TaxTMI 
TaxTMI 
2026 (3) TMI 919
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....r/respondent. 3. The learned Additional Solicitor General of India (ASGI) appearing for the appellant - Authority submits that the bank accounts of the respondent - Zo Private Limited have been frozen under Section 17(1A) of the Prevention of Money Laundering Act, 2002 ('PMLA' for short) by an Order dated 30.12.2025. It is submitted that the learned Single Judge refused to interfere in the Order freezing the accounts and the writ petition was disposed of with liberty to Zo Private Limited to contest the proceedings before the Adjudicating Authority against the continuance of the freeze of its account. However, Zo Private Limited was permitted to file a list of employees to whom salaries have to be paid for the month of January, 2026 and the appellant was directed to verify the list and communicate to the Bank, forthwith, to enable Zo Private Limited to pay salaries to the employees for the month of January, 2026. It is further submitted that the scope of proceedings under the PMLA is such that any adjudication as to whether an Order under Sections 5 or 17 of the PMLA is required to be continued is subject to an adjudication before the Adjudicating Authority as provided u....
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....Order of freezing beyond 180 days before the Adjudicating Authority and directed the respondents to pay the salaries of its employees. Aggrieved by the Order directing the payment of salaries which form part of the alleged proceeds of crime, the appellant is in appeal. 7. It is submitted that it is only in specific circumstances where the Director or other officer not below the rank of Deputy Director, authorized by the Director, has reason to believe, on the basis of material in his possession, that any person has committed any act, which constitutes money laundering or is in possession of any proceeds of crime involved in money laundering or is in possession of any records relating to money laundering or is in possession of any property related to a crime that a search and seizure can be carried out. It is submitted that where an attachment of property under Section 5 of the PMLA is carried out and where a search and seizure is made and where it is not practicable to seize such record or property, the Authorized Officer may make an Order to freeze such property. Whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the off....
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....f crime to the amount which was involved in the offence alleged against the parent entity - Winzo Games Private Limited, alone, is completely unsustainable. 12. Further, it is contended that the question whether the property frozen amounts to proceeds of crime or not, is the specific issue which has been relegated for an adjudication by the learned Single Judge to the Adjudicating Authority. It is submitted that in the interregnum, requiring the payment of salaries to the staff of the respondent - Zo Private Limited and its parent entity- Winzo Games Private Limited from the amount which stand frozen was completely unwarranted and unreasonable. 13. The learned ASGI would also place reliance on the following decisions:- • R.D.Chaitra v. Directorate of enforcement, by order dated 15.10.2025, passed in W.P.No.26754/2025 (GM-RES); • M/s.Kumar Food Industries Ltd. v. Union of India & Ors. by order dated 10.03.2022, passed in W.P.(C) 12033/2021 & CM. No.37418/2021 and 40579/2021; • Satyendar Kumar Jain Vs. Directorate of Enforcement, reported in MANU/SC/0209/2024; and • JSW Steel Limited others v. Deputy Director, Directorate of E....
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.... involve an amount of approximately Rs.40 to 50 Lakhs. Therefore, it is contended that no order freezing an amount of Rs.193 Crores could have been passed. 17. It is further contended that the Enforcement Directorate cannot travel beyond the scope of the predicate offence in view of Section 2(1)(u) of the PMLA and the law laid down by the Apex Court in the cases of Vijay Madanlal Choudhary and Others v. Union of India and others, reported in (2023) 12 SCC 1 and M/s. Rashmi Metaliks Ltd. and Another v. Enforcement Directorate, order dated 10.08.2022 passed in W.P.A 17454/2022. 18. It is further contended that the allegation that proceeds of crime amount to more than Rs. 3,500 Crores, is false. In this regard, reliance is placed on the Bail Order of Shri. Paavan Nanda - Director of Winzo Games Private Limited, dated 02.02.2026, wherein the Sessions Court observed that at the stage of consideration of bail, no clear-cut materials were placed by the appellant herein, to show exactly how they arrived at the figure of Rs.3,522 Crores. Reliance is also placed on the loans transferred for legitimate business requirements of Zo Private Limited by Winzo Games Private Limited through re....
