The Enforcement Directorate (ED) has imposed a penalty of ₹2,146 crore on PC Financial Services Private Limited (PCFS), a non-banking financial company (NBFC), for violations of the Foreign Exchange Management Act (FEMA). The company, which operates a loan app allegedly linked to Chinese and Norwegian entities, has become the first NBFC running a loan app to face such a substantial fine in India. Earlier RBI and Government banned a lot of illegal Loan apps in India.
Adjudication Proceedings and Property Confiscation
The adjudication process concluded on October 7, with the ED’s adjudicating authority ordering the confiscation of PCFS’s properties worth ₹252 crore located in India. According to an ED official, “After carefully examining the alleged violations and the written submissions made during personal hearings, it has been found that the FEMA violations were clearly proven.”
Investigation Findings
PCFS, a subsidiary of Norway’s Opera Group, came under investigation by the ED’s Hyderabad unit after suspicions arose that the company was being controlled by Chinese owners. The investigation revealed that PCFS was lending money to Indian borrowers through its mobile app, ‘CashBean’. It was discovered that PCFS had made fraudulent remittances of ₹429 crore to related overseas group companies under the pretense of importing software licenses and services.
As a result of the investigation, PCFS’s properties in India, totaling ₹252 crore, were seized through three orders issued in 2021. These seizures were confirmed by the competent authority in February 2022. PCFS subsequently appealed the decision before the appellate forum.
RBI’s Actions and Findings
In February 2022, the Reserve Bank of India (RBI) took action against PCFS, stating: “PCFS was found to be charging usurious rates of interest and other charges to its borrowers, in addition to using unauthorized logos of RBI and CBI for recovery purposes, in violation of the fair practices code.” As a result, the RBI canceled PCFS’s certificate of registration and barred it from operating as an NBFC.
FEMA Violations and Legal Proceedings
On June 21, 2022, the ED filed a complaint with the adjudicating authority against PCFS and others under Section 16 of FEMA, citing multiple violations of the act. A show-cause notice was issued the following day, leading to personal hearings. However, Zhang Hong, the country head of PCFS during the period of contravention, failed to respond to the notice or participate in the hearings.
The ED’s investigation and subsequent penalty mark a significant development in the enforcement of FEMA regulations, especially in the context of foreign-linked NBFCs operating loan apps in India.
