Telangana High Court
M/S Krazybee Services Private Limited vs Directorate Of Enforcement on 11 March, 2025
THE HONOURABLE SMT. JUSTICE K. SUJANA
CRIMINAL PETITION No.5885 of 2023
ORDER:
This Criminal Petition is filed under Section 482 of Code of Criminal Procedure, 1973 (for short 'Cr.P.C') to quash the proceedings against the petitioners/accused in ECIR/HYZO/04/2021 dated 18.01.2021.
2. The brief facts of the case are that the above said ECIR was registered in connection with alleged offences under the Prevention of Money Laundering Act, 2002 (for short 'PMLA') based on 43 FIRs filed across various Police Stations and cybercrime divisions in Telangana under Sections 417, 419, and 420 of the Indian Penal Code, 1860 which are scheduled offences under the PMLA. The Directorate of Enforcement contends that instant loan applications operated by various entities, including the Petitioners, were charging exorbitant interest rates and high processing fees without proper authorization. Further, it is alleged that these apps were involved in unauthorized lending activities and resorted to harassment for loan recovery by misusing personal data of the 2 SKS,J Crl.P.No.5885 of 2023 borrowers. It is further stated that the Enforcement Directorate has proceeded against them based on conjectures and assumptions, without specific allegations or legal basis, thereby mischaracterizing their legitimate business activities as criminal conduct.
3. Challenging the said proceedings the present criminal petition is filed stating that the Petitioners include petitioner No.1, an RBI-registered NBFC engaged in lawful lending activities, and petitioners No.2 and 3, which provide technology support to petitioner No.1 through online platforms such as KreditBee and Kreditzy. The ECIR is registered based on 43 FIRs, but only four of them pertain to Petitioners No.2 and 3. Investigations into these four FIRs have concluded, and the respective law enforcement agencies have filed charge sheets, categorically stating that the Petitioners were not complicit in any scheduled offence. Despite this, the Enforcement Directorate continues to pursue proceedings under PMLA against the Petitioners, alleging that they engaged in money laundering through moveable properties in their bank accounts and Merchant IDs with banks/payment gateways. The Petitioners assert that since 3 SKS,J Crl.P.No.5885 of 2023 there is no scheduled offence alleged against them, the proceedings under PMLA lack legal basis and must be quashed.
4. Further, that the petitioners have fully cooperating with investigations, providing all necessary documents and information. They highlight that the four FIRs in question involve vague and unfounded allegations, with complainants making generalized claims about harassment and unauthorized lending. In some cases, loans were never availed, while in others, the complainants had already repaid their loans before filing FIRs. Additionally, the Enforcement Directorate has referred to FIR No.1134/2020, which does not concern the petitioners and has already been settled before the Lok Adalat.
5. That the allegations against the petitioners arise from vague and broad statements in four FIRs, which do not contain specific accusations against them. While the FIRs mention phone numbers of alleged harassers, there is no evidence linking these numbers to loans availed from the petitioners. Furthermore, the investigation by law enforcement 4 SKS,J Crl.P.No.5885 of 2023 agencies has not led to any findings against the petitioners, and they have not been named as accused in any charge sheet. However, in the PMLA proceedings, respondent No. 1 has erroneously proceeded on the assumption that the Petitioners committed an offence under Section 420 IPC, a scheduled offence under PMLA, despite the lack of specific allegations or substantive material in the FIRs. Respondent No.1, without applying its mind, has merely clubbed the petitioners into the broader investigation on the ground of their involvement in providing loans through mobile applications. Respondent No.1 has relied solely on the registration of the FIRs to conclude that a prima facie case under Section 3 of PMLA is made out, despite the absence of cogent evidence indicating generation of proceeds of crime or involvement in any criminal activity. Notably, no FIR or charge sheet has been filed against the Petitioners concerning any scheduled offence.
