The Karnataka High Court has said the investigation would be necessary in Non Banking Finance Companies having China connections, saying any effort by the neighbouring country to destabilise economy cannot be ignored as office-bearers of several of such mobile loan apps had caused many borrowers to commit suicide due to their inability to bear harassments.
Justice M Nagaprasanna declined to quash the Enforcement Directorate's proceedings related to debit freezing of a Kerala-based Non Banking Financial Company, M/s Inditrade Fincorp Ltd.
"The investigation would be imperative, as any effort of any neighbouring nation to destabilize this country, either economically or otherwise, by any method which would touch upon the security of the nation and safety of its citizens, cannot be turned a blind eye to," the court said.
In certain cases, certainly in the case of the petitioner, investigation cannot be stalled on this specious plea of procedural aberration as alleged by the petitioner, the bench added.
"It is germane to notice that there is huge proliferation of mobile loan apps and their modus operandi is in public domain. The operation is alleged to be this way, a gullible borrower is given a call and is lured into, for getting a small loan without any documentation. All that the borrowers are informed is that they should download the loan app and give access to the contents of the smart phone. A small time borrower desirous of getting money without any documentation would grab at the opportunity and accept every condition and give access to his smart phone. It is then the trouble crops up when the representatives of such mobile loan apps/companies begin to haunt the borrower threatening leakage of contents in the smart phone while seeking such repayment. It is alleged in some cases that repayment is sought 16 to 20 times more than what a borrower has to pay as EMI," the bench said.
"It is again in public domain that several borrowers have committed suicide unable to bear the harassments of the representatives of such loan apps. The office bearers of several of these companies which control and operate such mobile loan apps are said to be entities of China or individuals from China sitting as Directors of such mobile loan apps. Therefore, it becomes necessary for an investigation, in the least to be conducted of any such company who would operate such loan apps and has transactions between each other," the bench added.
The ED here had directed a debit freeze of the account of the petitioner following a search conducted on Cashfree Payments India Private Limited and Razorpay Solutions India Private Limited, which are Payment Gateways utilised by the petitioner company for disbursal and collection of digital micro-loans.
The petitioner contended that merely because it has used the Payment Gateways to disburse loans it would not mean that it is also involved in any of the activity of those Payment Gateways.
The court, however, pointed out that 15 FIRs were registered by the Cyber Crime Police Station in Bengaluru against numerous entities in connection with their involvement in extortion and harassment of the public.
Based upon the crimes so registered in those predicate offences search and seizure proceedings were initiated against five applications – Razorpay Software Private Limited, Cashfree Payments India Private Limited, Paytm Payment Services Limited and Fast App Technology Private Limited. Upon the search conducted against those Payment Gateways, names of 111 entities had figured.
"It is the money trail that is required to be investigated into which is being done against those entities with whom the petitioner and several others admittedly had transactions. Therefore, the money is transferred from the petitioner through the Payment Gateway to the borrowers," the court said.
The crux of the allegation against all these companies which are alleged to have dummy contractors on behalf of Chinese citizens was that they would grant small loans to individuals without any documentation, after that they direct those gullible customers to download an app and from the app seek access to the contents of smart phones, grant loans and immediately thereafter begin to blackmail those named gullible customers. Therefore, the allegation of extortion and harassment of public at mass levels of the said entities were unearthed albeit, prima facie, from the investigation both in the predicate offences and offences under the Prevention of Money Laundering Act, the court noted.
