TaxTMI 
TaxTMI 
2026 (7) TMI 1366
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....Prevention of Money Laundering Act, 2002 (PMLA), seeking retention of digital devices, records and continuation of freezing of bank accounts seized during a search conducted on 03.08.2022 at the premises of Shri Sameer Hanuman Mhatre, Director of M/s Zanmai Labs Pvt. Ltd. (popularly known as WazirX), situated at Hotel The Park, Raj Bhavan Road, Hyderabad and continuation of freezing of funds lying in various bank and virtual accounts, and retention of crypto assets held by M/s Flypvolt Technology Pvt. Ltd. (formerly Vauld) and M/s Yellow Tune Technologies Pvt. Ltd., pursuant to search operations conducted on 08.08.2022 and 10.08.2022. 3. The investigation originated from ECIR No. ECIR/HYZO/04/2021 recorded on 18.01.2021 on the basis of several FIRs registered by the Cyber Crime Police Stations of Rachakonda, Cyberabad and Hyderabad in connection with the investigation into the Chinese Instant Loan App case. The FIRs alleged that various instant loan mobile applications were cheating borrowers by charging exorbitant interest rates, excessive processing fees and penalties. It was further alleged that after disbursal of loans, the operators of such applications accessed personal da....
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....olt and had allegedly received substantial funds from various NBFCs and Fintech companies which were under investigation in the instant loan app case. According to the Directorate, Yellow Tune had deposited approximately Rs.5,100 crore on the platform and purchased USDT (Tether) worth approximately Rs.5,082 crore, which was thereafter transferred to multiple external wallet addresses without any corresponding sale transactions. The funds generated through such illegal activities were treated by the ED as proceeds of crime. 8. In order to trace the movement of these funds, the ED summoned Shri Sameer Hanumant Mhatre, Director of M/s Zanmai Labs Pvt. Ltd. and recorded his statements under Section 50 of the Act of 2002 on 02.08.2022 and 03.08.2022. During his examination, the ED scrutinized the role of WazirX, a cryptocurrency exchange platform operated through M/s Zanmai Labs Pvt. Ltd. 9. The statements made by Shri Mhatre revealed that WazirX operated through a complex arrangement involving M/s Zanmai Labs Pvt. Ltd., Zettai Pte Ltd. (Singapore) and Binance entities, which allegedly obscured the ownership and control of the intellectual property and operational structure of the....
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....n passed mechanically, without proper application of mind and in violation of the principles of natural justice. The Learned Adjudicating Authority has merely reproduced selective portions of the Original Application and has proceeded to allow the retention without recording any independent findings or reasons demonstrating how the properties in question constitute "proceeds of crime" as required under Section 8 of the Act of 2002. The retention of the seized digital devices and records and continuation of lien on the appellant's frozen bank accounts maintained with IDBI Bank and IDFC First Bank to the extent of Rs. 64,67,41,053/-. 14. The Counsel for the appellant further submitted that the search and seizure conducted by the respondent was not in accordance with Section 17 of the Act of 2002. The Impugned Order merely notes filing of the reply by the Appellant but neither consider the submissions made therein nor does it provide any reasons as to why the explanations offered by the appellant were unsatisfactory. Such an approach is contrary to the statutory mandate and renders the Impugned Order arbitrary and unreasoned. 15. The Counsel for the appellant further submitt....
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....eipt of purchase orders, the Appellant merely matches buyers and sellers and facilitates execution of trades. According to the counsel of the Appellant, Yellow Tune placed approximately 355 purchase orders aggregating to about Rs.506.25 crore. In fulfilment of those orders, the Appellant delivered approximately 638.32 million USDT to Yellow Tune. The transactions were executed in the ordinary course of business and strictly in accordance with the functioning of the exchange platform. It was submitted that the documentary evidence placed on record clearly demonstrated that the monies deposited by M/s Yellow Tune Technologies Pvt. Ltd. were utilized for the purchase of USDT (Tether) and stood transferred to third-party sellers through various channels, including WazirX, Bitbns and other users of the platform. The transaction records, particularly File No. 4, allegedly established that the funds had moved out of the virtual account maintained with the Appellant and were credited to the accounts of the sellers of USDT. Therefore, the Appellant was not in possession of any portion of the funds deposited by M/s Yellow Tune Technologies Pvt. Ltd.. 19. The Counsel for the appellant furt....
