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Quashes ₹100 Crore Freeze on Coda Payments Over PMLA Section 8(2) Failure
The has set aside the freezing of bank accounts and payment gateway accounts of , holding that the failed to record the mandatory finding under that the assets were . The Court further ruled that the Appellate Tribunal could not cure this fundamental defect by recording its own finding.
A division bench of Justice A. S. Gadkari and Justice Kamal Khata (who authored the judgment) allowed the appeal on , quashing the orders that had frozen approximately ₹100 crore belonging to the company.
The Case in Context
The had registered an ECIR in based on ten FIRs alleging cheating and unauthorised deductions from users of online games, particularly . The ED alleged that Coda Payments India, a wholly owned subsidiary of Singapore-based , acted as a conduit for collecting money from Indian users and remitting it abroad.
Following searches in , the ED froze five bank accounts and several merchant IDs maintained with payment aggregators. The confirmed the continuation of the freezing in , and the dismissed Coda's appeal in .
By the time the matter reached the High Court, nine of the ten FIRs had been closed or settled, leaving only one FIR involving approximately ₹85,650. The total amount involved across all FIRs was about ₹25 lakh.
When a Court Cannot Take Cognizance
At the outset, the High Court noted a serious jurisdictional defect. The had been constituted with only a Chairperson, in violation of , which requires a bench of two members. The Court held that this rendered the Authority —a court that cannot take cognizance of the matter—and the order dated was "."
The Court observed that the Appellate Tribunal had disregarded the appellant's specific plea on this issue and failed to record any finding on whether the composition was in accordance with law.
The Missing Mandatory Finding
The central legal question was whether the had complied with Section 8(2) of the PMLA, which requires it to record a finding whether the properties in question are involved in money laundering. The Court drew a sharp distinction between two concepts: recording that the material is sufficient for continuation of freezing for adjudication, and recording the statutory finding that the property is .
The had done only the former. It stated that the material was sufficient to justify continuation of freezing for the purpose of adjudication, but it did not separately identify which properties were involved in money laundering or explain the nexus between the frozen monies and the alleged criminal activity.
The Court held that this was insufficient.
"The requirement under Section 8(2) of the P.M.L.A is not merely a requirement to give additional reasons in support of an existing conclusion. It is the very finding which the statute requires the
to record,"
the judgment stated.
Tribunal Could Not Cure the Defect
The Appellate Tribunal itself recognised that the had omitted the mandatory finding. However, instead of setting aside the order, the Tribunal effectively supplied the missing finding on the basis of the same material. The High Court held this was impermissible.
"If an
omits the mandatory finding under Section 8(2), the Appellate Tribunal cannot thereafter supply that finding on the basis of the same material. If that were done then the statutory safeguard contained in Section 8(2) would effectively become optional,"
the Court ruled.
The Court relied on the Constitution Bench decision in Mohinder Singh Gill v. Chief Election Commissioner (1978) 1 SCC 405, which laid down that an order must stand or fall on the reasons contained in it. An appellate authority cannot supplement missing reasoning.
When Gross Turnover Isn't
The ED had placed heavy reliance on the fact that Coda Payments had collected approximately ₹2,850 crore and remitted ₹2,320 crore abroad. The Appellate Tribunal treated these figures as sufficient to conclude that the seized property was involved in money laundering.
The High Court rejected this approach.
"Gross business turnover, however, cannot by itself establish that the entirety of the turnover represents '
',"
the Court observed.
Relying on the 's decision in Vijay Madanlal Choudhary v. Union of India (2023) 12 SCC 1, the Court emphasised that "" must be strictly construed. Property must be shown to have been derived or obtained as a result of criminal activity relating to a . The existence of a does not automatically convert every asset into .
The Court held that the statutory scheme requires a clear distinction between legitimate business receipts, proceeds derived from a , and property held in equivalent value to .
A Disproportionate Freeze
The Court also found the freezing of assets worth ₹100 crore to be "" when the underlying allegations across ten FIRs totalled only about ₹25 lakh, and only one FIR of ₹85,650 remained pending.
The Court criticised the authorities for failing to provide reasoned justification for why each category of property was liable to be retained or frozen. It noted that the ED had not produced evidence to substantiate its claim of unauthorised auto-debit, nor had it established that the entire ₹2,850 crore was unlawfully received or that the ₹100 crore attached in India constituted .
The Final Order
The High Court allowed the appeal and quashed the impugned order, holding that the mandatory Section 8(2) finding had never been recorded and the defect could not be cured by the Appellate Tribunal. The connected interim application was disposed of.
Importantly, the Court clarified that its findings were confined to the legality of the freezing and adjudication orders and should not be construed as a final determination on whether Coda Payments had committed a or money laundering.
The judgment serves as a significant reminder that the coercive powers under the PMLA must be exercised strictly in accordance with statutory conditions, and that gross turnover alone cannot justify freezing an entity's entire banking infrastructure.
