Introduction
The Bombay High Court has delivered an important judgment concerning the statutory safeguards governing attachment and freezing of property under the Prevention of Money Laundering Act, 2002 (PMLA). In M/s Coda Payments India Pvt. Ltd. v. Dy. Director, Directorate of Enforcement & Anr., the Court examined whether an Adjudicating Authority can continue freezing bank accounts and payment-gateway accounts without recording the specific statutory finding required under Section 8(2) of the PMLA.
The Court held that the requirement under Section 8(2) is substantive and cannot be treated as a mere procedural formality. The Adjudicating Authority must independently determine, at the required prima facie level, whether the properties specified in the notice are involved in money laundering. An Appellate Tribunal cannot subsequently supply that mandatory finding when the original authority itself failed to record it.
The judgment is also significant because the Court rejected the proposition that a company’s overall business turnover or foreign remittances can, by themselves, justify treating its entire assets or bank balances as proceeds of crime. The Court stressed the need to establish a specific nexus between the property subjected to coercive action and the alleged criminal activity.
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Case Details
| Particular | Details |
|---|---|
| Case Name | M/s Coda Payments India Pvt. Ltd. v. Dy. Director, Directorate of Enforcement & Anr. |
| Court | Bombay High Court |
| Case Number | Criminal Appeal (ST) No. 13953 of 2025 |
| Judgment Date | 2 September 2026 |
| Bench | Justice A. S. Gadkari and Justice Kamal Khata |
| Appellant | M/s Coda Payments India Pvt. Ltd. |
| Respondents | Deputy Director, Directorate of Enforcement & State of Maharashtra |
| Principal Statute | Prevention of Money Laundering Act, 2002 |
| Important Provisions | Sections 6, 8, 17, 20, 21 and 42 PMLA |
The appeal arose under Section 42 of the PMLA against the Appellate Tribunal’s order dated 6 March 2025. The Tribunal had dismissed Coda Payments India’s appeal and affirmed the Adjudicating Authority’s order dated 15 March 2023, which had continued the freezing of bank accounts and payment-related accounts.
Background and Facts of the Case
Coda Payments India Pvt. Ltd. is a company providing technology-enabled services for the monetisation and sale of digital content. Its operations included the brands “Codashop” and “Codapay”, through which payments were processed using various payment channels and aggregators. According to the company, it functioned as an intermediary through which digital-content publishers and gaming companies could receive payments through recognised payment systems.
The Enforcement Directorate initiated proceedings after registration of an ECIR based on ten FIRs registered at different police stations. The FIRs principally alleged cheating and unauthorised deductions involving users of online games, particularly the game “Garena Free Fire”. The ED alleged that Coda Payments India acted as a conduit for collection of money from Indian users and remittance of funds outside India.
On 23 September 2022, the ED conducted searches at premises connected with the appellant and its Director. During the searches, physical records, a MacBook Pro and documents relating to bank accounts and payment aggregators were seized. On the same date, orders under Section 17(1A) of the PMLA were issued freezing five identified bank accounts and various merchant IDs maintained with payment aggregators and payment gateways.
The ED subsequently sought continuation of the freezing and retention before the Adjudicating Authority under Section 17(4). The Adjudicating Authority allowed the application on 15 March 2023 and confirmed continuation of the freezing of the relevant bank and payment accounts. Coda Payments challenged that order before the Appellate Tribunal, but the Tribunal dismissed the appeal on 6 March 2025. The company thereafter approached the Bombay High Court under Section 42 of the PMLA.
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Legal Issues Before the Bombay High Court
The principal questions before the Court were:
- Whether the Adjudicating Authority complied with Section 6 of the PMLA regarding the constitution and jurisdiction of the Bench?
- Whether Section 8(2) requires the Adjudicating Authority to specifically record a finding that the property is involved in money laundering?
- Whether an Appellate Tribunal can itself supply a mandatory finding omitted by the original Adjudicating Authority?
- Whether the company’s overall turnover and foreign remittances could justify treating its assets and bank balances as proceeds of crime?
- Whether freezing approximately ₹100 crore was justified when the FIRs forming the basis of the proceedings involved substantially smaller quantified amounts?
