RAZORPAY SOFTWARE PRIVATE LIMITED v. THE STATE OF KARNATAKA AND ANR.

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2. Heard Smt K.N. Chethana, learned counsel appearing for the petitioner, Sri K.S. Abhijith, learned High Court Government Pleader appearing for respondent No.1 and Sri Vikram Unni Rajgopal, learned counsel appearing for respondent No.2.

3. Brief facts that lead the petitioner to this Court in the subject petition, as borne out from the pleadings, are as follows:-

The petitioner is Razorpay Software Private Limited engaged in the business of payment gateway/aggregation, developing and implementing payment solutions, facilitating the initiation and receipt of electronic payments effected through credit cards, debit cards, net-banking and other payment methods offered by and routed through the infrastructure established by the National Payments Corporation of India. It is the claim of the petitioner that in the regular course of business funds from multiple vendors/retail

customers/merchants are pooled in a nodal account held in the name of the petitioner with a scheduled bank. The bank in the case at hand is Yes Bank and it is compartmentalized for each

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merchant. As per the transaction cycle, monies disbursed to the concerned merchants by the petitioner into the bank account provided by the merchants.

4. In the course of business between 24-12-2020 and 26.01.2021 XY Data Steam Technology Private Limited, Super Data Sandbox Technology Private Limited, Flexbees India Technology Private Limited, Kortis Engineering Private Limited and Fureins Technology Private Limited who are the accused merchants on boarded with the petitioner to avail its payment gateway/aggregation services by accepting its online terms and conditions. Petitioner's payment gateway was used by the accused merchants for their transactions and amounts collected on behalf of the accused merchants in the nodal account held by the petitioner with the Bank. In the course of routine monitoring, the internal risk monitoring team of the petitioner disabled/put a debit freeze on the accounts relating to the accused merchants due to suspicious activities being noted. The total amount lying in the account of the accused merchants on the date of the debit freeze was Rs.1,62,25,778.35. Rest of the amounts was already released to the accused merchants as per

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the payment cycle. These happened between 02-02-2021 and 07-09-2021 for about seven months.

5. It appears that on 15-03-2021 a crime comes to be registered against accused merchants in Crime No.111 of 2021 on the basis of a complaint registered by one Thippeswamy against "Keep Sharer App". The amount in question mentioned in the said FIR was Rs.4,83,154-00. The petitioner is not named as accused in the FIR nor the monies held by the petitioner in the 2^ndrespondent was mentioned therein. Five months after registration of the complaint, a notice is issued to the petitioner under Section 91 of the CrPC holding that while investigating into the complaint regarding online fraud in Crime No.111 of 2021 it was observed that the accused in the crime have fraudulently amassed money belonging to general public through "Keep Sharer App". The payment gateway services of the petitioner were used and monies amounting to Rs.3.72 crores and Rs. 94.6 lakhs were transferred to certain account numbers. It was also informed in the notice that the Bank has already marked the lien of these monies on the instructions of the Police.

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6. On 21-08-2021 after receipt of Section 91 CrPC notice, the petitioner appears to have come to know the debit freeze of the entire account. It is later on 24-08-2021 the petitioner completely gets to know the lien that is marked for a total amount of Rs.4,66,60,000.00 and was declared to have been debit frozen. Further debit freezing also takes place in the account held by the petitioner and as on date the amount that is held in debit freeze is Rs.8,33,45,461.00 at various stages of such debit freeze. It is this action that is called in question in the subject petition by the petitioner.

7. The learned counsel representing the petitioner would contend with vehemence that the petitioner is neither named in the FIR nor its account. The accused are different merchants who operate through the payment gateway and the facilitator i.e., the petitioner cannot now be held responsible for the fraud played by the merchants who onboarded themselves into the payment gateway. He would contend the amount left in the account of the petitioner that belongs to the accused merchants is Rs.1,62,25,778.35 which the petitioner itself had blocked.

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Remaining of the amount of whatever nature that the prosecution contends are already distributed to all others through the payment gateway. Therefore, marking of lien beyond Rs.1,62,25,778.35 is unauthorized as it is in excess of the claim itself. He would submit that the entire action is abuse of the process of law and therefore, contends that the lien on the amount be unmarked and the debit freeze mandate be released.

8. On the other hand, the learned High Court Government Pleader would refute the submissions to contend that certain accused merchants have defrauded several public through the 'Keep Sharer App' where deposits were solicited and customers were lured into the web of crime and that has happened through the petitioner payment gateway. The petitioner being aggregator, developer and facilitator ought to have noticed such fraudulent activity. Since the petitioner is guilty of not noticing such fraudulent activities and the amount which belongs to the accused who have defrauded the public can never be returned. Insofar as the lien being in excess, the

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learned High Court Government Pleader would leave it to the direction of the Court.

9. I have given my anxious consideration to the submissions made by the respective learned counsel and perused the material on record.

10. In the light of the afore-quoted facts, the only issue that falls for consideration is:

"Whether the action of the 1^st respondent in marking lien or debit freezing the account held by the petitioner was valid in law"?