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....proximately one month of commencing transactions, as the respondent had noticed large-value transactions originating from multiple sources and had not received satisfactory explanations regarding the source of such funds. The said entity had transacted on the platform only during the period from December 2020 to January 2021. After purchasing USDT, it withdrew the cryptocurrencies to external wallets and exchanges. Thereafter, the Appellant had no control over the movement or utilization of such crypto assets. 23. Accordingly, the prayer was accordingly made to set-aside the impugned order. Arguments of the Ld. Counsel for the respondent: 24. The Counsel for the respondent contested the appeal on all the grounds raised by the appellant. Elaborate arguments on each issue were made and would be discussed while recording finding to avoid bulkiness of the order by repeating the same facts. Findings of the Tribunal: 25. I have considered the rival submissions made by the Ld. Counsel for the parties and scanned the records carefully. The brief facts pertaining to the case has been given in the opening paras of this order. A number of FIRs were registered in different polic....
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.... the account of M/s Zanmai Labs Pvt. Ltd. The frozen amount has been allowed to be retained by the Adjudicating Authority finding that the proceeds of crime is otherwise of Rs. 86,30,55,528/- as against the aforesaid, the amount to the extent of Rs. 64,67,41,053/- has been frozen. Out of total amount of 86,30,55,528/. approximately Rs. 21,63,14,475/-has been returned by the appellant company. On further scrutiny, the respondent could find that the funds were received by the appellant company from 16 entities and individuals involved in the instant loan applications scam. The appellant was summoned many times to get the information about the entities or individuals used the platform but the appellant said to have remained non-cooperative at times, though, subsequently his statements were recorded. The details of the entities /individuals used the platform for crypto currency was not disclosed as was requested by the Enforcement Directorate. Thus, the amount representing the proceeds of crime has been frozen. On the Original Application under Section 17(4) of the Act of 2002, the Adjudicating Authority allowed the retention of freezed amount and aggrieved by the aforesaid, this appea....
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.... which appellant company cannot have control for onward transfer of the money once it is routed through the platform. The respondent ignored the aforesaid despite clarification given on freezing of the bank accounts which does not represent the proceeds of crime. In fact, the appellant himself volunteer with information that out of the total amount frozen by the respondent, a sum of Rs. 92,99,570/-can be continued under it but there remains no justification to continue the freezing of the remaining amount and accordingly the prayer was made to cause interference in the impugned order. 32. The argument aforesaid would be considered but before that I may, refer to the effort of the respondent to cause summons to the appellant to get required details about the transactions and to reach to the entities which transferred the money after involving them in crime where the innocent persons were cheated in the name of instant loan through mobile applications. The appellant said to be non-cooperative, though, perusal of the appeal shows that a proper opportunity for it was not given. The appellant has further made an allegation that the impugned order has been passed without a detailed re....
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....n 3 of the Act of 2002 is made for concealment and transfer of the crime money. In any case, I find that the impugned order passed by the Adjudicating Authority does not deal with any of the issue which has been taken by the appellant in detail while filing the appeal and it is not only the process involving conversion of INR to Cryptocurrencies and its transfer but how the platform is used and to what extent the appellant company was having a command on it. 36. In view of the above, I find it to be a fit case to remand the matter back to the Adjudicating Authority to decide the case afresh after dealing with the issues taken up by the both the parties. The appellant would be at the liberty to share the information to the extent it is available because even after freezing of the huge amount of Rs. 64,67,41,053/- nobody other than the appellant has come forward to make a claim. It is more so when the appellant is said to be providing platform for exchange of INR to Cryptocurrencies and thereby, they are into the trading with margin of profit. However, I would not make comment on the aforesaid as the matter is remanded back to the Adjudicating Authority. 37. Accordingly, I caus....
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....etailed examination on facts as well as law. The Adjudicating Authority, while allowing the Original Application, has not recorded any specific finding regarding the ownership of the crypto assets lying in the pool wallets, the extent of control exercised by the appellant over such assets, the nature of the relationship between the appellant and the account holder, or the nexus between the frozen assets and the alleged proceeds of crime. Equally, there is no discussion as to whether the assets sought to be retained represent identifiable proceeds of crime or whether they belong to third parties who are not alleged to be connected with the scheduled offence. I find that serious issues have been raised by the appellant regarding the ownership and nature of the crypto assets lying in the pool wallets, the extent of control exercised by the appellant over such assets, the existence of any nexus between the frozen assets and the alleged proceeds of crime and the appellant's knowledge, if any, regarding the alleged tainted transactions. The appellant has further questioned the validity of the action taken under Section 17 of the Act of 2002 and has contended that no material has been....