Arguments of the Appellant
Coda Payments argued that Section 8(2) of the PMLA imposed a mandatory obligation upon the Adjudicating Authority to record a reasoned finding regarding whether the properties concerned were involved in money laundering. According to the appellant, the Authority merely stated that the material justified continuation of freezing and retention, without identifying the particular properties that constituted proceeds of crime.
The appellant further argued that the Appellate Tribunal had relied heavily upon figures showing approximately ₹2,850 crore in collections and ₹2,320 crore in foreign remittances. It contended that substantial business turnover or foreign remittances could not automatically establish that the entire banking and payment infrastructure represented proceeds of crime.
Coda also maintained that it was merely an intermediary and payment service provider and was not responsible for developing or operating the gaming platforms. It argued that transactions were authenticated through mechanisms such as OTPs and UPI PINs and that the ED had not produced independent forensic material establishing that Coda’s system itself caused unauthorised deductions.
Another important submission concerned proportionality. By the time the appeal was heard, nine of the ten FIRs had been closed, leaving only one FIR involving approximately ₹85,650. The appellant therefore argued that freezing assets worth approximately ₹100 crore was manifestly disproportionate when the total amount involved in the ten FIRs was approximately ₹25 lakh.
Arguments of the Enforcement Directorate
The ED defended the freezing action by submitting that the proceedings were concerned with preservation of property and records so that investigation and subsequent adjudication under the PMLA would not be frustrated. It relied upon the ten FIRs alleging cheating and unauthorised deductions and argued that Coda was involved in the payment-collection mechanism.
The ED further submitted that the investigation had disclosed the collection of approximately ₹2,850 crore and transmission of approximately ₹2,320 crore outside India. It argued that the amount specifically mentioned in individual FIRs could not mechanically be treated as the complete extent of the alleged criminal activity because the investigation concerned a broader trail of proceeds and potentially other victims and transactions.
The ED also maintained that reasons to believe had been recorded and forwarded to the Adjudicating Authority along with relevant material. It argued that the material concerning the relationship between the Indian and Singapore entities, payment gateways and foreign remittances was sufficient to establish, at least prima facie, a nexus between Coda and the alleged proceeds of crime.
Court’s Analysis and Reasoning
1. Non-compliance with Section 6 of the PMLA
At the outset, the Bombay High Court considered the statutory requirements concerning the constitution of the Adjudicating Authority. Section 6(2) provides that an Adjudicating Authority consists of a Chairperson and two other Members, while Section 6(5) permits the jurisdiction to be exercised by Benches constituted in accordance with the Act. The Court found that the issue concerning the composition of the Bench had not been properly addressed.
The Court held that the Appellate Tribunal ought to have considered the objection regarding the composition of the Adjudicating Authority and recorded an appropriate finding supported by evidence. Instead, the Tribunal disregarded the specific jurisdictional objection. According to the High Court, this failure rendered the Adjudicating Authority’s order dated 15 March 2023 a nullity.
2. Section 8(2) Requires a Specific Statutory Finding
The central issue concerned Section 8 of the PMLA. The Court explained that Section 8 provides the statutory mechanism through which the Adjudicating Authority considers whether attachment, retention or freezing should continue after notice and hearing. The provision specifically requires the Authority, after considering the reply, hearing the affected parties and examining the relevant material, to record a finding on whether the properties are involved in money laundering.
The Court drew an important distinction between two different conclusions. Merely stating that the material is sufficient to justify continuation of freezing or retention for purposes of adjudication is not the same as recording the statutory finding that the property is involved in money laundering. Section 8(2) requires the latter determination and therefore cannot be reduced to a procedural formality.
The Adjudicating Authority had referred to the allegations concerning the gaming platform, alleged unauthorised deductions, corporate structure, foreign remittances and alleged non-cooperation. However, its conclusion did not separately identify which properties were found to be involved in money laundering or explain the nexus between the frozen funds and the alleged criminal activity. The High Court held that this failed to satisfy Section 8(2).
3. Appellate Tribunal Cannot Cure the Original Defect
The High Court was particularly critical of the approach adopted by the Appellate Tribunal. The Tribunal itself had recognised that Section 8(2) required the Adjudicating Authority to record a prima facie finding regarding the property. Yet, instead of setting aside the deficient order, the Tribunal attempted to treat the defect as capable of being cured at the appellate stage.
