TaxTMI 
TaxTMI 
2026 (9) TMI 352
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....Application (O.A.) No. 750 of 2022. Backdrop: 2) The Appellant is a company incorporated under the Companies Act providing technology-enabled services for monetization and sale of digital content. It operates, inter alia, through the brands 'Codashop' and 'Codapay' and has arrangements with various payment channels and payment aggregators. 3) According to the Appellant, it provides a platform through which digital-content publishers and gaming companies can receive payments through recognized payment channels. The Appellant's case is that, payments are processed through payment aggregators such as Paytm, MobiKwik, Freecharge, LazyPay and other payment channels and that the actual authentication of transactions is carried out by the relevant payment channel. 4) The record discloses that, the Appellant's Indian business commenced in or about 2018 and it is a wholly owned subsidiary of Coda Payments Pte. Ltd., Singapore. The Respondent No.1, Enforcement Directorate (E.D.), however, alleged that the Indian company was functioning as a conduit for collection of monies from Indian users and remittance of the monies outside India. 5) The proceedings commenced upon r....
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....its that, Section 8(2) of P.M.L.A is couched in mandatory terms and the Adjudicating Authority failed to record an independent, reasoned finding under Section 8(2) of P.M.L.A as to whether the attached properties constitute 'proceeds of crime'. The Adjudicating Authority merely observed that, the material in O.A was sufficient to arrive at satisfaction that continuation of the freezing/retention was required for the purposes of adjudication. 12.1) He further submits that, Appellate Tribunal travelled beyond the permissible scope of appellate adjudication when it recorded that, the Appellant had collected Rs. 2,850 crore and remitted Rs.2,320 crore outside India and treated those figures as sufficient to conclude that the seized property was involved in money laundering. He further submits that, mere fact that, the Appellant's business generated substantial turnover or that monies were remitted abroad cannot, without identification of the property constituting proceeds of crime, justify freezing the entire banking and payment infrastructure of the Appellant. 12.2) It was also contended that, the Appellant was merely an intermediary/payment service provider, that transactio....
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....-operated with the investigation and that the Indian resident Director had stated that he was concerned primarily with secretarial matters, while the persons responsible for the financial and administrative affairs were located outside India. 13.6) He submits that, alleged modus operandi, the relationship between the Indian and Singapore entities, the payment gateway arrangements and the foreign remittances constitute sufficient material to establish, at least prima facie, a nexus between the Appellant and the alleged proceeds of crime. 13.7) He further submits that, the Adjudicating Authority had recorded that the material placed before it was sufficient to justify continuation of the freezing/retention and that the Appellate Tribunal correctly understood the substance of the finding. 13.8) As regards Section 8(2) of the P.M.L.A, Dr. Pawaskar submits that the Adjudicating Authority had recorded that the material placed before it was sufficient to justify continuation of the freezing/retention and that the Appellate Tribunal correctly understood the substance of the finding. 14) The E.D relied upon the reasoning of the Appellate Tribunal that the Adjudicating Authority ....
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....18) In our view, the Appellate Tribunal ought to have dealt with the issue and recorded its finding thereon with appropriate evidence, if any, to substantiate that the composition of the bench of solely the Chairperson was in accordance with law. It could not have simply disregarded the objection raised by the Appellant. 19) A bare perusal of the impugned Order of the Appellate Tribunal indicates that, the specific plea of lack of jurisdiction has been entirely disregarded. In our view, the disregard of the mandate under the Act, renders the Order of the Adjudicating Authority dated 15th March, 2023 ipso facto a nullity. 20) Even otherwise, and without being detained further by the contention of coram non judice, we proceed to consider the case on merits. The P.M.L.A undoubtedly confers extensive powers upon the E.D. However, those powers are circumscribed by statutory safeguards. The fact that the legislation concerns economic offences does not dilute the requirement of compliance with the express provisions of the statute. 21) Section 8 of the P.M.L.A deals with "Adjudication". The relevant part is reproduced hereinbelow for ready reference: "8. Adjudication.- (....