6. Subsequently, respondent No.1 issued a Provisional Attachment Order (PAO No. 03/2023) on 28.02.2023, attaching 48 bank accounts of the petitioners with a total balance of approximately INR 65.87 crores. An Original 5 SKS,J Crl.P.No.5885 of 2023 Complaint (OC No. 1930 of 2023) was also filed before the Adjudicating Authority, seeking a declaration that the attached properties are proceeds of crime. The Petitioners have duly participated in the proceedings and submitted their replies with supporting documents. It is significant to note that the total loan amount disbursed to complainants in the four FIRs is merely INR 1.62 lakhs, whereas the attached amount is disproportionately high. Respondent No.1 appears to have proceeded under a mistaken belief that the Petitioners' business model of providing instant loans through mobile applications is inherently criminal and a means of money laundering, which is an untenable assumption. The business model was in compliance with the prevailing regulatory norms, and legitimate business activities cannot be arbitrarily categorized as criminal acts.
7. That respondent No.1 has also indiscriminately attached properties and initiated proceedings against various entities engaged in digital lending, presuming them to have committed scheduled offences. However, there is no material evidence demonstrating any direct involvement of the Petitioners in criminal activities under PMLA. The FIRs 6 SKS,J Crl.P.No.5885 of 2023 themselves contain vague allegations, and the Petitioners, having cooperated with the investigation, were not named as accused in any charge sheet. They have also fully complied with the summons issued by Respondent No.1 and provided exhaustive documents and responses, demonstrating that their business operations were lawful. In support of the said contentions, petitioner relied upon the judgment of the Hon'ble Supreme Court in Vijay Madanlal Choudhary and Ors v. Union of India and Ors 1.
8. Furthermore, respondent No. 1 has relied upon an RBI press release imposing a penalty of INR 42.48 lakhs on Petitioner No.1 for non-compliance with RBI guidelines on outsourcing financial services. However, regulatory non- compliance is not a penal offence or a scheduled offence under PMLA. The RBI has already exercised its authority and imposed a monetary penalty, which has been duly paid, thus resolving the issue. Any further proceedings under PMLA would amount to double jeopardy, which is impermissible in law. The Respondent No. 1 has also erroneously relied on service agreements that were terminated in July 2019, well 1 2022 SCC OnLine SC 929 7 SKS,J Crl.P.No.5885 of 2023 before the FIRs were filed in December 2020, to allege that the Petitioners prompted service providers to engage in aggressive recovery practices. These allegations are baseless as no such agreements existed at the time of the FIRs.
9. The Petitioners' business model has always been in compliance with RBI guidelines and has been periodically reviewed by the RBI, which has permitted its operation after due diligence. In September 2021, upon becoming a Systemically Important NBFC, Petitioner No.1 underwent an RBI inspection, which confirmed compliance with applicable norms. Therefore, the contention that the Petitioners' business model is contrary to RBI regulations is unfounded. It is a settled legal principle that once an accused is found innocent in the scheduled offence investigation, PMLA proceedings cannot be sustained. In light of these facts, the present petition being filed to challenge the arbitrary and unsustainable proceedings initiated under PMLA against the Petitioners.
10. Heard Sri D. Prakash Reddy, learned Senior Counsel representing Sri K. Siddharth Rao, learned counsel appearing 8 SKS,J Crl.P.No.5885 of 2023 on behalf of the petitioner as well as Sri Anil Prasad Tiwari, learned Standing Counsel for Enforcement Department appearing on behalf of the respondent.
11. Learned Senior Counsel appearing on behalf of the petitioners submitted that under the Prevention of Money Laundering Act (PMLA), proceedings cannot be initiated based on assumptions or notional grounds. It is a settled legal principle that unless a scheduled offence is registered with the jurisdictional police or is under trial before a competent forum, no prosecution can be pursued under PMLA. In the present case, the investigating agencies have completed their probe into the scheduled offence and have found no involvement of the Petitioners. As a result, the Petitioners have not been named as accused in the charge sheets filed in the four FIRs. This clearly indicates that the Petitioners have not committed any scheduled offence.
