Introduction:
In a significant hearing raising complex questions on proportionality, digital gaming practices, and the scope of the Prevention of Money Laundering Act, 2002 (PMLA), the Karnataka High Court examined the legality of freezing bank accounts worth ₹505 crores belonging to an online gaming platform. The matter was heard by Justice Suraj Govindaraj in Writ Petition No. 36998 of 2025, titled Winzo Private Limited v. Directorate of Enforcement. The proceedings arose out of an investigation initiated by the Enforcement Directorate (ED) alleging large-scale money laundering linked to unfair gaming practices, particularly the use of automated bots in real-money games without disclosure to users.
The company challenged the freezing of its accounts as being grossly disproportionate to the alleged predicate offences, which, according to it, involved amounts of only around ₹7–10 lakhs. On the other hand, the ED asserted that the offence was not a routine case of money laundering but one involving unethical digital manipulation, foreign fund transfers, and proceeds of crime running into hundreds of crores. The Court, while refraining from passing a final order, adopted a probing stance, questioning both the nature of the alleged offence and the applicability of conventional PMLA principles, and directed the ED to clarify whether it would accept a bank guarantee in lieu of continued freezing of accounts.
Arguments on Behalf of the Petitioner:
Senior Advocate Sandesh J. Chouta, appearing for the petitioner company, assailed the account freezing orders primarily on the ground of disproportionality. He submitted that the Enforcement Directorate had registered an ECIR based on three to four predicate offences, each involving alleged cheating or unfair practices amounting to only ₹7–8 lakhs in total, or at best approximately ₹10 lakhs. In such circumstances, freezing bank accounts holding ₹505 crores, he argued, was arbitrary, excessive, and violative of settled principles governing attachment and freezing under the PMLA.
It was contended that proceedings under the PMLA cannot travel beyond the scope of the predicate offence, and that the quantum of alleged proceeds of crime must have a direct nexus with the offence scheduled under the Act. The petitioner argued that the ED had failed to demonstrate how such a massive sum could be treated as proceeds of crime when the foundational FIRs themselves alleged only minor monetary losses. According to the petitioner, the freezing order amounted to punitive action rather than a preventive measure.
Chouta further argued that the impugned freezing orders were vitiated by non-compliance with statutory safeguards, particularly the requirement of recording “reasons to believe” that the property in question constitutes proceeds of crime. He submitted that the orders did not disclose any such reasons and were therefore legally unsustainable under the PMLA framework.
The petitioner also highlighted the practical consequences of the freezing, stating that the company was unable to conduct routine business operations, including payment of salaries to its employees. It was submitted that de-freezing of accounts was essential to meet legitimate business expenses and that the company was willing to offer a bank guarantee as security to safeguard the interests of the investigation.
On the allegations relating to the use of bots, the petitioner maintained that the proceedings could not be expanded into a broader moral or regulatory inquiry under the guise of money laundering. It was emphasized that regulatory issues concerning online gaming, if any, must be addressed under appropriate statutes and cannot justify extraordinary coercive measures under the PMLA without a clear demonstration of laundering of proceeds derived from scheduled offences.
Arguments on Behalf of the Enforcement Directorate:
Opposing the plea, Advocate Madhu N. Rao, appearing for the Enforcement Directorate, presented a detailed account of the alleged misconduct uncovered during investigation and search proceedings. He submitted that the case involved four FIRs, each alleging different amounts, and that 298 complainants had come forward alleging cheating and unfair gaming practices. According to the ED, the scale and nature of the allegations went far beyond the limited amounts mentioned in the initial FIRs.
The ED contended that search operations conducted at the company’s offices and at the residences of its directors revealed extensive digital evidence stored on AWS servers, which showed that the company had allegedly earned around ₹177 crores by deploying bots against real users in paid games. Rao submitted that users were made to believe that they were competing against other human players, whereas in reality they were pitted against algorithms designed to maximise the company’s gains, without any disclosure or consent.
It was further alleged that the company imposed restrictions on users withdrawing their own money, compelling them to continue playing, thereby increasing the company’s unlawful earnings. The ED argued that these practices amounted to systematic cheating and generation of proceeds of crime on a massive scale.
The agency also placed emphasis on the international dimension of the alleged laundering. Rao submitted that search operations revealed that the company had formed multiple foreign subsidiaries, which, though incorporated abroad, were effectively being run from India. According to the ED, approximately ₹499 crores had been transferred from India to overseas accounts in the form of cryptocurrency, raising serious concerns about cross-border laundering and asset dissipation.
Addressing the company’s plea regarding salary payments, the ED submitted that two bank accounts with a balance of around ₹14.5 crores were still available to the company, and therefore, it could not claim complete financial paralysis. It was argued that the issue of salary payments was already pending before the PMLA court and that “public money cannot be held to ransom” on this ground.
The ED also denied allegations of procedural impropriety during search and arrest, including claims that the promoter was arrested after sunset or that statements were recorded late at night. Rao referred to the remand report, which recorded that no complaints were made before the PMLA court regarding ill health or coercion, and that the accused had agreed to the timing of arrest, which was before 6 p.m.
Court’s Observations and Directions:
Justice Suraj Govindaraj adopted a searching and critical approach, making oral observations that indicated the Court’s concern about the nature of the alleged offence. The Court remarked that this was not a routine case where standard PMLA principles could be mechanically applied. Observing that the use of algorithms and bots in real-money gaming could be more problematic than even a lottery system, the Court noted that such practices raise serious ethical and legal issues, particularly when users are not informed that they are competing against software rather than real players.
The Court observed that if bots were being deployed by the company to win against users, the issue assumed a much graver character, potentially justifying a different legal lens. Justice Govindaraj remarked that the case appeared to be one “in rem”, indicating systemic wrongdoing affecting the public at large, rather than a narrow dispute confined to individual complainants.
At the same time, the Court took note of the petitioner’s grievance regarding proportionality and directed the Enforcement Directorate to respond by the next day on whether it would be willing to accept a bank guarantee offered by the company as security, in order to de-freeze the frozen accounts.
The Court also directed the petitioner company to place on record detailed information regarding its foreign subsidiaries, associates, promoters, overseas business activities, turnover, and income, in light of the ED’s allegations of offloading proceeds of crime abroad. The Court recalled that it had earlier sought details regarding the number of complaints received against the company and the amounts involved.
On the issue of CCTV footage of search proceedings, the Court noted the ED’s submission that if an application is made under Section 21 of the PMLA, the request would be considered and relevant documents provided in accordance with law.
The matter has been posted for further hearing, with the Court indicating that it would closely examine both the proportionality of the coercive measures adopted and the seriousness of the allegations relating to digital manipulation and money laundering.