Bombay High Court Quashes ₹100-Crore PMLA Freeze Against Coda Payments; Holds Adjudicating Authority Lacked Composition and Failed to Identify Proceeds of Crime Under Section 8(2)
Bombay High Court Quashes Coda Payments’ ₹100-Crore Asset Freeze; Says Entire Business Turnover Cannot Be Treated as Proceeds of Crime Without Specific Nexus
Facts
M/s Coda Payments India Pvt. Ltd., which operates digital-payment and content monetisation services through brands such as Codashop and Codapay, challenged an order of the PMLA Appellate Tribunal dated 6 March 2025. The Tribunal had upheld the Adjudicating Authority’s order dated 15 March 2023 continuing the freezing and retention of the company’s bank accounts, payment-aggregator accounts and seized material.
The Enforcement Directorate had registered ECIR/HYZO/35/2021 on 28 December 2021 on the basis of ten FIRs alleging cheating and unauthorized deductions from users of online games, particularly Garena Free Fire. The ED alleged that Coda Payments India functioned as a conduit for collection of money from Indian users and remittance abroad.
On 23 September 2022, the ED searched premises connected with the appellant, seized records and a MacBook, and issued orders under Section 17(1A) PMLA freezing five bank accounts and several merchant IDs/payment-gateway accounts. The action was not confined to any specifically identified sum linked to a particular transaction.
The Adjudicating Authority subsequently confirmed continuation of the freezing. The Appellate Tribunal dismissed Coda’s appeal, resulting in the present statutory appeal under Section 42 PMLA.
Issues
The principal questions were whether the Adjudicating Authority was validly constituted under Section 6 PMLA; whether it had complied with the mandatory requirement under Section 8(2) to record an independent finding that the frozen properties were involved in money laundering; whether the Appellate Tribunal could cure the omission by supplying its own finding; and whether Coda’s entire business turnover, foreign remittances and approximately ₹100 crore of assets could be treated as “proceeds of crime” without identifying a specific nexus to scheduled offences.
The Court also considered proportionality, particularly because nine of the ten FIRs had been closed or settled and the sole surviving FIR involved approximately ₹85,650.
Appellant’s Arguments
Coda Payments argued that Section 8(2) is mandatory and requires the Adjudicating Authority, after hearing the parties and considering the record, to independently determine whether the attached or frozen properties are actually involved in money laundering.
It contended that the authority had merely stated that continuation of freezing was necessary for adjudication, without identifying which bank accounts or amounts represented proceeds of crime or explaining their nexus to the alleged scheduled offences.
Coda also attacked the Appellate Tribunal’s reliance on figures showing approximately ₹2,850 crore of collections and ₹2,320 crore remitted abroad, arguing that turnover and overseas remittances cannot by themselves establish that the entire amount constitutes proceeds of crime.
It further claimed that it was only an intermediary/payment-services provider; authentication took place through payment aggregators using OTPs or UPI PINs; and no forensic material demonstrated that Coda’s systems themselves caused unauthorized debits.
Finally, Coda stressed that by the time of hearing, nine out of ten FIRs had been closed, only one FIR of approximately ₹85,650 remained, and the freezing of approximately ₹100 crore was grossly disproportionate when the aggregate amount alleged in all ten FIRs was only about ₹25 lakh.
Respondent’s Arguments
The ED argued that the proceedings were intended to preserve property and records so that PMLA investigation and adjudication were not frustrated.
It maintained that Coda was involved in the payment-collection mechanism, that funds were transferred outside India through group entities and that the wider transaction trail—not merely amounts mentioned in individual FIRs—had to be investigated.
The ED contended that the ₹2,850-crore revenue and ₹2,320-crore foreign remittances demonstrated a much wider financial activity than the complaints alone disclosed. It also relied upon alleged non-cooperation by company officials and maintained that there was at least a prima facie nexus warranting preservation of the frozen properties.
Analysis of the Law
Adjudicating Authority Was Coram Non Judice
At the threshold, the High Court examined Section 6 PMLA, which provides for the constitution and functioning of the Adjudicating Authority.
The Court held that the Adjudicating Authority had failed to comply with the statutory mandate concerning composition and had consequently rendered itself coram non judice. The Appellate Tribunal had also failed to properly address Coda’s jurisdictional objection regarding the matter having been heard solely by the Chairperson.
The High Court therefore held that the Adjudicating Authority’s order dated 15 March 2023 was, on this ground itself, a nullity.
Section 8(2) Finding Is Mandatory
The Court nevertheless proceeded to examine the matter on merits.
Section 8(2) mandates that after considering the noticee’s reply, hearing the parties and examining all relevant material, the Adjudicating Authority must record a finding whether all or any of the properties referred to in the notice are involved in money laundering.
The Court drew a sharp distinction between merely saying that freezing should continue for purposes of adjudication and actually recording the statutory finding that identified properties are involved in money laundering.
The Adjudicating Authority had done only the former.
It neither identified specific tainted properties nor explained the nexus between the frozen monies and the alleged criminal activity.
The Court therefore held that the order did not satisfy Section 8(2).
Appellate Tribunal Could Not Cure the Defect
The Appellate Tribunal itself noticed that Section 8(2) required a prima facie finding that the property was involved in money laundering.
However, instead of setting aside the deficient order, it effectively sought to supply the missing finding from the material on record.
The High Court held that this was impermissible.
An appellate authority may affirm, reverse or modify findings lawfully recorded below, but it cannot ordinarily undertake for the first time the mandatory statutory exercise entrusted to the original authority.
The missing Section 8(2) determination was not merely an absence of additional reasoning. It was the absence of the very jurisdictional finding Parliament required the Adjudicating Authority itself to make.
