Court Rules Adjudicating Authority’s Failure to Record Prima Facie Finding on ‘Proceeds of Crime’ Nullifies Orders; Gross Turnover Alone Insufficient to Justify Asset Seizure
In a significant judgment delivered on September 2, 2026, the Bombay High Court (Division Bench) quashed the Enforcement Directorate’s orders freezing bank accounts and payment aggregator accounts of M/s Coda Payments India Pvt. Ltd., a technology-enabled payment services company, under the Prevention of Money Laundering Act, 2002 (PMLA). The Court emphasized the indispensability of recording a mandatory statutory finding under Section 8(2) of the PMLA by the Adjudicating Authority, stating that mere continuation of freezing or retention orders without such a finding renders the orders invalid.
The case arose from an Enforcement Case Information Report (ECIR) based on multiple FIRs alleging cheating and unauthorized deductions in online gaming transactions, notably related to the game ‘Garena Free Fire’. The Enforcement Directorate (ED) had frozen approximately Rs. 100 crores worth of assets belonging to Coda Payments India Pvt. Ltd., contending that the company acted as a conduit to remit proceeds of crime abroad, with gross business turnover claimed at Rs. 2,850 crores and remittances of Rs. 2,320 crores.
However, the Appellate Tribunal and the Adjudicating Authority failed to record the required prima facie finding that the frozen properties were indeed “proceeds of crime” as mandated under Section 8(2) of the PMLA. The High Court held that such findings are not mere formalities but substantive statutory requirements, and their omission renders the orders “coram non judice” (without jurisdiction).
The Court underlined that gross turnover or aggregate foreign remittances cannot automatically be equated with proceeds of crime. The statutory authorities must independently apply their mind to establish a specific nexus between the alleged criminal activity and the properties frozen. The judgment pointed out that the Adjudicating Authority’s order merely stated that the material was sufficient for continuation of freezing for adjudication purposes, but did not identify or find that the particular assets were involved in money laundering.
Moreover, the Court noted that out of the ten FIRs relied upon by the ED, nine had been closed or withdrawn, leaving one FIR with a claim of Rs. 85,650 only, making the freezing of Rs. 100 crores disproportionate and excessive. The Court also accepted the appellant’s submission that it was merely an intermediary and payment service provider, with no role in creating the gaming platform or unauthorized deductions allegedly made.
The judgment further criticized the Appellate Tribunal for attempting to “cure” the defect of the Adjudicating Authority by itself recording the missing statutory finding, stating that appellate jurisdiction cannot supply mandatory findings that the original authority was required to make. The Court reiterated the principle upheld by the Supreme Court in Mohinder Singh Gill v. Chief Election Commissioner and 63 Moons Technologies Ltd. v. Union of India, that an order must stand or fall on the reasons recorded at the time of its making.
The Court also observed that the Enforcement Directorate had failed to communicate the “reasons to believe” to the affected party at every stage, violating Sections 17(1), 20(1), and 21(1) of the PMLA, thus vitiating the entire proceedings.
In conclusion, the Bombay High Court allowed the appeal, set aside the impugned orders, and ordered the release of the frozen assets, without expressing any final opinion on the guilt or innocence of the appellant with respect to the predicate offences or money laundering allegations.
This landmark ruling reinforces the procedural safeguards embedded in the PMLA and underscores the necessity of strict adherence to statutory mandates before depriving entities of their assets in economic offence investigations.
Bottom Line:
Prevention of Money Laundering Act, 2002 (P.M.L.A) - Adjudicating Authority's failure to record mandatory statutory finding under Section 8(2) renders the order invalid - Gross turnover or aggregate foreign remittances of an entity cannot justify treating all its assets or bank balances as 'proceeds of crime' without specific determination of nexus with alleged criminal activities.
Statutory provision(s):
Prevention of Money Laundering Act, 2002 - Sections 6, 8(1), 8(2), 17(1A), 17(4), 20(1), 21(1), 26, 42; Indian Penal Code, 1860 - Sections 420, 120B
