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Gross Turnover Not '': Bombay HC Quashes Freeze on Coda Payments
The has delivered a significant ruling under the ), quashing an order that froze bank accounts and payment infrastructure of worth approximately Rs 100 crore. A Division Bench of Justices A.S. Gadkari and Kamal Khata held that gross business turnover and foreign remittances alone cannot establish that entire assets constitute "" without a specific nexus to criminal activity.
The Case and the Coercive Action
The case originated from an Enforcement Case Information Report (ECIR) registered on , based on ten First Information Reports (FIRs) alleging cheating and unauthorized deductions from users of the online game 'Garena Free Fire'. 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 overseas.
On , the ED conducted searches and froze the company's bank accounts and merchant IDs maintained with payment aggregators like , , , and . The confirmed the continuation of the freezing in , and the dismissed Coda's appeal in , prompting the present appeal.
The Appellant's Challenge: Disproportionate and Unsustainable
Represented by , Coda argued that the freezing of Rs 100 crore was manifestly disproportionate when nine of the ten underlying FIRs had been closed or settled, leaving only one FIR involving a meager Rs 85,650. The total amount alleged across all ten FIRs was only about Rs 25 lakh. The appellant further contended that the Adjudicating Authority failed to record the under as to whether the frozen properties were actually involved in . The company maintained it was merely an intermediary providing a platform for digital content publishers and had no role in any alleged unauthorized deductions, as transactions were authenticated through OTP and UPI PINs by the payment aggregators.
ED's Defence: Investigation and Wider Trail
Opposing the appeal, for the ED submitted that the freezing was necessary to preserve property during investigation and prevent frustration of the proceedings. The ED argued that the investigation revealed a broader trail of , pointing to the company's revenue of approximately Rs 2,850 crore collected during the relevant period, of which Rs 2,320 crore was transmitted outside India. The ED contended that the alleged criminal activity was much wider than the amounts specified in individual FIRs and that the company's principal officers had not cooperated.
Legal Analysis: Failure to Record
The High Court examined the statutory framework under
, which requires the Adjudicating Authority to record a finding on whether the property is involved in
after considering the reply, hearing the parties, and taking into account all relevant material. The court found that the Adjudicating Authority's order merely stated that the material was
"sufficient to arrive at satisfaction that continuation of the freezing/retention was required for the purposes of adjudication"
—a far cry from the
under Section 8(2).
"The distinction is material. A bank account belonging to a person under investigation is not, by that fact alone, '
'. Likewise, the turnover of a company is not, merely because it is large, amounts to
,"
the court observed.
Appellate Tribunal Could Not 'Cure' the Defect
The court further held that the Appellate Tribunal, even after noticing the omission, could not itself record the missing finding. Relying on the Constitution Bench judgment in , the court reiterated that an order must stand or fall on the reasons contained therein, and an appellate authority cannot supply foundational reasoning that the original authority was required to record.
"The Tribunal's statement that it could 'cure the defect' is therefore the precise error which vitiates the impugned order,"
the Bench stated.
Gross Turnover Alone Cannot Be
The court also addressed the substantive issue of what constitutes . Citing the Supreme Court's decision in , it emphasized that the expression must be construed strictly and that every property attached cannot be regarded as merely by reason of connection with a . The ED's reliance on the company's gross turnover and foreign remittances was misplaced.
"Gross business turnover, however, cannot by itself establish that the entirety of the turnover represents '
'. 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 '
',"
the court noted.
Disproportionate Action and Lack of Evidence
The court found the freezing of Rs 100 crore excessive when only one FIR of Rs 85,650 remained pending. The ED had not produced any evidence to substantiate the alleged auto-debit mechanism or to show that the company's systems facilitated unauthorized deductions. The court noted that the ED failed to establish three critical elements: that the entire Rs 2,850 crore was unlawfully received by the Singapore entity, that this sum was the subject of , and that the Rs 100 crore attached in India constituted .
"To attach properties worth Rs.100 crores without establishing these prerequisites is neither warranted nor contemplated by
, particularly when nine out of ten FIRs—aggregating Rs.25 lakhs—have been withdrawn and only one FIR in the sum of Rs.85,000 remains pending,"
the court observed.
Final Decision and Implications
The allowed the appeal, quashing the impugned order of the Appellate Tribunal and, consequently, the Adjudicating Authority's order confirming the freezing. The court clarified that its findings are confined to the legality of the orders and do not express any opinion on whether Coda Payments committed the or the offence of . The ruling reinforces the importance of strict compliance with statutory safeguards under the and serves as a check against disproportionate coercive actions by investigative agencies.
