Supreme Court sets aside Karnataka HC order allowing WinZO subsidiary to use frozen funds for salaries

The Supreme Court on Friday set aside a Karnataka High Court order that had permitted Zo Private Limited, a subsidiary of online gaming platform WinZO, to pay employee salaries from accounts frozen by the Enforcement Directorate in a money laundering case [Enforcement Directorate Vs Zo].

A Bench of Justices MM Sundresh and N Kotiswar Singh held that once the High Court had relegated Zo to pursue its remedies before an Adjudicating Authority under the Prevention of Money Laundering Act (PMLA), it ought not to have granted such relief.

“We are of the considered view that after relegating the respondent to exercise the statutory remedy before the Adjudicating Authority, the High Court ought not to have exercised the discretion,” the Supreme Court said.

The Court clarified that it was not expressing any opinion on the merits of the allegations.

It directed the PMLA Adjudicating Authority to decide the matter on merits and in accordance with law by end of June.

The case concerns action taken by the Enforcement Directorate (ED) against WinZO Games Private Limited and its wholly-owned subsidiary Zo Private Limited.

The ED had frozen Zo’s bank accounts under Section 17(1A) of the PMLA on December 30, 2025. The provision allows ED officers to freeze property where it is not practicable to seize it during search proceedings.

According to the ED, WinZO allegedly generated proceeds of crime worth around ₹3,522 crore through its real-money gaming operations.

The agency also alleged that WinZO had transferred ₹255 crore to Zo as unsecured loans. It claimed that ₹231.20 crore remained outstanding and that ₹15 crore had been withdrawn from Zo’s accounts towards salaries and advances to legal consultants of WinZO during ED custody.

Zo moved the Karnataka High Court against the account freezing order.

A single-judge of the High Court declined to interfere with the freezing of accounts and asked Zo to pursue its remedy before the PMLA Adjudicating Authority.

However, the Court allowed Zo to submit a list of employees to the ED so that salaries could be paid to them from the frozen accounts after verification.

The ED first challenged this limited relief before a Division Bench of the High Court.

On March 9, a Division Bench of the Court dismissed the ED’s appeal. It held that the single-judge’s order permitting salary payments could not be termed perverse or unwarranted. It noted that the PMLA Adjudicating Authority had no power to order a partial defreeze of accounts for payment of salaries.

The ED then approached the Supreme Court challenging the High Court's decision.

Before the Supreme Court, the ED argued that the High Court should not have allowed release of alleged proceeds of crime after sending Zo to the statutory authority under the PMLA.

The agency said that WinZO had shifted employees to Zo after the offence was discovered. It said this was done through an internal arrangement dated November 24, 2025.

Zo countered that was not in the gaming business. Its counsel submitted that Zo was engaged in content creation, and that there was no FIR or ECIR against it.

He also argued that the High Court had granted only limited relief on humanitarian grounds. The money was to be used only to pay salaries to around 200 employees for three months.

The Supreme Court, however, expressed concern that allowing release of funds before adjudication could create difficulty if the Adjudicating Authority later ruled against the company.

The Court said all issues would remain open before the Adjudicating Authority. It also clarified that any observation made by the High Court would not come in the way of the authority deciding the matter.

The ED’s appeal was accordingly allowed.

The ED was represented by Additional Solicitor General SV Raju with Advocate Zoheb Hossain.

Zo was represented by Senior Advocates Mukul Rohatgi and Abhishek Malhotra.