received return on revenue sharing basis. It is case where one fintech company may have entered into agreement with various NBFCs and one NBFCs may have a agreement with more than one Fintech company. The particular Fintech company run different mobile Apps for same NBFCs. The scope of work on the part of Fintech Companies included to create, maintain and run the App to provide digital lending platform, marketing activities and promotion of business, taking application for loans from borrowers through online mode, collection of KYC documents and track the outstanding loans and making recoveries thereof. By way of the loan lending app which was in complete control of the fintech companies, data of the borrowers was captured. When the app is downloaded by the customer, he/she is prompted to give various permissions. Without giving the permission, the app does not go further and one cannot apply for the loan. Details/permissions/documents are taken by the app such as, (i) Name, (i....
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.... even of 7 days. In maximum cases, the period of loan ranges from 7 to 14 days. The lending mobile app deducts platform charge or processing fee out of the disbursed amount to the borrower which is as high as 30-40% of the amount sanctioned to the borrower. For example, if loan of Rs. 5000 is sanctioned to some person, actual amount of Rs. 3500 is transferred to his bank account after deducting Rs. 1500 as platform fees. The interest rate generally remains 36% per annum. However, due to processing fees, the effective rate of interest comes between 1500% to more than 2000% per annum. The main source of revenue in this model, is the processing charges which is dependent upon rotation funds. If the recovery is quick and higher, then the same amount can be rotated 4 times in a month and processing fee can be charged four times on the same amount. 30. The Fintech Companies provided facilities to avail loan with minimum requirements and not merely a software, thus luring the borrowers who are in dire need of funds. The appellants took advantage of their situation and made them subject to the harassment/ blackmailing/extortion/ abuse etc through the tele- callers by misusing their pers....
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....igence and management of risks associated with all the outsourced activities. The NBFCs should retain the ultimate control of the outsourced activity, (Para 4 of the Outsourcing of Financial Services Directions) Relevant Guideline 3: The outsourcing agreement shall be flexible to allow NBFCs to retain an appropriate level of control over the outsourcing and the right to intervene with appropriate measures to meet legal and regulatory obligations. In the outsourcing agreement, the NBFCs shall ensure that they have the ability to access all books, record, and information relevant to the outsourced activity and rights to conduct audits on the service providers. The agreement should also include termination clause and controls to ensure customer data confidentiality. [Para 5.5 of the Outsourcing of Financial Services Directions]" 32. A bare perusal of the guidelines referred by the appellants would show that core management functions would not be outsourced like determining compliance of the KYC norms, for opening deposit accounts, sanction for loans and management of investment portfolio. We have already discussed the scope of work stipulated into the agreements placed bef....
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.... 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 the country or abroad]; Explanation. For the removal of doubts, it is hereby clarified that "proceeds of crime" include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence;] 3. Offence of money-laundering. Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the 1[proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering. [Explanation.--For the removal of doubts, it is hereby clarified that,-- (i) a pers....
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.... 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 likely to frustrate any proceeding under this Act.] Provided also that for the purposes of computing the period of one hundred and eighty days, the period during which the proceedings under this section is stayed by the High Court, shall be excluded and a further period not exceeding thirty days from the date of order of vacation of such stay order shall be counted.]; (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub- section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed. ....