TaxTMI 
TaxTMI 
2026 (5) TMI 646
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.... certain accused persons were arrested from the office of Jiya Liang Infotech Pvt. Ltd., Pune, which was functioning as a recovery call centre for various instant loan apps. It was found that the company had entered into arrangements with several other entities for providing tele-calling and recovery services in relation to unsecured personal loans sanctioned through mobile applications. 3. The appellant NBFC, along with multiple fintech companies operating through mobile loan applications, adopted a structured and deceptive lending model designed to lure financially vulnerable borrowers into a recurring debt trap. These mobile applications targeted individuals in urgent need of money by offering instant small-ticket loans with minimal documentation, fast approval, and quick digital disbursal. The ease of access and promise of immediate funds particularly attracted underbanked, low-income, and financially distressed persons who lacked access to formal banking channels. Once the borrower downloaded the application, extensive permissions were compulsorily obtained, including access to contacts, photographs, media files, location, identity documents, bank details, and other persona....
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....derabad and Pune were operating several call centres employing a large number of tele-callers for recovery of dues relating to these loan apps. A substantial number of mobile applications were identified as being involved in the business of instant personal lending without valid licences or regulatory approvals. 6. The modus operandi disclosed that small short-term loans were sanctioned digitally with minimal verification, while substantial amounts were deducted upfront as processing fees, GST and other charges. Thereafter, exorbitant rates of interest, penalties and further charges were imposed upon borrowers. At the time of availing loans, the applications accessed personal data, photographs and contact lists of borrowers. Upon default or delay, tele-callers allegedly resorted to abusive calls, threats, humiliation, circulation of messages to relatives and friends, and fake legal notices in order to force recovery. Borrowers were also induced to repay existing loans by taking fresh loans through other applications, thereby trapping them in a recurring debt cycle. 7. During investigation under the Prevention of Money Laundering Act, 2002, the Enforcement Directorate examined....
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....to connect the said funds with the offence of money laundering. 11. The learned counsel further submitted that appellant had entered into Memorandum of Understanding with several fintech companies only after conducting necessary due diligence. According to the appellant, checks relating to blacklist/negative list screening, Anti-Money Laundering compliance, FATF norms, PAN verification, GST registration, and ROC compliance were duly carried out. It is also stated that foreign remittances or funds received by fintech entities were processed strictly in accordance with the provisions of the law and were verified by their respective banks. 12. The role of the appellant company in the lending process was active and supervisory and not merely nominal. The appellant submits that it engaged fintech partners for customer acquisition, onboarding, collection of data and KYC formalities, while the appellant itself functioned as the "checker" in the lending ecosystem. It is stated that before sanction of loans, the appellant conducted bureau checks such as CIBIL, Experian and CRIF reports, PAN verification, Aadhaar XML validation, penny-drop verification of bank accounts, and e-sign auth....
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....rowers were ordinary users of such applications and were not aware of the identity of the NBFCs or fintech entities operating behind those platforms. Consequently, the names of the concerned NBFCs and fintech associates were not specifically mentioned in the FIRs at the initial stage. 18. However, upon examination of the material collected during investigation, it is revealed that as many as 29 mobile applications were being operated in connection with Kudos Finance and Investments Pvt. Ltd. and its fintech associates. After the investigation two charge sheets were filed in Crime Nos. 2465/2020 and 2466/2020 by the predicate offence agency. The charge sheets referred to mobile applications linked with the appellant and its fintech partners as being involved in the alleged offences. The role of the appellant company revealed in the investigation conducted by the respondents under the Act of 2002. 19. It revealed two categories of offenders i.e., Non-Banking Financial Institution (NBFCs) and Fintech companies (Service Provider Company). The present case showcases a business model wherein various fintech companies entered into MOU with Indian NBFCs. These companies deposited the....
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....ar 2010. However, there was no significant business activity till the year 2019. From January, 2019 onwards, the company entered into tie-ups with various digital lending applications, whereafter there was an immediate and exponential rise in loan volume, coupled with a huge and unusual increase in revenue. The appellant company was not undertaking digital lending directly. 22. The net owned funds (NOF) of appellant remained only in the range of Rs. 3.6 Crore to Rs. 10.15 Crore. Despite such limited capital base, the loan exposure shown in the name of the appellant NBFC had risen to hundreds of crores. This became possible through acceptance of so-called "performance guarantees" from its fintech partner companies. It is revealed that almost the entire loan portfolio, amounting to around Rs. 2,224 Crores, disbursed under the name of Kudos, was actually financed by fintech companies engaged in the business of instant personal loans. These deposits received in the guise of performance guarantees were prima facie not in conformity with the applicable guidelines of the Reserve Bank of India. 23. Reference has been made to RBI Press Release No. 2015-2016/2935 dated 17.06.2016, wher....
