Karnataka High Court Declines to Quash SFIO Proceedings Against Razorpay Directors

Petition rejected at the preliminary stage

The Karnataka High Court has declined to quash proceedings initiated by the Serious Fraud Investigation Office against Razorpay directors Harshil Mathur and Shashank Kumar. Justice M. Nagaprasanna rejected their writ petition on 4 November 2026, holding that the case involved seriously disputed questions of fact that could not be determined through a mini-trial in inherent jurisdiction. The order, reported on 13 November, permits the criminal proceedings to continue. It is not a conviction, and the allegations against the petitioners have not been finally established by this decision.

How the prosecution arose

The proceedings followed a Registrar of Companies report concerning an alleged network of shell companies and a Central Government investigation order under Section 212 of the Companies Act. SFIO's report, placed before the Government in July 2024, formed the foundation of the complaint. One investigated entity, Mad Elephant Network Technology Private Limited, allegedly operated within a digital lending arrangement involving a non-banking financial company. The complaint described coercive recovery methods and substantial wrongful gains. Those allegations provide the background of the prosecution; the High Court's refusal to intervene does not convert them into proven facts.

Allegations relating to the payment intermediary

The complaint alleges deficiencies in merchant onboarding, Know Your Customer verification, due diligence and monitoring of transactions involving the investigated entity. Mathur and Kumar were arrayed as accused numbers eight and nine in the Bengaluru proceedings on the basis of alleged failures to exercise directors' duties with reasonable care, skill, diligence and independent judgment. Section 166 of the Companies Act was invoked. The Union argued that the payment intermediary facilitated the movement of substantial funds and that the directors' alleged role warranted trial. These were the prosecution's contentions, contested by the petitioners.

Directors challenged jurisdiction and liability

The petitioners argued that SFIO's authority should remain confined to the companies named in the investigation order, whereas Razorpay was not one of those companies. They disputed the obligations attributed to a payment aggregator and contended that KYC responsibilities rested with banks. They also challenged the basis for proceeding against directors when the company itself was not arraigned and objected to imposing criminal liability merely because of their offices. Further procedural and limitation objections were raised. The High Court did not accept those submissions as a sufficient basis for extinguishing the case at this stage.

Why disputed questions were left to trial

The Court considered the scope of Section 212, including the statutory reference to prosecution of persons directly or indirectly connected with a company's affairs. It treated the questions whether directors' duties had been fulfilled and whether the required due diligence had occurred as factual matters for trial. The case remained at an early stage, and the role of the company could emerge as proceedings developed. The Court emphasised that Section 528 of the Bharatiya Nagarik Suraksha Sanhita does not authorise it to determine contested evidence as though conducting the eventual trial.

Meaning of the refusal to quash

The order applies the settled distinction between testing whether a prosecution may legally continue and deciding whether the prosecution has proved its case. The High Court referred to Supreme Court authorities cautioning against detailed factual adjudication in quashing proceedings. Its rejection of the petition leaves the competent court to assess the allegations, the evidence and the petitioners' defences according to law. It does not establish a general rule that every payment-company director is personally liable whenever a merchant is accused of wrongdoing.

Proceedings continue in Bengaluru

The challenged matter is Special Case No. 324 of 2026, arising from Private Complaint No. 33 of 2025, before the Bengaluru Sessions Court identified in the order. The petition had also challenged cognizance and consequential proceedings. With the High Court declining intervention, those proceedings remain available for adjudication through the ordinary criminal process. For corporate-law reporting, the distinction is essential: the decision concerns the proper forum and stage for resolving disputed duties, not a final determination of dishonesty or responsibility for the alleged lending operation.