11.1. Learned Senior Counsel appearing on behalf of the petitioners further submitted that the filing of the subject charge sheets absolves the Petitioners of any participation in the alleged offences, which form the basis of the PMLA 9 SKS,J Crl.P.No.5885 of 2023 proceedings. Since the entire case against the Petitioners is based on their alleged involvement in these scheduled offences, the proceedings under PMLA are legally unsustainable. The Delhi High Court in EMTA Coal Limited v. Directorate of Enforcement 2 and the Hon'ble Supreme Court in Vijay Madanlal Choudhary (supra) have held that if a person is discharged, acquitted, or if the case is closed in the scheduled offence, the ECIR and proceedings under PMLA cannot stand.
11.2. Learned Senior Counsel submitted that it is well established that the commission of a scheduled offence is a fundamental requirement for initiating action under PMLA. If the underlying offence does not exist or ceases to exist at a later stage, proceedings under PMLA automatically fail. The FIRs in question do not establish any criminal activity by the Petitioners, nor do they show any proceeds of crime. Therefore, the continuation of PMLA proceedings against the Petitioners is arbitrary and legally untenable. Furthermore, despite not being named in any charge sheet or FIR, the 2 2023 SCC OnLine Del 6177 10 SKS,J Crl.P.No.5885 of 2023 Petitioners are subjected to PMLA proceedings solely on assumptions. This is impermissible under law, as a scheduled offence is a necessary condition for an offence under Section 3 of PMLA. There is no prima facie case of money laundering against the Petitioners, and no proceeds of crime have been established. The business model of the Petitioners was lawful, as per applicable laws and RBI guidelines.
11.3. Learned Senior Counsel contended that the present case is covered by the principles laid down in Bhajan Lal v. State of Haryana 3 , where the Supreme Court held that if allegations in a complaint, even if taken at face value, do not constitute an offence, then the proceedings must be quashed. The FIRs do not make any specific allegations against the Petitioners that could establish a scheduled offence. Additionally, the offence of cheating under Sections 415 and 420 IPC requires fraudulent or dishonest intention at the time of making a complaint, which is absent in this case. The loan agreements explicitly detailed all terms, including interest rates and penalties, and borrowers were fully aware of these 3 1992 supp (1) SCC 335 11 SKS,J Crl.P.No.5885 of 2023 terms. There is no evidence of deception or misrepresentation by the Petitioners.
11.4. Learned Senior Counsel further contended that it is a settled principle that criminal liability cannot be imposed without a specific role being attributed to an accused person, including proving intent and act. Since the Petitioners are not named in any charge sheet and no scheduled offence is made out against them, the proceedings under PMLA cannot continue. The actions of the Enforcement Directorate are arbitrary and in violation of principles of natural justice. The department has relied on irrelevant facts and wrongly assumed that the Petitioners' business was illegal, despite there being no scheduled offence in the FIRs. The law enforcement agencies have already investigated the FIRs and found no criminal wrongdoing by the Petitioners. Therefore, he prayed the Court to quash the proceedings against the petitioners by allowing this criminal petition.
