TaxTMI 
TaxTMI 
2026 (10) TMI 396
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.... at Rachakonda, Cyberabad and Hyderabad concerning to the various instant digital loan applications. The FIRs alleged offences including cheating and related offences under Sections 417,419 and 420 and other offences of the Indian Penal Code, 1860 (in short "IPC"), which are scheduled offence under the PMLA. 3. The investigation revealed that approximately 365 mobile applications were used for sanctioning and recovering instant micro-loans. The lending and recovery transactions were routed through payment gateways, including Paytm, Cashfree and Razorpay, through Merchant IDs ("MIDs") linked with various bank accounts. Several fintech/service-provider companies operating such applications had entered into Memorandum of Understanding/service agreements with Indian NBFCs on the strength of their licences. It is to undertake digital lending through mobile applications. The fintech companies allegedly provided the funds required for lending in the form of "Performance Guarantees", "Security Deposits" or Inter-Corporate Deposits. The NBFCs thereafter opened MIDs with payment gateways and permitted the fintech companies to utilise the same for disbursal and recovery of loans. 4. Acc....
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....ties without independently obtaining the requisite NBFC licence. 8. The investigation estimated that approximately Rs. 66,19,21,85,467/- had been disbursed under the names of various NBFCs through the digital lending arrangements and that the NBFCs and fintech companies had collectively generated approximately Rs. 14,97,84,70,595/- from the lending activities. According to the investigation, the amounts collected by way of excessive processing fees, interest, penalties and other charges constituted proceeds of crime, as the same were allegedly generated through cheating, misuse of borrowers' personal data, coercive recovery practices and other criminal activities. It was further alleged that the funds constituting proceeds of crime were repeatedly rotated through the lending cycle, with recovered amounts being utilised for further lending. The transactions were routed through the MIDs maintained with various payment gateways and thereafter settled into different bank accounts. The balances available in the relevant MIDs and bank accounts were accordingly treated as representing proceeds of crime and were provisionally attached. Role Attributed to M/s Sarvottam Fincap Limited ....
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....wers through the digital applications and thereafter employed coercive recovery methods. Sarvottam Fincap was alleged to have facilitated such activities by permitting the fintech companies to conduct the lending business through arrangements entered into with it, despite allegedly having no effective control over their operations. 14. The allegation against Sarvottam Fincap, therefore, was merely that it entered into service agreements with fintech companies, but that it allegedly enabled those entities to use its NBFC status as a vehicle for conducting digital lending activities which, according to the investigation, were otherwise being undertaken without the requisite regulatory authorisation and in violation of applicable RBI norms. 15. It was further alleged that Sarvottam Fincap received a share/commission from the lending business, stated to be approximately 0.5% to 1% of the loan amount disbursed. It was alleged that, despite not undertaking the substantive lending operations or incurring the corresponding expenditure, Sarvottam Fincap derived financial benefit from the transactions carried out through the fintech companies. 16. On the basis of the above circumsta....
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....,27,97,774 73,21,93,960 NOF and loans 85,23,9 1,417 10,05,61,2 25 79,60,938 No service provider 9,33,2 6,497 SARVOT AM FINCAP LIMITED ACC NO. 0330050 07983 IFSC: ICIC000 0330 Thus, the appellant herein has never misused its licence by allowing any fintech company to take over. 21. The learned counsel for the appellant further submitted that the appellant's name had been taken only in 2 FIRs i.e., FIR No. 2452 of 2020 and FIR No. 1136 of 2020. In the chargesheet, the appellant has not been named for commission of predicate offence. Even the application "Paisa Finch" has not been named in the final chargesheets in either case. The appellant is not being prosecuted for any unlawful acts by any predicate offence agency and as per the admitted case of ED, there is no fintech company involved and thus, the allegation of misuse of licence doesn't arise. 22. The learned counsel for the appellant further submitted that the appellant had earlier preferred an appeal before this Tribunal against an earlier Provisional Attachment Order. The said appeal was heard and final order was passed on 14.12.2023. The fundamental difference in the case of the appellant as ....
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....IDs") linked with various bank accounts. Several fintech/service-provider companies operating such applications had entered into Memorandum of Understanding/service agreements with Indian NBFCs on the strength of their licenses. 28. The alleged modus operandi was that the fintech companies approached registered Indian NBFCs and, on the strength of the NBFCs' licences, sought to undertake digital lending through mobile applications. The fintech companies allegedly provided the funds required for lending in the form of "Performance Guarantees", "Security Deposits" or Inter-Corporate Deposits. The NBFCs thereafter opened MIDs with payment gateways and permitted the fintech companies to utilise the same for disbursal and recovery of loans. 29. According to the investigation, although the arrangements were represented as outsourcing of certain financial services, the fintech companies allegedly exercised effective control over the entire lending process. They were stated to control the mobile applications, undertake customer acquisition and underwriting, arrange the funds, process and disburse the loans, determine the charges and interest, and undertake recovery. The NBFCs were al....
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....he appeal in the case of appellant M/s Sarvottam Fincap Limited. It is with the prayer that the present appeal should be governed by the earlier judgment without taking a different view. 33. The argument was opposed by the learned counsel for the appellant. It was submitted that in the earlier litigation, the appeal preferred by the appellant was dismissed by the Tribunal finding involvement of Fincap company and the service provider. The adverse view was taken considering the allegation that Fincap companies were allowed to use the platform of the NBFC in commission of crime. The case in hand does not involve a service provider or even a Fincap company so as to rule the present appeal by the earlier judgment. 34. I have considered the rival submissions made by the parties and find that in the earlier appeal preferred by the appellant, the order was passed by the Tribunal after taking into consideration the allegation against the appellant and material produced therein. In the earlier case, Fincap company had entered into Memorandum of Understanding to disburse the loan on instant loan application. It was with the allegation that the platform of NBFC was misused by the Fin....
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.... of the commission of a scheduled offence by a particular person. Where, after investigation, the jurisdictional agency files a chargesheet without arraigning the appellant as an accused and without attributing the alleged criminal activity to the appellant or its application, the same is a material circumstance which was required due consideration of the Adjudicating Authority. 38. In the present case, the appellant has not been prosecuted or charge-sheeted for the alleged cheating or other scheduled offences. There is no finding in the predicate offence proceedings that the appellant generated any proceeds of crime through the alleged digital lending fraud. The Enforcement Directorate cannot, merely on the basis of allegations contained in the FIRs, continue to attribute the same modus operandi to the appellant which, upon investigation, has not been found attributable to the appellant by the jurisdictional police. 39. It is well settled that the existence of a scheduled offence constitutes the foundational requirements for invoking the provisions of the PMLA. The expression "proceeds of crime" is a relevant aspect for causing provisional attachment of the property. Therefo....
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....ending activities. It is more so when according to the respondent themselves, no Fintech company was involved in this case with the appellant. The allegation that the appellant had facilitated the generation, possession, use or projection of proceeds of crime also remains unsupported by any material demonstrating such activity. There is no material brought to our notice showing that the appellant was controlled by any unauthorised fintech company, permitted any such company to operate its lending business through the appellant's licence, or knowingly participated in the alleged coercive recovery practices or misuse of borrowers' personal data. 44. It is equally material that the PAO does not specifically identify the attached amount of Rs. 1,18,30,435/- as representing proceeds of crime derived from any particular scheduled offence committed by the appellant. The attachment of an available bank balance, without establishing its identifiable nexus with the proceeds of crime, cannot be sustained merely because the account formed part of the financial trail examined during the investigation. The Adjudicating Authority, while confirming the PAO, was required to record a clea....