The High Court held that appellate jurisdiction is intended to examine whether the original authority properly exercised the jurisdiction vested in it. It cannot ordinarily be transformed into an original exercise of that statutory jurisdiction. Where the original authority was required by statute to record a particular finding, the appellate authority cannot simply supply that finding for the first time.
The Court reiterated the principle that an order of a statutory authority must ordinarily stand or fall on the reasons contained in that order. The appellate authority cannot retrospectively supplement the original order by supplying foundational reasoning that the original authority itself was legally required to provide. The Court relied upon the principles stated in Mohinder Singh Gill v. Chief Election Commissioner and reaffirmed in 63 Moons Technologies Ltd. v. Union of India.
Proceeds of Crime Cannot Be Equated With Entire Business Assets
The Court next considered the meaning of “proceeds of crime”. Section 2(1)(u) of the PMLA defines proceeds of crime by reference to property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence. The Court referred to the Supreme Court’s decision in Vijay Madanlal Choudhary v. Union of India and emphasised that the expression must be strictly construed.
The existence of a scheduled offence does not automatically convert every asset belonging to the person or entity concerned into proceeds of crime. There must be a connection between the property and the criminal activity contemplated by the statutory definition. The Court therefore held that a company’s entire business turnover cannot simply be treated as proceeds of crime merely because allegations of criminal activity have been made.
The judgment identified the need to distinguish between legitimate business receipts, proceeds actually derived from a scheduled offence and property held in equivalent value to proceeds of crime. This distinction, according to the Court, is fundamental to the statutory scheme. Gross revenue and foreign remittances may be relevant investigative circumstances, but they cannot alone establish that every amount in the company’s accounts constitutes proceeds of crime.
₹100 Crore Freeze and the Proportionality Concern
The Court also examined the disparity between the amounts forming the basis of the criminal allegations and the value of the assets subjected to freezing. Out of ten FIRs forming the basis of the ECIR, nine had been closed or settled by the time the appeal was heard. The remaining FIR involved approximately ₹85,650, while the freezing action extended to assets of approximately ₹100 crore.
The High Court found that the authorities had failed to provide an adequate justification for attaching assets worth more than ₹100 crore. Where the underlying criminal allegations involve a limited and quantified amount but coercive action extends to the entire banking and payment infrastructure of a company, the statutory authority must explain why each category of property is liable to be frozen and to what extent.
The Court further observed that the ED had not established that the entire ₹2,850 crore was unlawfully received by Coda Singapore, that the entire amount constituted money laundering, or that the ₹100 crore attached in India constituted proceeds of crime. In the Court’s view, attachment of such magnitude could not be sustained merely on conjecture, surmise or an unsubstantiated invocation of the “reason to believe” standard.
Absence of Evidence Regarding Alleged Auto-Debit Mechanism
The Court also considered the allegation that the gaming and payment system permitted subsequent transactions through an unauthorised auto-debit mechanism after the first transaction had been authenticated through OTP. The ED had not produced sufficient material establishing that the alleged payment mechanism actually operated in this manner over the relevant period.
The Court found merit in the appellant’s contention that it acted as an intermediary and reseller of digital content rather than as the developer or controller of the gaming platform. It also noted the appellant’s case that transactions through payment gateways were carried out through secured authentication mechanisms and that the company itself did not receive the alleged victims’ amounts directly.
Importantly, the Court did not purport to finally determine every factual dispute concerning the payment mechanism. Instead, it emphasised that those factual disputes reinforced the need for the Adjudicating Authority to independently examine the evidence and record a reasoned finding concerning the specific properties allegedly involved in money laundering.
Important Legal Provisions
Section 6 PMLA — Adjudicating Authority
Section 6 deals with the constitution, composition and functioning of the Adjudicating Authority. The Court relied upon this provision while examining whether the authority that passed the original order was properly constituted and whether the jurisdictional objection raised by the appellant had been adequately addressed.
