PMLA | Property Can Be Attached Even If Holder Isn't Accused In Predicate Offence; Payment Aggregators Failing Due Diligence Cannot Plead Lack Of Knowledge Under S. 3: SAFEMA Tribunal

"The sweep of Section 5(1) of the Act of 2002 is not limited to the accused named in the criminal activity relating to a scheduled offence. It would apply to any person if he is involved in any process or activity connected with the proceeds of crime."

New Delhi: The Appellate Tribunal under SAFEMA, presided over by Chairman Justice Munishwar Nath Bhandari, has held that the provisional attachment of proceeds of crime under Section 5 of the Prevention of Money-laundering Act, 2002 (PMLA) does not require the holder of the property to be arraigned as an accused in the predicate scheduled offence. The Tribunal further ruled that digital payment aggregators that fail to discharge their statutory due diligence obligations cannot escape liability under Section 3 of the PMLA by setting up a defence of lack of actual knowledge regarding tainted transactions.

The appeal arose from an order of the Adjudicating Authority confirming Provisional Attachment Order No. 01/2024, whereby funds amounting to Rs. 33,73,26,957 belonging to payment aggregator M/s Fonepaisa Payment Solutions Pvt. Ltd. were attached. The Directorate of Enforcement initiated proceedings following FIRs registered under Sections 420 and 120-B IPC concerning the "HPZ token" scam, which defrauded retail investors under the pretext of cryptocurrency and bitcoin mining. Money trails revealed that the appellant’s virtual nodal accounts maintained with PayU Payments were utilized to route funds derived from illicit betting and gaming websites that formed part of the broader fraudulent conspiracy.

Whether provisional attachment under Section 5 of the PMLA is legally sustainable against an entity not named as an accused in the scheduled predicate offence FIR?

Whether a payment aggregator can absolve itself of money-laundering liabilities under Section 3 of the PMLA by asserting an absence of actual knowledge regarding illicit funds after failing to carry out mandatory merchant due diligence?

Whether an attachment order under Section 5 of the PMLA is vitiated on the grounds of borrowed satisfaction when based on compliance intimations and fund-withholding reports furnished by third-party payment gateways?

Addressing the appellant's primary jurisdictional objection that it was neither named in the police FIRs nor arraigned in the initial prosecution complaint, the Tribunal held that Section 5(1) of the PMLA is anchored strictly to the tracing and preservation of tainted property. The bench observed that the essential legal criterion under the statute is whether the attached asset constitutes proceeds of crime generated from a criminal activity relatable to a scheduled offence, and whether the person against whom the order is directed is in possession thereof.

Provisional attachment under Section 5 of the PMLA attaches to tainted property irrespective of who holds title or possession

Relying upon the Supreme Court’s landmark ruling in Vijay Madanlal Choudhary v. Union of India, the Tribunal affirmed that the legislative intent behind the PMLA is the confiscation of proceeds of crime in whosoever’s name they are maintained. The Tribunal noted that it is not a prerequisite of law that the entity holding or possessing such funds must be an accused facing prosecution for the scheduled offence.

The Tribunal also rejected the appellant's argument that the Directorate of Enforcement had unlawfully improved upon the predicate case by investigating illegal betting and gaming portals when the initial FIRs only specified fraudulent bitcoin mining schemes. Emphasizing settled criminal jurisprudence, the Tribunal held that a First Information Report is merely the starting point of an investigation and cannot be treated as an encyclopedic inventory of all facets of an evolving criminal conspiracy.

First Information Report does not restrict the statutory tracing of proceeds generated through wider conspiracies of cheating

The Tribunal observed that the scheduled offences invoked were cheating under Section 420 and criminal conspiracy under Section 120-B of the IPC, which encompassed the entire network of deceptive apps, including illicit betting domains. Because the funds generated through these deceptive platforms were routed through payment gateways into the appellant’s accounts, they directly constituted proceeds of crime derived from scheduled criminal activities.

On the question of liability under Section 3 of the PMLA, the appellant contended that as a mere payment aggregator providing digital infrastructure, it lacked actual knowledge that the processed transactions were illicit proceeds. The Tribunal rejected this contention, pointing out that under Section 3 read with its Explanation, any person who is directly or indirectly involved in any process or activity connected with proceeds of crime, including possession, acquisition, or use, commits the offence of money laundering.

Commercial intermediaries cannot cite lack of knowledge after abdicating statutory due diligence over illicit transactions

The Tribunal distinguished the Karnataka High Court's ruling in Razorpay Software Private Limited v. Union of India, observing that the appellant functioned not as a passive payment gateway but as an active payment aggregator that received and pooled illicit funds. Holding the appellant to a heightened standard of scrutiny, the Tribunal observed that if commercial negligence or lack of due diligence by payment aggregators were excused, financial systems could easily be exploited to channel tainted money for illicit and subversive enterprises.

The Tribunal also dismissed the argument that the attachment was based on a borrowed satisfaction derived mechanically from emails sent by PayU Payments. The bench observed that contemporaneous bank records, website traffic analytics, and communication logs formed an objective evidentiary basis for the authorities to form a genuine "reason to believe" under Section 5 of the PMLA.

Reverse burden of proof under Section 24 of the PMLA squarely operates once foundational facts of illicit fund pooling are established

Applying the Supreme Court's principles on statutory presumptions under Section 24 of the PMLA, the Tribunal held that the Directorate of Enforcement successfully laid the foundational facts demonstrating the flow of tainted monies into the appellant's nodal and corporate bank accounts. The appellant completely failed to discharge its reciprocal burden to establish the untainted, legitimate provenance of the Rs. 33.73 Crores under attachment, merely offering bald and uncorroborated assertions that the balances represented pooled business revenues.

The Appellate Tribunal held that the provisional attachment of Rs. 33,73,26,957 across the virtual nodal account and bank accounts of the appellant was lawful, within jurisdiction, and fully compliant with the provisions of the PMLA. The appeal filed by the payment aggregator was accordingly dismissed, and the confirmation order of the Adjudicating Authority was affirmed.

Date of Decision: November 4, 2026

Case Title: M/s Fonepaisa Payment Solutions Pvt. Ltd. v. The Deputy Director, Directorate of Enforcement, Guwahati