Court permits transfer of attached foreign funds to Indian government account under Enforcement Directorate supervision, upholding Prevention of Money Laundering Act provisions.
In a significant judgment dated October 9, 2026, the Karnataka High Court, presided over by Justice C.M. Poonacha, delivered its verdict in the writ petition filed by M/s. Winzo US Inc. challenging orders under the Prevention of Money Laundering Act, 2002 (PMLA). The petitioners sought directions to transfer funds attached under provisional attachment orders from their Silicon Valley Bank (SVB) accounts in the USA, which were being closed, to another foreign bank account in the USA.
The Court was called upon to consider the petitioners' plea against the show cause notice dated April 4, 2026, provisional attachment order (PAO) dated February 17, 2026, and a confirmation order dated August 4, 2026. These orders attached the foreign bank accounts of petitioner No.1, Winzo US Inc., as part of an ongoing investigation by the Enforcement Directorate (ED) concerning allegations of money laundering and illegal transfer of proceeds of crime through online real money gaming applications operated by the parent company in India.
The petitioners highlighted that the closure of their SVB accounts necessitated moving funds to another US bank and requested the court's permission to do so without violating the attachment orders. They argued that these funds, transferred as foreign investments, were critical for the ongoing legitimate business operations of the petitioner No.1 in the USA.
However, the respondents, represented by the Enforcement Directorate, strongly opposed the transfer to a different foreign bank account, fearing dissipation of attached funds. They proposed instead that the entire balance, including accrued interest, be remitted to a designated government account in India to secure the funds pending the outcome of the legal proceedings.
The Court, after examining the submissions and the relevant statutory provisions of the PMLA, including Sections 5 and 8 dealing with attachment and adjudication processes, declined to permit the transfer of funds to another foreign bank account. It held that allowing such transfer would dilute the effect of the provisional attachment and confirmation orders, which are yet to be adjudicated in the writ petition. The Court noted that the petitioners had not placed sufficient details of their operations or business nature to justify the requested relief.
The Court referred extensively to the Supreme Court's judgment in Vijay Madanlal Choudhary v. Union of India (2023 12 SCC 1), emphasizing that taking possession or allowing movement of attached property before a formal confiscation order should be an exception and decided on a case-by-case basis. The Court acknowledged that the investigation into the alleged predicate offences involving the parent company had not concluded, and the attached funds were claimed to be proceeds of crime, including substantial amounts transferred overseas without external business justification.
However, the Court granted a measured relief by permitting the petitioners to request the Enforcement Directorate to transfer the attached funds from the closing SVB accounts to the designated government account in India, subject to attachment and confirmation proceedings and the ultimate outcome of the writ petition. This safeguard was intended to prevent any dissipation of attached assets while respecting the petitioners' interests.
In conclusion, the interlocutory application seeking permission for transfer of attached funds between foreign accounts was dismissed, but the Court facilitated a secure alternative transfer to a government account to protect the attached assets.
This judgment underscores the judiciary's cautious approach in PMLA attachment matters, balancing the rights of the accused entities and the need to preserve the integrity of confiscation proceedings under anti-money laundering laws.
Bottom Line:
Prevention of Money Laundering Act, 2002 - Attached foreign bank accounts of overseas subsidiary - On closure of foreign bank account, Court declined permission to transfer attached funds to another foreign bank account of petitioner as it would dilute effect of provisional attachment order and confirmation order under Sections 5 and 8 - However, petitioner permitted to request Enforcement Directorate for transfer of attached funds to Government account in India as suggested by respondents, subject to attachment, confirmation proceedings and result of writ petition.
Statutory provision(s):
Prevention of Money Laundering Act, 2002 Sections 2(d), 2(u), 3, 5, 8; Constitution of India Articles 226, 227
M/s. Winzo US Inc. v. Union of India, (Karnataka) : Law Finder Doc Id # 2999839
