The Enforcement Directorate (ED) has imposed a massive penalty of Rs 2,146 crore on PC Financial Services (PCFS), a non-banking financial company (NBFC), for violating the Foreign Exchange Management Act (FEMA). PCFS, known for operating a mobile loan app, CashBean, is allegedly linked to Chinese and Norwegian companies. This marks the first time an NBFC running a loan app in India has faced such a hefty fine.
ED Concludes Adjudication, Seizes Properties
On October 7, the ED’s adjudicating authority finalised the proceedings by ordering the seizure of PCFS properties worth Rs 252 crore in India. The ED’s investigation, carried out by its Hyderabad unit, found that PCFS had been involved in illicit remittances of Rs 429 crore to overseas companies under the pretence of importing software licenses and services.
Details of the Investigation
The ED launched a probe into PCFS after suspicions arose about its operations, particularly its connections with Chinese owners. The investigation revealed that the company, a subsidiary of Norway’s Opera Group, was conducting fraudulent financial activities through its CashBean loan app.
An ED official stated that after a thorough examination of the allegations and submissions made during personal hearings, it was confirmed that FEMA violations had indeed been committed. This culminated in three property seizure orders in 2021, which were later confirmed by the competent authority in February 2022.
Fraudulent Remittances and Other Violations
The primary concern was PCFS’s fraudulent remittances to overseas companies, which amounted to Rs 429 crore. These payments were made under the guise of acquiring software and services but were, in reality, illegal transfers to associated foreign entities.
Moreover, it was discovered that PCFS had been charging exorbitant interest rates and additional fees to borrowers, in clear violation of India’s fair practices code. The company was also found to be misusing the logos of the Reserve Bank of India (RBI) and the Central Bureau of Investigation (CBI), creating a false sense of legitimacy when dealing with customers.
RBI’s Action Against PCFS
Back in February 2022, the RBI had already taken action against PCFS, cancelling its registration as an NBFC. The central bank highlighted that the company was exploiting borrowers by charging high interest rates and additional charges, violating established rules. PCFS was also debarred from functioning as an NBFC.
ED Files Complaint and Issues Show-Cause Notice
In June 2022, the ED filed an official complaint with the adjudicating authority, accusing PCFS of multiple violations under FEMA’s Section 16. A show-cause notice was issued, followed by several personal hearings. However, Zhang Hong, who was PCFS’s country head during the time of the alleged violations, did not respond to the notice or attend any hearings.
Significance of the Fine
This penalty is a significant development in the fight against fraudulent lending practices in India, particularly in the context of loan apps. Many NBFCs have been under scrutiny due to their ties with foreign entities and for operating in ways that harm Indian consumers, especially when it comes to charging excessive interest rates.
Final Thoughts
The case of PCFS highlights the growing concerns about loan apps with foreign connections, particularly those linked to China. The massive fines and property seizures send a strong message to other NBFCs engaged in similar practices. As India’s financial regulatory bodies, like the RBI and ED, continue to tighten their grip on fraudulent activities, the safety and trust in the financial sector are expected to improve.
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