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

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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

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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

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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

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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

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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

2022 SCC OnLine SC 929

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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

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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

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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

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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

1992 supp (1) SCC 335

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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

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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

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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

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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,

Criminal Petition No.1072 of 2021

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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

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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

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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.

Crl.P.no.19880 of 2022

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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,

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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

Criminal Appeal No.2779 of 2023

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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,

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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

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

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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