Section 8(2) PMLA — Adjudication
Section 8(2) requires the Adjudicating Authority to consider the reply, hear the concerned parties and take relevant material into account before recording a finding on whether the properties mentioned in the notice are involved in money laundering. The Bombay High Court treated this requirement as mandatory rather than directory.
Sections 17, 20 and 21 PMLA
These provisions concern search and seizure, retention of property and retention of records. The judgment emphasises that the exercise of these coercive powers remains subject to statutory safeguards and cannot be sustained without compliance with the conditions prescribed by the PMLA.
Section 42 PMLA
Section 42 provided the jurisdictional basis for Coda Payments India’s appeal before the Bombay High Court against the order of the Appellate Tribunal. The Court ultimately allowed the appeal and set aside the impugned order.
Important Precedents Relied Upon
| Case | Legal Principle | Use in the Present Case |
|---|---|---|
| Mohinder Singh Gill v. Chief Election Commissioner | An administrative/statutory order must stand on the reasons contained in the order. | Used to reject subsequent supplementation of the original authority’s reasoning. |
| 63 Moons Technologies Ltd. v. Union of India | Reinforces the principle concerning reasons contained in statutory orders. | Supported the Court’s reasoning against retrospective supplementation. |
| Vijay Madanlal Choudhary v. Union of India | “Proceeds of crime” must be strictly connected with criminal activity relating to a scheduled offence. | Used to distinguish criminal proceeds from ordinary business assets. |
| M/s Prakash Industries Ltd. v. Union of India | PMLA powers must satisfy statutory requirements. | Relied upon concerning freezing and statutory safeguards. |
| J. Sekar v. Union of India | Communication and disclosure of reasons to believe are important safeguards. | Used while examining the legality of the ED’s freezing action. |
The judgment specifically records these authorities and applies their principles to the statutory defects found in the proceedings.
Ratio Decidendi
The core ratio of the judgment is that Section 8(2) of the PMLA requires the Adjudicating Authority itself to record a finding, after considering the statutory material and hearing the parties, as to whether the concerned property is involved in money laundering. A mere conclusion that continuation of freezing or retention is necessary for adjudication does not satisfy this statutory requirement.
The Court further held that an Appellate Tribunal cannot cure the omission by supplying the mandatory statutory finding for the first time at the appellate stage. Appellate jurisdiction cannot ordinarily be converted into an original exercise of jurisdiction that the statutory authority was required to undertake in the first instance.
A further principle emerging from the judgment is that gross business turnover or foreign remittances, without more, cannot establish that the entire assets or bank balances of a company constitute proceeds of crime. The authorities must identify the property and establish the requisite nexus between that property and the alleged criminal activity.
Judgment and Final Decision
The Bombay High Court allowed the appeal after finding that the Adjudicating Authority had failed to record the mandatory finding contemplated by Section 8(2) of the PMLA. The Court held that the deficiency could not be retrospectively cured by the Appellate Tribunal and that the original statutory exercise had not been properly undertaken.
The Court also held that the overall turnover and foreign remittances of Coda Payments could not, standing alone, justify treating the company’s entire assets and bank balances as proceeds of crime. The coercive measures under the PMLA had to be examined strictly against the statutory conditions prescribed by Parliament.
Accordingly, the Bombay High Court allowed the appeal and quashed and set aside the impugned order. The Interim Application No. 3418 of 2025 was also disposed of as having become unnecessary following the allowance of the appeal.
What This Judgment Means
For companies facing PMLA proceedings, the judgment reinforces that an investigation or allegation of a scheduled offence does not automatically place every asset of the entity within the category of proceeds of crime. The authorities must identify the relevant property and establish the necessary statutory nexus. This is particularly important where the coercive action extends substantially beyond the amount directly connected with the alleged criminal activity.
For the Enforcement Directorate and Adjudicating Authorities, the decision emphasises the importance of carefully recording reasons at every statutory stage. The Court made clear that powerful investigative and freezing powers under the PMLA remain subject to the safeguards enacted by Parliament. Economic-offence legislation does not eliminate the obligation to comply with mandatory statutory requirements.
For appellate authorities, the judgment draws an important jurisdictional boundary. An appellate body can affirm, reverse or modify a finding made by the original authority within its appellate jurisdiction, but it cannot ordinarily replace the statutory exercise of the original authority by supplying a mandatory finding that was never made in the first place.
