Razorpay Directors Must Face Trial Over Alleged KYC Lapses In ₹320-Crore Transactions: Karnataka HC

The petitioners, Razorpay’s whole-time Director and Managing Director, sought to quash proceedings in Special C. No. 324 of 2026, including the cognizance order and summons, in which they were arrayed as Accused Nos. 8 and 9.

The proceedings arose from an SFIO investigation, ordered under Section 212 of the Companies Act, 2013, into Jilian Consultants India Pvt. Ltd. and 32 other companies; Razorpay was not named in the investigation order.

The complaint alleged that Razorpay had processed approximately ₹320 crore in transactions for Mad Elephant Network Technology Pvt. Ltd. and that the petitioners failed to ensure adequate merchant onboarding, KYC verification, due diligence, and transaction monitoring. It alleged breach of directors’ duties under Section 166 of the Companies Act.

The petitioners challenged the SFIO’s jurisdiction, the absence of a specific offence or vicarious liability, limitation, and the validity of cognizance under the BNSS.

Section 212(1) of the Companies Act permits the Central Government to assign an SFIO investigation into a company’s affairs, while Section 212(14) permits prosecution of the company, its officers or employees, and any other person directly or indirectly connected with its affairs.

Section 166 concerns directors’ duties, including the duty to exercise due and reasonable care, skill, diligence, and independent judgment.

The Court applied the principle that quashing jurisdiction under Section 528 of the BNSS is to be exercised sparingly and does not ordinarily permit a mini-trial or determination of disputed facts.

Relying on Kaptan Singh v. State of Uttar Pradesh, (2021) 9 SCC 35, and Muskan v. Ishaan Khan (Sataniya), 2025 SCC OnLine SC 2355, the Court reiterated that the High Court should not assess disputed evidence or decide the merits of allegations at the quashing stage where triable issues arise.

The Court considered the allegation that Razorpay had processed about ₹320 crore in transactions connected with MENTPL and held that whether the petitioners, as Razorpay directors, had discharged their duties or exercised adequate due diligence raised disputed questions of fact requiring trial.

It also treated the petitioners’ objection that Razorpay itself was not an accused, and their other challenges to the complaint, as matters not suitable for determination at that stage, given the nascent proceedings and the possibility that Razorpay’s role might emerge through further proceedings.

Applying the rule against conducting a mini-trial in quashing proceedings, the Court declined to determine the merits of the limitation and BNSS cognizance challenges separately.

The allegations and disputed questions concerning the petitioners’ duties and conduct were left to be addressed in the proceedings before the trial court.