Karnataka HC seeks ED's response on Winzo's plea to quash money laundering trial

The Karnataka High Court on Monday asked the Directorate of Enforcement (ED) to respond to a petition by gaming platform Winzo to quash a trial court's decision to take cognisance of a money laundering case filed against it [Winzo and ors v Directorate of Enforcement].

Justice M Nagaprasanna issued notice on the plea moved by Winzo, its founders Paavan Nanda and Saumya Singh Rathore, and subsidiaries of the company including those based out of India, Singapore and the US.

The Court has directed the ED to file its response by July 22, when the matter is listed for hearing next.

The ED's case involves allegations that Winzo’s gaming operations involved algorithmic manipulation and the use of BOTs, resulting in alleged wrongful gains of ₹177 crore. It has further alleged diversion of funds to overseas subsidiaries and laundering of proceeds of crime through cloud-based infrastructure hosted on Amazon Web Services (AWS).

The ED has also claimed the identity of a large number of Winzo's users was misused and that there have been transnational fund flows amounting to approximately USD 55 million.

The ED registred its case based on predicate offences mentioned in first information reports (FIRs) registered at Bengaluru, Rajasthan and Delhi.

Winzo, however, has countered that the Bengaluru FIR has been quashed already by the High Court, and that closure reports have been filed in the other FIRs in which the company was not directly named.

However, on May 2, a trial court took cognisance of the ED case against Winzo, which cites the offences under Section 3 of the Prevention of Money Laundering Act, 2002 (PMLA).

Winzo has argued that this trial court order is not legally sustainable, since the ED's complaint, when it was registered, rested upon predicate or scheduled offences in FIRs that have either been quashed or closed.

Winzo adds that while the ED has now cited FIRs in Gurugram and Nagpur to justify the continuation of its case, those FIRs were lodged after the ED registered its case.

Winzo pointed out that the Punjab and Haryana High Court also restrained the ED from taking coercive action against Winzo in the Gurugram case, although investigation was allowed to continue. The Gurugram case involves allegations that Winzo deployed BOTs to defeat genuine players in real-money games. Winzo has denied these claims as false as well. Moreover, it has questioned how the ED can claim that there were any "proceeds of crime" being laundered by relying on the Gurugram FIR, since the said case involved only a single complainant.

In this backdrop, Winzo and its representatives have asserted that the trial court has not applied its mind while taking cognisance of the ED's complaint. They have, therefore, urged the High Court to quash the trial court's May 2 cognisance order and subsequent proceedings.

Winzo has also sought an interim stay in proceedings before the trial court until the High Court's final verdict in the matter.

WInzo's petition was filed through Advocate Rohan Kothari.