12. On the other hand, Sri Anil Prasad Tiwari Learned standing counsel for the Directorate of Enforcement submitted that during the course of investigation, the Enforcement 12 SKS,J Crl.P.No.5885 of 2023 Directorate (ED) recorded the statement of Mr. Vivek Veda, Director of M/s Krazybee Services Pvt. Ltd., on 06.07.2021 under Section 50 of the PMLA, 2002. In his statement, he provided data regarding the company's operations but failed to furnish details of the processing fees collected from borrowers in relation to four service providers. The service providers also did not disclose this information, either by failing to appear in response to summons or by deliberately withholding the data. The investigation revealed that if the service fees on the sanctioned loan amount were added, the total profit earned by the company would be significantly higher. 12.1. Learned standing counsel further submitted that the contentions raised by the petitioners are false, misleading, and devoid of merit and that the petitioners were not named as accused in certain FIRs is irrelevant, as they have been named in multiple other FIRs. The investigation under the PMLA is independent of the predicate offence, and as per settled legal principles, it is not necessary for an individual to be named as an accused in the scheduled offence to be prosecuted under PMLA. He emphasized that the provisional 13 SKS,J Crl.P.No.5885 of 2023 attachment of properties is lawful as they are proceeds of crime and are subject to confiscation under the Act. 12.2. Learned Standing Counsel contended that the registration of an ECIR and the initiation of proceedings under PMLA do not require the prior filing of an FIR for a scheduled offence. Citing various judicial precedents, including the Hon'ble Supreme Court's decision in Vijay Madanlal Choudhary (supra), it was asserted that an independent offence under PMLA exists once proceeds of crime are involved, even if the predicate offence is quashed, compounded, or compromised. Further, the petitioner has not been named in some charge sheets does not absolve them from liability under PMLA, as individuals can still be prosecuted for money laundering if they are involved in laundering proceeds of crime, regardless of whether they participated in the predicate offence itself. 12.3. He further contended that the balance of convenience does not lie in favor of the petitioners, and quashing the ECIR would result in irreparable loss to both the Enforcement Directorate and the public, who have suffered financial losses 14 SKS,J Crl.P.No.5885 of 2023 due to the alleged fraud. The ED has already filed a prosecution complaint before the Metropolitan Sessions Court, Nampally, Hyderabad naming the petitioners as accused, and the case is pending cognizance. Given these circumstances, the learned standing counsel strongly urged that the petition seeking to quash the PMLA proceedings be dismissed, as the ED's actions are in accordance with the law and necessary for ensuring justice.
13. In the light of the submissions made by the parties and a perusal of the material available on record, it appears that the petitioners seek to quash the Enforcement Case Information Report (ECIR) proceedings due to the lack of a predicate offence.
14. At this stage, it is pertinent to note that on the principle of law in M/s Jagati Publication Limited v. Enforcement Directorate, Officer of Kendriya Sedan, Hyderabad 4 , following the decision of the Hon'ble Supreme Court in Vijay Madanlal Chaudhary (Supra), it is held that if a competent forum concludes that a scheduled offence has not occurred, 4 Criminal Petition No.1072 of 2021 15 SKS,J Crl.P.No.5885 of 2023 then proceedings under the Prevention of Money Laundering Act, 2002 (PMLA) related to property derived from that offence cannot continue. In other words, if someone is acquitted or discharged from a scheduled offence, they cannot be prosecuted for money laundering related to that offence. The Hon'ble Supreme Court clarified that the offence of money laundering is dependent on the illegal gain of property as a result of criminal activity relating to a scheduled offence. This ruling resolves conflicting decisions from various High Courts, providing clarity on the relationship between scheduled offences and money laundering proceedings under PMLA.
