Supreme Court Sets Aside HC Order Allowing Winzo Affiliate To Use Frozen Funds For Salaries

The Supreme Court has recently set aside a Karnataka High Court order permitting Winzo affiliate Zo Private Limited to withdraw money from frozen bank accounts for payment of employee salaries.

The court held that once the company had been relegated to its statutory remedy before the Adjudicating Authority, the High Court ought not to have exercised discretion permitting withdrawal of funds.

A bench of Justices M.M. Sundresh and Nongmeikapam Kotiswar Singh observed the High Court could not have granted such relief after directing the company to pursue its remedy before the Adjudicating Authority.

“In our considered view, after relegating the respondent to exercise the statutory remedy before the Adjudicating Authority, the High Court ought not to have exercised such a discretion and the said discretion cannot be countenanced” the Court observed.

The court set aside the Karnataka High Court order to the extent it permitted withdrawal of frozen funds. It clarified that all issues are left open to be decided by the adjudicating authority.

The bench also noted the submission made on behalf of the company that the discretion had been exercised for the welfare of employees. It directed the Adjudicating Authority to conclude the proceedings in accordance with law and the mandate of the statute.

“Thus, the impugned order stands set aside to the aforesaid extent. We do take note of the grievance expressed by the learned Senior counsel appearing for the respondent that the discretion has been exercised for the welfare of the employees alone. ,” the Court noted

“Without expressing anything on merits, we direct the Adjudicating Authority to conclude the proceedings one way or another, in accordance with law and as per the mandate of the statute,” it added.

The dispute arose after the Enforcement Directorate froze the bank accounts of Winzo affiliate Zo Private Limited during investigation proceedings against Winzo Games Private Limited and others under the Prevention of Money Laundering Act.

According to the Karnataka High Court judgment, the ED alleged that Winzo Games Private Limited had generated proceeds of crime amounting to Rs.3,522.05 crore during the financial years 2021-22 till 2025-26 and that a portion of the proceeds of crime had been diverted to Zo Private Limited.

On February 2, 2026, a Single Judge of the Karnataka High Court refused to interfere with the freezing order and disposed of the writ petition with liberty to Zo Private Limited to contest the proceedings before the Adjudicating Authority.

However, the Single Judge permitted the company to file a list of employees whose salaries for January 2026 were due and directed the ED to verify the list and communicate with the bank to enable payment of salaries.

The Karnataka High Court Division Bench on March 9, 2026, dismissed the ED's appeal. The Division Bench held that the Adjudicating Authority under the PMLA had no power to issue interim directions or permit payments from frozen amounts.

It therefore held that the exercise of discretion by the Single Judge permitting payment of salaries could not be said to be perverse or unwarranted.