Proceeds of Crime Cannot Equal Entire Business Assets
The Court emphasized that PMLA is concerned specifically with “proceeds of crime” under Section 2(1)(u).
A bank account does not become proceeds of crime merely because its owner is under investigation. Likewise, a company’s entire turnover does not become tainted merely because some alleged criminal transaction may have occurred.
The High Court relied on Vijay Madanlal Choudhary v. Union of India for the proposition that property must be shown to have been derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence.
The existence of a scheduled offence does not automatically convert every asset of the person or company concerned into proceeds of crime.
The Court therefore held that gross turnover of approximately ₹2,850 crore and foreign remittances of approximately ₹2,320 crore could not, without further material, sustain freezing of the company’s entire assets.
The law requires a distinction between:
- legitimate business receipts;
- property actually derived from scheduled criminal activity; and
- property held as equivalent value of identified proceeds of crime.
Proportionality of the ₹100-Crore Freeze
The High Court also considered the scale of the attachment.
Out of ten FIRs underlying the ECIR, nine had been closed or settled, leaving one FIR involving ₹85,650.
Against that background, freezing approximately ₹100 crore was held to be ex facie excessive and disproportionate.
The Court further criticized the authorities for failing to explain why assets worth over ₹100 crore were frozen when the aggregate amounts in the ten FIRs were approximately ₹25 lakh.
Findings on Coda’s Role
The Court also found merit, at this stage, in Coda’s explanation that it operated as an intermediary between users and Garena International and was not the developer of the game or controller of the payment systems.
The Court noted that the alleged transactions were processed through payment gateways using OTP-based authentication and that the ED had not produced evidence establishing the alleged unauthorized auto-debit mechanism.
It further observed that neither the Adjudicating Authority nor the Appellate Tribunal had recorded a finding that any specific property mentioned in the Section 8(1) notice was involved in money laundering.
The Court was particularly critical of the proposition that transactions aggregating around ₹2,854 crore could simply be presumed to comprise fraudulent auto-debits without evidence showing absence of proper authentication.
Precedent Analysis
Vijay Madanlal Choudhary v. Union of India, (2023) 12 SCC 1
The High Court relied upon this decision to reiterate that “proceeds of crime” must have a demonstrable connection with property derived or obtained from criminal activity relating to a scheduled offence.
Every asset of a person facing a scheduled-offence allegation cannot automatically be treated as tainted property.
Mohinder Singh Gill v. Chief Election Commissioner, (1978) 1 SCC 405
The Constitution Bench principle that an administrative or statutory order must stand or fall on the reasons contained in the order itself was applied.
Subsequent reasoning cannot retrospectively cure a fundamentally deficient original order.
63 Moons Technologies Ltd. v. Union of India, (2019) 18 SCC 401
This judgment was cited as reaffirming the Mohinder Singh Gill principle that the validity of statutory action must be tested on the reasons actually recorded when the decision was made.
Prakash Industries Ltd. v. Union of India, 2023 SCC OnLine Del 336
The Court relied upon this authority while holding that freezing powers under Sections 17, 20 and 21 must conform strictly to the safeguards recognised under the PMLA statutory scheme.
J. Sekar v. Union of India, 2018 SCC OnLine Del 6523
The Court referred to this judgment for the requirement of communication of the “reasons to believe” to the noticee. Failure to disclose such reasons at the appropriate stage was treated as an illegality capable of vitiating the proceedings.
Court’s Reasoning
The High Court identified several independent defects in the PMLA proceedings.
First, the Adjudicating Authority had not been properly constituted in accordance with Section 6 and was therefore coram non judice.
Second, the Adjudicating Authority did not record the mandatory property-specific finding under Section 8(2).
Third, the Appellate Tribunal wrongly attempted to cure that defect by supplying reasoning that the original authority itself was statutorily required to record.
Fourth, neither gross business turnover nor aggregate foreign remittances could substitute proof that particular properties were proceeds of crime.
Fifth, the freezing of approximately ₹100 crore was unsupported by a proportionate or reasoned nexus to the underlying FIR amounts.
The Court stated that the investigating authority had failed to establish three critical propositions: that the entire ₹2,850 crore was unlawfully received; that it represented money laundering; and that ₹100 crore frozen in India constituted proceeds of crime.
Finally, the Court held that the “reasons to believe” underlying the freezing proceedings had not been duly supplied, further vitiating the action.
Conclusion
The Bombay High Court allowed Coda Payments India Pvt. Ltd.’s appeal and quashed the impugned PMLA order.
It held that the mandatory Section 8(2) finding identifying whether particular properties were involved in money laundering had never been recorded, and that the Appellate Tribunal could not cure that omission by making its own determination.
The Court further held that gross turnover and foreign remittances alone could not justify treating the appellant’s entire bank balances and assets as proceeds of crime.
Importantly, the High Court clarified that its findings were confined to the legality of the impugned freezing/adjudication orders and were not a final determination that Coda had or had not committed a scheduled offence or money laundering.
Case Details
Case: M/s Coda Payments India Pvt. Ltd. v. Deputy Director, Directorate of Enforcement & Anr.
Citation: 2026:BHC-AS:35967-DB
Court: Bombay High Court, Criminal Appellate Jurisdiction
Case Number: Criminal Appeal (ST) No. 13953 of 2025, with Interim Application No. 3418 of 2025
Bench: Justice A. S. Gadkari and Justice Kamal Khata
Judgment by: Justice Kamal Khata
Reserved on: 11 August 2026
Pronounced on: 2 September 2026
Result: Appeal allowed; PMLA freezing/adjudication order quashed and set aside. Connected Interim Application disposed of.