15. Further, as observed by the Hon'ble Supreme Court on the offence under Section 3 of the Prevention of Money- Laundering Act (PMLA), essentially, for a crime to fall under Section 3 of PMLA, it must involve illegally gained property through a scheduled offence. This property must meet the definition of "proceeds of crime" outlined in Section 2(1)(u) of the PMLA. Not all properties linked to a scheduled offence are considered proceeds of crime, but any property that fits this definition is automatically considered a crime property. The Hon'ble Supreme Court also clarified that if someone is 16 SKS,J Crl.P.No.5885 of 2023 acquitted or cleared of allegations related to a scheduled offence, and it is proven they rightfully own and possess the property, then that property cannot be considered proceeds of crime. In such cases, the Court must return the property to its rightful owner. It would be contradictory to still consider it proceeds of crime after a competent Court has made this ruling. The Supreme Court emphasized that the Court while deciding the matter, the scheduled offence has the authority to decide the matter. Ultimately, the PMLA can only be applied if there are proceeds of crime involved; without them, the authorities cannot initiate prosecution. The Hon'ble Supreme Court in Vijay Madanlal Choudhary (supra), held as under:
"467(d): The offence under Section 3 of the 2002 Act is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence. It is concerning the process or activity connected with such property, which constitutes the offence of money laundering. The authorities under the 2002 Act cannot prosecute any person on notional basis or on the assumption that a scheduled offence has been committed, unless it is so registered with the jurisdictional police and/or pending enquiry/trial including by way of criminal complaint before the competent forum. If the person is finally discharged/acquitted of the 17 SKS,J Crl.P.No.5885 of 2023 scheduled offence or the criminal case against him is quashed by the Court of competent jurisdiction, there can be no offence of money laundering against him or any one claiming such property being the property linked to stated scheduled offence through him."
16. Learned Standing Counsel submitted that the ratio laid in Vijay Madanlal Choudhary (supra) case stating that the Court should not interpret beyond its explicit meaning, stating that "law is not always logic" and should not be expanded through logical reasoning alone. In other words, the law should not be stretched beyond its clear meaning, as logic does not always apply in legal interpretations. In support of his contentions, he relied upon the judgment of the Madras High Court in P. Rajendran v. Assistant Director, Directorate of Enforcement 5 which supports the stance of the respondent, stating that prosecution for money laundering can occur even without being charged for the predicate offence. The Judgment of the Jharkhand High Court in Prem Prakash v. Union of India 6 also emphasizes that money laundering is an independent offence.
5 Crl.P.no.19880 of 2022 6 B.A.No.12350 of 2022 18 SKS,J Crl.P.No.5885 of 2023
17. Reverting to the facts of the case on hand, the crime was registered against the petitioners-Company based on a complaint by de-facto complainant, and although the Police filed a charge sheet, the petitioners-Company was mentioned in column 12 as not being charged due to unproven complicity and in some of the charge sheets, the petitioners were not arrayed as accused. Therefore, since the petitioners was not charged under Section 420 of the IPC, there is no predicate offence, making the PMLA proceedings an abuse of process.
18. It is the specific stand of the learned Standing Counsel that the case of the Vijay Madanlal Choudary (supra) law applies only when a person is finally acquitted or absolved in Scheduled Offence proceedings, rendering further money laundering actions unsustainable. However, since the petitioner was neither charged nor acquitted/discharged (as no charges were framed), this precedent is inapplicable, where the petitioner was not charged with the predicate offence. When there is no charge, question of acquittal, discharge or quash does not arise and thus, PMLA proceedings cannot continue. If the predicate offence is revived in the future, 19 SKS,J Crl.P.No.5885 of 2023 fresh PMLA proceedings can be initiated, but until then, the current proceedings against the petitioner must cease.
19. At this stage, it is significant to note the judgment of the Hon'ble Supreme Court in Pavana Dibbur v. The Directorate of Enforcement 7, wherein in paragraph No.15, it is held as under:
"15. Coming back to Section 3 of the PMLA, on its plain reading, an offence under Section 3 can be committed after a scheduled offence is committed. For example, let us take the case of a person who is unconnected with the scheduled offence, knowingly assists the concealment of the proceeds of crime or knowingly assists the use of proceeds of crime. In that case, he can be held guilty of committing an offence under Section 3 of the PMLA. To give a concrete example, the offences under Sections 384 to 389 of the IPC relating to "extortion" are scheduled offences included in Paragraph 1 of the Schedule to the PMLA. An accused may commit a crime of extortion covered by Sections 384 to 389 of IPC and extort money. Subsequently, a person unconnected with the offence of extortion may assist the said accused in the concealment of the proceeds of extortion. In such a case, the person who assists the accused in the scheduled offence for concealing the proceeds of the crime of extortion can be guilty of the offence of money laundering. Therefore, it is not 7 Criminal Appeal No.2779 of 2023 20 SKS,J Crl.P.No.5885 of 2023 necessary that a person against whom the offence under Section 3 of the PMLA is alleged must have been shown as the accused in the scheduled offence. What is held in paragraph 270 of the decision of this Court in the case of Vijay Madanlal Choudhary supports the above conclusion. The conditions precedent for attracting the offence under Section 3 of the PMLA are that there must be a scheduled offence and that there must be proceeds of crime in relation to the scheduled offence as defined in clause (u) of subsection (1) of Section 3 of the PMLA."