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....ired a de facto lending licence. On the other hand, these apps were engaged in a high-risk, high-return lending model by granting instant micro loans to thousands of customers on minimal KYC and largely online verification. At the stage of sanction itself, nearly 25% of the sanctioned amount was deducted as 'Processing Fee'. On the remaining amount, heavy interest, penalties and other charges were imposed. At the time of loan sanction, such apps illegally captured substantial social media data of customers as well as their phone contact data. The Fintech company employed call centres which were notorious for aggressively pursuing recoveries through calls, online messages, harassment of borrowers and even their relatives. The loans granted through such apps were generally of very small amounts and for extremely short durations, often as low as 7 days, and in most cases ranging between 7 to 14 days. Further, substantial platform charges or processing fees were deducted from the sanctioned amount before disbursal. In certain cases, the deduction was as high as 25% of the sanctioned amount. For instance, where a loan of Rs. 10,000/- was sanctioned, only Rs. 7,500/- would be transferred....
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....e a circular permitted NBFCs to outsource certain activities subject to compliance with the prescribed guidelines. However, taking advantage of the same, Kudos Finance and Investments Pvt. Ltd., under the guise of engaging fintech companies as service providers, allegedly outsourced not merely ancillary functions but its core lending business itself, contrary to the applicable Master Directions. It ultimately resulted in commission of crime. 29. The appellant exercised no effective control over the lending operations. The entire loan disbursal process was taking place without meaningful control or intervention by appellant despite its obligation and not allow other party to take over NBFC indirectly. 30. The entire money lending structure, including arrangement of funds, sanction of loans, deduction of excessive processing fees upfront, charging of exorbitant interest, levy of penalties and coercive recovery practices was being executed by the fintech companies. It had given rise to the commission of offence at the instant of the appellant. The fintech entities which were limitlessly misusing the authorisation of NBFCs for money lending were being operated from China, where d....
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....to the Services, in Schedule 1, including borrower identification and loan processing, shall be as specified under Schedule 1. 2.4. The NBFC shall pay the consideration to the Service Provider for the Services as detailed out above and for customers not rejected by the NBFC. The Services shall be calculated as a Monthly Payments which are detailed out in Schedule 2. 2.5. The Service Provider shall provide statements, and invoices within 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 ....
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.... 3.3. The Service Provider shall ensure that all amounts paid by a Borrower are de posited only in the Repayment Account. 3.4. The Service Provider shall promptly within 48 hours notify the NBFC in writing of any event which may result in or which may give reason to believe that there may be a work stoppage or other impediments or disruptions in the due performance of the obligations of the Service Provider under this Agreement. 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 ....
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.... 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 conduct a background verification of such Customer and share details of such Customer with the NBFC. The NBFC shall 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 accorda....
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....companies. The agreement has on one hand provided that debt recovery agents shall be appointed and would not engage in threatening or abusing the borrowers, however at the same time, the penalty clause in the agreement gives a free hand to threaten the borrowers for debt recovery which is the modus to defraud the borrowers. 34. The service 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 an agreement with various NBFCs and one NBFCs may have an 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, da....
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....iness activity of lending, in violation of the master directions of RBI and remain to cause for commission of the offence. 37. 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 appellant took advantage of their situation and made them subject to the harassment/ blackmailing/extortion/ abuse etc through the tele callers by misusing their personal data with the sole intention of recovery of exorbitant interest rates and processing charges. The Reserve Bank of India, who is the regulator of working of NBFCs in India, has not prescribed any upper cap on the interest rate to be charged by the NBFCs from the borrowers, however, vide clause 37 of the Master Direction Non-Banking Financial Company Systemically Important Non-Deposit taking Company and Deposit taking 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. In certain cases, the deduction was ....
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....greement 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]" 39. A bare perusal of the guidelines referred by the appellant 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. Ihave already discussed the scope of work stipulated into the agreements placed before us and it is wide enough to cover the core activities of NBFCs which could not have been outsourced by it. It was informed by the counsel for the respondent that 64 cases of suicides have been reported due to the business model undertaken by the appellant and....
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....g. 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 person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:-- (a) concealment; or (b) possession; or (c) acquisition; or (d) use; or (e) projecting as untainted property; or (f) claiming as untainted property, in any manner whatsoever; (ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisi....
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....r 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. (3) Every order of attachment made under sub-section (1) shall cease to have effect after the expiry of the period specified in that subsection or on the date of an order made under 4[sub section (3)] of section 8, whichever is earlier. (4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under subsection (1) from such enjoyment. Explanation.--For the purposes of this sub-section, "person interested", in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property. (5) The Director or any other officer who provisionally attaches any property under sub-section (1) shall, within a period of thirty days from such attachment, file a complaint s....
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....estigation under the Prevention of Money Laundering Act, 2002 is distinct and independent from the investigation undertaken by the predicate office agency. Once scheduled offences under Sections 417, 419 and 420 of the Indian Penal Code were disclosed in the FIRs, the Directorate of Enforcement was competent to record the ECIR and proceed with investigation under the PMLA. During such investigation, it came to light that several NBFCs had allegedly permitted their licences to be used by fintech companies for conducting short-term digital lending operations which were accompanied by unlawful recovery practices. 42. The Tribunal also notes the allegation that the appellant had entered into arrangements with 39 fintech companies engaged in instant personal loan business through various mobile applications. In substance, these fintech entities were allegedly utilising the NBFC licence of the appellant to carry on lending operations digitally. It has been brought on record that substantial amounts were deducted upfront as processing fees even before disbursal of loans, and thereafter additional sums were recovered in the form of interest, penalties and charges. Prima facie, these col....