Key Takeaways
- Section 8(2) PMLA requires a specific finding regarding whether the property is involved in money laundering.
- Continuation of freezing is not itself the statutory finding contemplated by Section 8(2).
- An Appellate Tribunal cannot ordinarily cure the omission by supplying the missing finding itself.
- Bank accounts are not automatically proceeds of crime merely because their holder is under investigation.
- Business turnover cannot automatically be treated as proceeds of crime.
- Authorities must identify the specific property and its nexus with the alleged criminal activity.
- Coercive action affecting substantial assets requires reasoned statutory justification.
- The Court found the freezing of approximately ₹100 crore disproportionate in the factual circumstances before it.
- PMLA powers remain subject to strict statutory safeguards.
- The judgment was confined to the legality of the impugned orders and was not a final determination that the appellant had or had not committed the scheduled offence or money laundering offence.
Frequently Asked Questions
What did the Bombay High Court hold in the Coda Payments case?
The Bombay High Court held that an Adjudicating Authority must comply with Section 8(2) of the PMLA by recording a specific finding on whether the concerned property is involved in money laundering. A general conclusion supporting continuation of freezing or retention is insufficient.
Can an Appellate Tribunal cure the failure of an Adjudicating Authority to record a Section 8(2) finding?
According to the judgment, the Appellate Tribunal cannot ordinarily supply the mandatory statutory finding that the original Adjudicating Authority was required to make. The appellate jurisdiction cannot be converted into the original exercise of the statutory adjudicatory function.
Does a company’s large turnover automatically become proceeds of crime?
No. The Court held that gross business turnover, by itself, does not establish that the entire turnover constitutes proceeds of crime. There must be a legally relevant connection between the property and criminal activity relating to a scheduled offence.
What is the importance of Section 8(2) PMLA?
Section 8(2) provides the adjudicatory safeguard under which the Authority must consider the affected person’s response, hear the relevant parties and examine the material before recording a finding concerning whether the property is involved in money laundering.
What happened to the ₹100 crore freezing order?
The Bombay High Court allowed Coda Payments India’s appeal and quashed and set aside the impugned order sustaining the freezing action. The Court found significant statutory deficiencies in the orders passed by the authorities.
What was the significance of the ten FIRs?
The ten FIRs formed the basis of the ECIR. By the time the appeal was heard, nine had been closed or settled, while one remained pending involving approximately ₹85,650. The Court considered this development relevant while examining the justification for freezing approximately ₹100 crore.
Did the Bombay High Court decide that Coda Payments committed no money laundering?
No. The Court expressly confined its findings to the legality of the impugned orders. It stated that the judgment should not be treated as an opinion on whether the appellant committed the scheduled offence or money laundering offence.
Which Supreme Court case was important to the Court’s reasoning on proceeds of crime?
The Court relied upon Vijay Madanlal Choudhary v. Union of India, particularly the principle 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.
What is the practical significance of this judgment for businesses?
The judgment reinforces that PMLA authorities must identify the property allegedly connected with money laundering and provide statutory justification for freezing or retaining it. The mere existence of an investigation or substantial business transactions cannot, by itself, justify treating all business assets as proceeds of crime.
Conclusion
The Coda Payments India judgment is an important reaffirmation that the coercive powers available under the PMLA operate within statutory limits. The Bombay High Court made clear that Section 8(2) is not an empty procedural requirement: the Adjudicating Authority must actually examine the material and record a finding concerning the property allegedly involved in money laundering.
Equally significant is the Court’s rejection of an approach under which a company’s entire financial infrastructure could be frozen merely because large sums were collected or remitted overseas. The judgment requires the authorities to identify the property, establish the relevant nexus with criminal activity, and provide reasons proportionate to the coercive action taken.
The final order therefore provides a strong reminder that investigative powers under the PMLA must be exercised in accordance with the safeguards expressly prescribed by Parliament. At the same time, the Court carefully confined its decision to the legality of the impugned orders and did not finally adjudicate upon the alleged scheduled offence or money-laundering offence.
Primary source: Bombay High Court judgment dated 2 September 2026 in Criminal Appeal (ST) No. 13953 of 2025.