20. As seen from the above Section 3 of the Prevention of Money Laundering Act (PMLA) makes it an offence to assist in concealing or using proceeds of crime, even if unconnected to the original crime. For instance, if someone commits extortion (a scheduled offence) and another person helps hide or use the extorted money, that person can be guilty of money laundering under Section 3 of PMLA. This requires two conditions: a scheduled offence must occur, and proceeds of crime must exist, as defined in Section 2(u) of PMLA. Notably, a person accused under Section 3 need not be an accused in the scheduled offence, as supported by the decision in Vijay Madanlal Choudhary (supra). However, in this case, the charge sheet filed for alleged scheduled offences contains no allegations of commission of offences listed in the schedule, 21 SKS,J Crl.P.No.5885 of 2023 meaning no scheduled offence exists. Consequently, the petitioners cannot be prosecuted under Section 3 of PMLA.
21. As a sequel to the above discussion and the ratio laid down in the judgment of the Hon'ble Supreme Court in Vijay Madanlal Choudhary (supra), which establishes that a predicate offence is essential for money laundering, the ECIR proceedings against the petitioners are liable to be quashed due to the lack of a predicate offence.
22. The Hon'ble Supreme Court in Vijay Madanlal Choudhary has strictly interpreted the term "proceeds of crime" under Section 2(1)(u) of PMLA, holding that only property directly or indirectly derived from a scheduled offence qualifies. If a person is acquitted or discharged from the scheduled offence and establishes rightful ownership of the property, it cannot be treated as "crime property" or "proceeds of crime." The Court emphasized that money laundering under Section 3 8 depends on illegal gain from a scheduled offence, and in the absence of such proceeds, PMLA 8 Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the 1[proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering 22 SKS,J Crl.P.No.5885 of 2023 proceedings cannot be sustained. Furthermore, the judgment underscores that confiscation of property should not be the norm and should only occur through a formal order under Section 8(5) or 8(7). Premature confiscation without final adjudication would amount to a miscarriage of justice, as the Special Court may later rule in favor of the accused. To prevent contradictory verdicts, Section 44 mandates that the same Special Court must try both the scheduled offence and the money laundering case. Additionally, the Court clarified that conviction under Section 4 of PMLA is dependent on conviction for the scheduled offence--if no crime exists, there can be no proceeds of crime, and thus no offence of money laundering. This judgment establishes that the existence of proceeds of crime is essential for invoking PMLA and reinforces procedural fairness, ensuring protection against unwarranted confiscation and prosecution. Thus, the ECIR proceedings initiated against the petitioners are liable to be quashed due to the absence of a predicate offence. The enforcement agency may reopen proceedings if evidence is found.
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SKS,J Crl.P.No.5885 of 2023
23. In the result, the criminal petition is allowed and the proceedings against the petitioners in ECIR/HYZO/04/2021 dated 18.01.2021, are hereby quashed.
Miscellaneous applications, if any pending, shall stand closed.
______________ K. SUJANA, J Date: 11.03.2025 SAI 24 SKS,J Crl.P.No.5885 of 2023 THE HONOURABLE SMT. JUSTICE K. SUJANA P.D. ORDER IN CRIMINAL PETITION No.5885 OF 2023 Date: 11.03.2025 SAI