11. The nature of business of the petitioner as narrated hereinabove is not in dispute and is therefore, not reiterated. The nature of transaction between the accused merchants and the general public through the payment gateway of the petitioner is also not in dispute and accordingly not reiterated. The accused merchants are (a) XY Data Steam Technology Private Limited; (b) Super Data Sandbox Technology Private Limited; (c) Flexbees India Technology Private Limited; (d) Kortis Engineering Private Limited and (e) Fureins Technology

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Private Limited. The petitioner carries out the business of providing payment solutions to businesses and allows merchants to accept, process and disburse payments with its product suite through several channels by maintaining the nodal account with a schedule bank. The bank in the case at hand is the 2^ndrespondent/Yes Bank. The petitioner is governed by the directions issued by the Reserve Bank of India in terms of Payments and Settlement Systems Act, 2007 and the guidelines issued by the RBI is on Regulation of Payment Aggregators ('PA') and Payment Gateways ('PG') inter alia. The guidelines issued by the Reserve Bank of India insofar as they are germane are as follows:

"6. Para 1.1.1 of the DPSS.CO.PD.No.1810/02.14.008/ 2019-20 dated 17-03-2020 ("PA Guidelines") defines PA as:

"PAs are entities that facilitate e-commerce sites and merchants to accept various payment instruments from the customers for completion of their payment obligations without the need for merchants to create a separate payment integration system of their own. Pas facilitate merchants to connect with acquirers. In the process, they receive payments from customers, pool and transfer them onto the merchants after a time period."

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7. Para 1.1 of the Annex to RBI circular CO.DPSS. POLC No.S33/02-14-008/2020-2021 dated 31-03- 2021 provides that:

"1.1. Ṭhe circular is applicable to online PAs and PGs. The guidelines seek to regulate the activities of online PAs while providing baseline technology related recommendations to PGs."

Therefore, it is abundantly clear that the activities of the petitioner are regulated by the RBI."

The accused merchants quoted hereinabove onboarded themselves with the petitioner to avail of its payment gateway/ pay out services by accepting online terms and conditions with effect from 24-12-2020 and within 30 to 32 days several monies were received from the merchants through the petitioner's nodal account maintained with the 2^nd respondent/Yes Bank. The petitioner itself noticed certain suspicious activities in the account and disabled the on boarded merchants and held the balance that was of the accused merchants with the petitioner in block. The details of the accounts are as follows:

XY Data _649305 26.01.21 13.09.21 12,66,46,696.5 11,69,17,444.92 9726469.9

Steam 500877

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53,38,19,062.8 52,35,64,144.61 1,62,25,778.35

Therefore, the amount that was held in freeze by the petitioner itself was the amount that belonged to five merchants/accused which is Rs.1,62,25,778.35. In the interregnum the agreement comes to be registered where on 5-01-2021 and onwards the debit freeze of the petitioner's account happened. The debit freeze now is standing at Rs.8,37,09,462/- of the account belonging to the petitioner which amount belongs to several other merchants who have genuinely transacted using the payment gateway of the petitioner. Therefore, the sweep of the debit freeze or marking of lien for Rs.8,37,09,462 has resulted in monies of several merchants being frozen and not being able to be disbursed by the petitioner.

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12. Even according to the prosecution, the amount that belongs to accused merchants who have taken money from general public through its 'keep sharer App' is Rs.1,62,25,778.35. Therefore, reminder of the amount for which lien is marked by the prosecution undoubtedly becomes in excess of what the allegation itself is. The reminder of the amount is Rs. 6,74,83,683.65. The lien on the aforesaid amount is marked which does not belong to the accused merchants nor there is any money trail of suspicion that is generated in the payment gateway. They belong to third party merchants who are due to be paid under the settlement cycle.

13. The contention of the petitioner that it only charges fees to enable the merchants to obtain services of the petitioner as a payment aggregator and payment gateway provider and has nothing to do with the transaction though at the first blush sounds acceptable, since the issue in the case at hand is not with regard to veracity of the business of the petitioner, the issue is not gone into. It is no doubt a matter of record that even as on date the prosecution does not divulge as

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to why and under what provision the debit freeze or lien is marked for such huge sum of money. The invocation of Banning of Unregulated Deposit Schemes Act, 2019 ('BUDS Act') appears to be a cover for marking of the said lien, as no procedure under the BUDS Act even to mark the lien is followed.

14. In the light of the afore-quoted facts, to balance right of the prosecution and the right of the petitioner over the monies, as they belong to several other merchants who are not the accused, I deem it appropriate to continue marking of lien to the tune of Rs.1,62,25,778.35 which admittedly belongs to accused merchants and direct unmarking of the lien insofar as it concerns the amount of Rs.6,74,83,683.65, as admittedly the direction to mark lien has been issued without even verifying whether the amount belonged to the accused in terms of the complaint.

15. This Court has now come across plethora of cases of such sweeping powers exercised either under Section 102 or 91

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or 92 of the Cr.P.C. directing freezing of the amount or marking of lien. Though these actions are permissible, certain diligence is required to be exercised by the prosecution before rendering such sweeping directions as found in the case at hand, as the amount of Rs.6,74,83,683.65 is debit frozen without there being any rhyme or reason. Freezing or marking of lien of the amount belonging to accused merchants which had to be returned back to the complainants was justified. Beyond it is totally unjustified.

16. For the aforesaid reasons, I pass the following:

O R D E R

(i) Writ Petition is allowed in part.

(ii) The marking of lien insofar as the amount in dispute i.e., Rs.1,62,25,778.35 stands sustained and would be subject matter of further orders before the concerned Court.

(iii) The lien that is marked to the extent of Rs.6,74,83,683.65 is directed to be unmarked and permitted to be used by the petitioner.

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Consequently, pending applications also stand disposed of.

Sd/-

JUDGE

BKP

List No.: 1 Sl No.: 96