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....can, by no stretch of imagination, be categorized as 'proceeds of crime' in a case where the only surviving FIR lodged in Gurugram is with regard to a cheating complaint involving Rs.42 Lakhs. There is no contention whatsoever that the said amount of Rs.42 Lakhs has been utilised by the respondent - Zo Private Limited or by its parent entity - Winzo Games Private Limited to arrive at the substantial amounts which are in the bank accounts of the respondent - Zo Private Limited, which now stand frozen. It is further contended that it is only if there is any new material which comes to the notice of the Authorized Officer in the search and seizure that an order of freezing of accounts could have been passed at this juncture. 22. The learned senior counsel appearing for the respondent has placed reliance on the following decisions:- * Vijay Madanlal Choudhary and others v. Union of India and others, reported in (2023) 12 Supreme Court Cases 1; * Dr. Natesha. D.B v. Directorate of Enforcement, by order dated 27.01.2025, passed in W.P. No. 32956/2024 (GM-RES); * R.K.M Powergen Private Limited, v. Assistant Director, Directorate of Enforcement, Govt. ....
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....operty shall be guilty of offence of money-laundering." 24. Section 5 of the PMLA provides for provisional attachment of property believed to be proceeds of crime. Once an order of attachment is passed, the copy of the order along with the material in possession of the Authorized Officer shall be forwarded in a sealed cover to the Adjudicating Authority, who shall keep such order and the material for such period as may be prescribed. 25. Section 5(3) of the PMLA provides that every order of attachment shall cease to have effect after the period of 180 days or when an order is passed by the Adjudicating Authority under Sections 83 or 86 of PMLA as the case may be, whichever is earlier. 26. Section 11 of the PMLA provides the power regarding summons, production of documents and evidence. Section 16 of the PMLA provides a power of survey, while Section 17 of the PMLA provides for search and seizure. Section 17 of the PMLA reads as follows: "17. Search and seizure.- (1) Where [the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section,] on the basis of information in his possession, has reason to believe ....
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....such reasons and material for such period, as may be prescribed. (3) Where an authority, upon information obtained during survey under section 16, is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in writing, enter and search the building or place where such evidence is located and seize that evidence: Provided that no authorisation referred to in sub-section (1) shall be required for search under this sub-section. [(4) The authority seizing any record or property under sub-section (1) or freezing any record or property under sub-section (1A) shall, within a period of thirty days from such seizure or freezing, as the case may be, file an application, requesting for retention of such record or property seized under sub-section (1) or for continuation of the order of freezing served under sub-section (1A), before the Adjudicating Authority.]" 27. Section 20 of PMLA provides that where any property has been seized under Section 17 or frozen under sub-section (1A) of Section 17, and the Authorized Officer has reason to believe that such property is required to be retained for the purpo....
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....sult of criminal activity concerning the scheduled offence, the same be regarded as proceeds of crime. In other words, property in whatever form mentioned in Section 2(1)(v), is or can be linked to criminal activity relating to or relatable to scheduled offence, must be regarded as proceeds of crime for the purpose of the 2002 Act. It must follow that the Explanation inserted in 2019 is merely clarificatory and restatement of the position emerging from the principal provision [i.e. Section 2(1)(u)]. 106. The "proceeds of crime" being the core of the ingredients constituting the offence of money laundering, that expression needs to be construed strictly. In that, all properties recovered or attached by the investigating agency in connection with the criminal activity relating to a scheduled offence under the general law cannot be regarded as proceeds of crime. There may be cases where the property involved in the commission of scheduled offence attached by the investigating agency dealing with that offence, cannot be wholly or partly regarded as proceeds of crime within the meaning of Section 2(1)(u) of the 2002 Act - so long as the whole or some portion of the property has....
