The conduct of the investigation will be decisive for the business of certain fintech companies that offer loans through digital platforms, including via mobile phone apps, allegedly controlled by Chinese entities or individuals from China using forged documents, for the sake of national security and the safety of citizens, said High Court of Karnataka.
“The investigation would be decisive, as any effort by any neighboring nation to destabilize this country, whether economically or otherwise, by any method that would affect the security of the nation and the safety of its citizens, cannot be closed,” the court said .
Justice M. Nagaprasanna made these observations while dismissing a petition filed by Kochi-based Inditrade Fincorp Ltd., a fintech company that offers digital microloans to borrowers/customers.
The company had questioned the legality of the freezing of its bank account by the Enforcement Directorate (ED) in connection with the investigations taken up against several companies that offer digital payment gateway services.
Unable to tolerate harassment
“It is public property that several borrowers have committed suicide without enduring the harassment from representatives of such loan apps. The officers of several of these companies that control and operate such mobile loan apps are said to be entities in China or individuals from China who serve as directors of such mobile loan apps. Therefore, it becomes necessary that at least an investigation is carried out into such a company that will operate such loan apps and have transactions between each other”, the court stated.
It is relevant to note that there is a huge proliferation of mobile loan apps and their modus operandi is in the public domain and the operation is alleged to be like this – a gullible borrower is called and lured to get a small loan without any documentation, the court pointed out.
The court said that all the borrowers are informed is to download the loan app and give access to the contents of the smartphone, and a small borrower who wants to get money without documentation will seize the opportunity and accept any condition and give access to his smartphone.
That is when the problem arises when the representatives of such mobile loan apps/companies start haunting the borrower and threaten to leak contents of the smartphone while seeking repayment, the court said, while pointing out that in some cases it is alleged that if repayment is 16 to 20 times more than what a borrower has to pay back in equal monthly installments.
15 FIRs
The ED had initiated investigation following 15 First Information Reports (FIRs) registered by the Cyber Crime Police, Bangalore city, against several entities offering loans through mobile apps on the complaints of indulging in extortion and harassment of their customers.
On execution of search and seizure against payment gateways – Razorpay Software Pvt. Ltd., Cashfree Payments India Pvt. Ltd., Paytm Payment Services Ltd. and Fast App Technology Pvt. Ltd. – ED had found names of 111 entities, allegedly controlled/run by residents of China who have gained access by using forged documents of Indians and by making few Indians as contractors of these entities.
The ED had said that the complainant company signed service contract, which was later terminated, with Waterelephant Technologies Pvt. Ltd., several of whose directors are said to be Chinese, used the service for two of the five payment gateways investigated.
