Karnataka High Court Quashes Order Directing Transfer Of Money From PhonePe Director's Personal Account To Financial Fraud Victim

"The application under Sections 451 and 457 of the Cr.P.C. is dealt with by the learned Magistrate in a casual and cavalier manner. The amount, however small it is, is the property of an individual in whose account it is held. Such an amount which is a right to property of the account holder cannot be taken away without even bringing to his knowledge," said Justice Nagaprasanna, while setting aside the magistrate's order.

Case Details:

The woman Madhuri R.K. on April 02 last year, while attempting to make certain online purchases, became a victim of an online fraud. She transferred Rs.69,143 through 15 transactions using PhonePe App. She lodged a Cyber Crime Incident Report the next day and named the suspect Amith Mishra. 

The North CEN Police on receipt of the complaint asked the cyber cell of Yes Bank to freeze the account belonging to PhonePe. It also sought the statement of account; closing balance statement and Linked ID card/KYC details. Yes Bank provided the information. The information provided by the bank also revealed Chari's personal account number.

The complainant later filed an application with the police regarding the financial fraud. An FIR was registered this time under Section 66C and 664D of the IT Act against unknown persons. The woman also moved an application before the court seeking defreezing of Chari's personal account and transfer of the money to her. Since the IO gave no objection, the magistrate allowed the application.

The magistrate's order was challenged by Chari and PhonePe.

Findings:

The bench noted that the PhonePe is a Unified Payment Interface platform. "All such UPI platforms are not owned by them. They are owned by the National Payments Corporation of India and legally the petitioners are considered as third party application provider by the NPCI or a system provider," it added.

The court said the entities like PhonePe have the status of intermediaries under the IT Act and Section 79 protects them liability in certain cases. 

"The intermediary would not become liable if the intermediary has not initiated the transmission, selected the receiver of the transmission or selected or modified any information contained in the transmission. The expression third party information under Section 79 of the IT Act is explained to be information dealt with by the intermediary in the capacity as an intermediary."

The court added: "One glaring factor is that both the petitioners are not the accused; though for freezing of account one need not be an accused. It is only money trail that leads to suspicion as also freezing of account. Therefore nobody need be heard as Section 102 of the Cr.P.C. empowers Investigating Agency to direct freezing of account within its sweep. The case at hand is not of that kind."

Observing that it is not a case where suspect is not known, the court said investigation ought to have been made for unearthing the fraud qua the alleged fraudster. 

Then referring to the order of the magistrate, the bench said "In the entire process the 1st petitioner from whose account the amount is transferred is not even heard in the matter. Though the Court notices that the amount belongs to the victim/ complainant, the accused is even known and there are no rival claimants, if notice is not issued to the account holder from whom debit is sought, there cannot be a rival claim. This rudimentary fact is given a go-bye by the learned Magistrate."

The court said while the right of a complainant is to be looked into as she is a victim of a fraud, the investigation cannot be cut short without unearthing the fraud and closing the issue, by transfer of amount from the personal account.

"Therefore, the impugned order, on the face of it, is arbitrary and cannot stand the scrutiny of law," it added.

Accordingly it allowed the petition.

Also Read: In Cases Involving UPI Intermediaries, Magistrates Cannot Direct Transfer Of Money From Their Account Without Hearing Them: Karnataka HC

Case Title: RAHUL CHARI & ANR v. STATE OF KARNATAKA & others

Case No: WRIT PETITION No.2865 OF 2022

Citation: 2022 LiveLaw (kar) 454

Date of Order: 17TH DAY OF OCTOBER, 2022

K.S.ABHIJITH, HCGP FOR R1.

VIKRAM UNNI RAJAGOPAL, ADVOCATE FOR R3.

Click Here To Read/Download Order