HC rejects Razorpay executives' plea to quash SFIO complaint

Mumbai: The Karnataka High Court has dismissed a plea by two senior executives of Razorpay Software Ltd. seeking to quash a complaint filed by the Serious Fraud Investigation Office (SFIO), which names them as accused in a case linked to an alleged Chinese-controlled digital lending network.

Justice M Nagaprasanna rejected a plea filed by Harshil Mathur, a whole-time director of payment aggregator Razorpay, and Shashank Kumar, the company's managing director. The two executives are named as accused in a case before the LIX Additional City Civil and Sessions Court in Bengaluru. The High Court pronounced its order on November 4, after reserving the matter.

The court said the allegations against the executives involved disputed questions of fact that could be examined only during trial. It said the high court cannot conduct a mini-trial while exercising its jurisdiction to quash criminal proceedings. Citing Supreme Court judgments, Justice Nagaprasanna observed that at the stage of considering a plea to quash proceedings, the court has to examine whether sufficient material exists to proceed against the accused. If such material is available, the court should not exercise its power to quash.


The court said the petitioners would have to establish their defence in a full-fledged trial. "It is for the petitioners to come out clean in a full-blown trial. I do not find any warrant of interference at this juncture," it said. The SFIO's case stems from an investigation into 33 companies, including Mad Elephant Network Technology Pvt. Ltd. (MENTPL), which was allegedly incorporated through Jilian Consultants India Pvt. Ltd. (JCIPL). The latter is accused of creating a network of shell companies with dummy directors allegedly controlled by Chinese entities.

According to the complaint, MENTPL entered an arrangement with non-banking financial company X10 Financial Services Ltd. to provide services for lending operations through digital platforms and mobile applications. MENTPL is alleged to have adopted predatory and coercive recovery practices and generated wrongful gains of ₹56.63 crore through them.

The allegations against the Razorpay executives relate to deficiencies in merchant onboarding, alleged lapses in know-your-customer (KYC) verification of MENTPL, failure to conduct due diligence and inadequate monitoring of its transactions through Razorpay's payment aggregation platform. The complaint alleges that the executives failed to discharge their duties as directors with due care, skill and diligence, attracting Section 166 of the Companies Act, 2013.

"The allegations qua the petitioners in the impugned complaint pertain to deficiencies and negligence in merchant onboarding processes, including alleged lapses in know-your-customer (KYC) verification of MENTPL, non-conduct of due diligence and non-monitoring of transactions of MENTPL by Razorpay," the court document, which ET has reviewed, said.