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....person or person claiming through him in relation to the property linked to the stated scheduled offence. This interpretation alone can be countenanced on the basis of the provisions of the 2002 Act, in particular Section 2(1)(u) read with Section 3. Taking any other view would be rewriting of these provisions and disregarding the express language of the definition clause "proceeds of crime", as it obtains as of now." Further, the Apex Court clearly held as follows:- "170. Be it noted that the attachment must be only in respect of property which appears to be proceeds of crime and not all the properties belonging to the person concerned who would eventually face the action of confiscation of proceeds of crime, including prosecution for offence of money laundering. As mentioned earlier, the relevant date for initiating action under the 2002 Act-be it of attachment and confiscation or prosecution, is linked to the inclusion of the offence as scheduled offence and of carrying on the process or activity in connection with the proceeds of crime after such date. The pivot moves around the date of carrying on the process and activity connected with the proceeds of crime; and n....
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....cquitted of the scheduled offence or the criminal case against him is quashed by the court of competent jurisdiction, there can be no offence of money laundering against him or any one claiming such property being the property linked to stated scheduled offence through him." 30. In the instant case, it is an admitted fact that an FIR has been registered against Winzo Games Private Limited, which is admittedly the parent entity of the respondent herein. As a matter of fact, there were four FIRs registered earlier which according to the respondent have ended either in quashing or closure of the FIRs. Be that as it may, as on today, there is an FIR registered by the Cyber Crime Police Station, Gurugram, where a specific allegation of cheating has been made as against the parent entity. 31. It is also not in dispute that cheating is a scheduled offence. Therefore, the ECIR, registered by the appellant - Authority as well as the Prosecution Complaint cannot be said to be without authority of law, since there is a predicate offence in existence, as on today, to justify the registration of an ECIR and a Prosecution Complaint. 32. It is also clear that the procedure under the PMLA....
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....ndent. The predicate offence being one involving Rs.42 Lakhs and having been registered with reference to an incident which occurred on 20.09.2024, the contention of the learned ASGI that the entire amount in the possession of the respondent - Zo Private Limited as well as its parent entity - Winzo Games Private Limited represents proceeds of crime cannot be accepted. Further, it is admitted before us today that the Adjudicating Authority under Section 8 of the PMLA has no power to issue any interim directions or to make any payments from the amounts which are frozen under Section 17(1A) of the PMLA. 37. The Apex Court, in the case of OPTO Circuit India Ltd. v. Axis Bank and others by Order dated 03.02.2021 passed in Crl.A.No.102/2021, had considered the question as to when an order of freeze of accounts can be carried out and it held as follows:- "9. A perusal of the above provision would indicate that the prerequisite is that the Director or such other Authorised Officer in order to exercise the power under Section 17 of PMLA, should on the basis of information in his possession, have reason to believe that such person has committed acts relating to money laundering a....
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....s made is complied. There is no other material placed before the Court to indicate compliance of Section 17 of PMLA, more particularly recording the belief of commission of the act of money laundering and placing it before the Adjudicating Authority or for filing application after securing the freezing of the account to be made. In that view, the freezing or the continuation thereof is without due compliance of the legal requirement and, therefore, not sustainable. x x x x x 16. Apart from the above consideration, what has also engaged the attention of this Court is with regard to the plea put forth on behalf of the appellant regarding the need to defreeze the account to enable the appellant to pay the statutory dues. The appellant in that regard has relied on the certificate issued by the Chartered Accountant, (Annexure-P/38 at page 231) which indicates the amount payable towards ITDS, PF, ESI, Professional Tax, Gratuity and LIC employees' deductions, in all amounting to Rs. 79,93,124/-. Since we have indicated that the freezing has been done without due compliance of law, it is necessary to direct the respondents No.1 to 3 to defreeze the respective accounts and....