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....ing the statutory finding that the property is involved in money laundering. 23) Although in the Order dated 15th March, 2023, the Adjudicating Authority records the allegations of the E.D regarding the gaming platform, the alleged unauthorized deductions, the Appellant's corporate structure, foreign remittances and the alleged non-cooperation of persons associated with the company, in its conclusion, the Authority merely states that the material shown in the O.A is sufficient to arrive at satisfaction that retention/continuation of the bank accounts and payment aggregator/payment gateways is required for the purpose of adjudication under Section 8 of the P.M.L.A. The Order however does not separately identify the property or properties which, upon consideration of the Appellant's reply and the material on record, are found to be involved in money laundering, nor does the Adjudicating Authority explain the nexus between the monies frozen and the alleged criminal activity. 24) The distinction is material. A bank account belonging to a person under investigation is not, by that fact alone, 'proceeds of crime'. Likewise, the turnover of a company is not, merely because i....
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....nal reasons in support of an existing conclusion. It is the very finding which the statue requires the Adjudicating Authority to record. Once the Appellate Tribunal found that such finding had not been recorded, the proper course was to interfere with the order rather than retrospectively supply the missing statutory determination. 31) This principle is reinforced by the settled law that, when a statutory authority is required to exercise its discretion upon relevant considerations and record its reasons, the validity of its order must ordinarily be tested against the reasons contained in that order. 32) The other settled principle of law is that an order passed by a statutory authority must stand or fall on the reasons contained therein. The Appellate Authority cannot subsequently supplement the reasons stated in the impugned Order by permitting filing of an Affidavit or by advancing additional grounds before the Court. This principle has been authoritatively laid down by the Constitution Bench in Mohinder Singh Gill & Anr. v. Chief Election Commissioner, New Delhi & Ors., (1978) 1 SCC 405 (para 8). The same is reaffirmed in 63 Moons Technologies ltd. v UOI, 2019 18 SCC 401 ....
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....e'. 39) The statutory scheme requires a clear distinction between the following: (a) legitimate business receipts; (b) proceeds derived from a scheduled offence; and (c) property held in equivalent value to proceeds of crime. This distinction is fundamental to the statutory framework. The Appellate Tribunal, therefore, ought to have required a proper determination by the Adjudicating Authority rather than treating the company's overall revenue and foreign remittances as sufficient to sustain the freezing of the properties. 40) We find that, the Appellate Authority has failed to consider that, no 'scheduled offence' evidently been committed by the Appellant. Out of the ten FIRs' forming the basis of the E.C.I.R that were filed, at the time of hearing of the Appeal, nine FIRs were closed/settled owing to withdrawal of the complaints filed by the first informant. The sole pending FIR bearing No. 582 of 2021 involved an amount of Rs. 85,650/- only. That being so the freezing of accounts amounting to approximately 100 crores is ex-facie excessive and disproportionate. 41) We find that the impugned Order has failed to assign reasons for attachin....
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....rs, as per the law laid down by the Hon'ble Supreme Court. We are also unable to comprehend the basis on which the E.D. has attached a sum total of Rs. 100 crores without establishing that all the transactions made on the Apps were done by minors or were on account of an unauthorized 'auto-debit'. It is impossible to comprehend that, transaction totaling to Rs 2,854 crores were all done through fraudulent auto-debit and were all unsecured payments. Until the date of hearing, there is no material on record to show that these transactions were without appropriate authentication. 48) The relevance of the subsequent development is that, it highlights the necessity for the Adjudicating Authority to identify the specific property and the specific nexus which allegedly renders it proceeds of crime. 49) Where the original criminal offence involves a limited and quantified transaction-in the present case, approximately Rs. 25 lakhs across ten FIRs-but the coercive action extends to the entire banking and payment infrastructure of the entity-in the present case, approximately Rs. 100 crores belonging to the Appellant, an Indian-based company-the statutory authority must provide rea....