Foreign Remittances Alone Can't Establish Gross Turnover As 'Proceeds Of Crime': Bombay High Court

On September 2, the Bombay High Court held gross business turnover or foreign remittances cannot, by themselves, establish that an entire turnover or all bank balances of a company constitute “proceeds of crime” under the Prevention of Money Laundering Act (PMLA).

A Division Bench of Justices A.S. Gadkari and Kamal Khata quashed and set aside the 6 March 2025 order of the PMLA Appellate Tribunal which had upheld the 15 March 2023 order of the Adjudicating Authority continuing the freezing of Coda's bank accounts worth Rs.100 crore and payment aggregator accounts. The Court held:

"Gross business turnover, however, cannot by itself establish that the entirety of the turnover represents 'proceeds of crime'. The fact that money has moved from India to an overseas group entity may be relevant to an investigation. It does not, without more, establish that every amount in the company's bank accounts constitute 'proceeds of crime'."

The case arose from an ECIR registered on 28 December 2021 based on 10 FIRs alleging cheating and unauthorised deductions from online gaming users. Coda Payments India, a wholly owned subsidiary of Coda Payments Pte. Ltd Singapore, was alleged by ED to have acted as a conduit for collecting money from Indian users and remitting it overseas.

After a search on 23 September 2022, ED froze Coda's bank accounts and merchant IDs. The Adjudicating Authority (AA) subsequently allowed ED's application and confirmed continuation of the freezing, while the PMLA Appellate Tribunal dismissed Coda's appeal on 6 March 2025.

Coda argued that nine FIRs had been closed, leaving one involving only Rs. 85,650, making the Rs. 100 crore freezing disproportionate.

The High Court held that the Adjudicating Authority had failed to record the mandatory finding under Section 8(2) PMLA as to whether the properties were actually involved in money laundering. The Appellate Tribunal could not subsequently 'cure' this defect by recording its own finding. The Bench observed:

"Once the Appellate Tribunal itself noticed the omission, it ought to have set aside the order and required the statutory authority to undertake the exercise mandated by law or otherwise granted the relief consequential upon the failure to comply with the statutory requirement. The Tribunal's statement that it could 'cure the defect' is therefore the precise error which vitiates the impugned order."

Further, the Bench found that ED had produced no iota of evidence establishing the alleged unauthorised auto-debit mechanism or cheating through transactions routed via Coda's gateways. It also held that ED had failed to establish that the Rs. 2,850 crore received by Coda's Singapore entity was unlawfully received, constituted money laundering or that the Rs. 100 crore attached in India represented proceeds of crime.

Accordingly, the High Court allowed the appeal and quashed the impugned order. It clarified that its findings concerned the legality of the PMLA orders and did not decide whether Coda committed any scheduled offence or money laundering.

For Appellant: Advocates Sanjiv Punalekar a/w Sachin Kase i/by Jyoti Ghorpade

For Respondent: Advocates Nilesh VB. Pawaskar a/w Aparna D. Vhatkar, Farzan Ansari

For State: Shrikant V. Gawand- APP