Karnataka High Court Rejects Razorpay Cofounders’ Plea to Quash SFIO Case

The Karnataka High Court has rejected a petition filed by Razorpay cofounders Harshil Mathur and Shashank Kumar seeking to quash criminal proceedings initiated by the Serious Fraud Investigation Office (SFIO). The case relates to alleged lapses in merchant onboarding, Know Your Customer (KYC) verification and transaction monitoring involving a digital lending company accused of operating predatory loan recovery practices.

In an order dated November 4, 2026, Justice M. Nagaprasanna held that the allegations against the Razorpay executives involved disputed questions of fact that could only be examined during a full-fledged trial. The investigation alleges that Razorpay processed approximately ₹320 crore in transactions linked to Mad Elephant Network Technology Pvt. Ltd. (MENTPL), a company allegedly connected to an illegal digital lending network. The development comes as Razorpay prepares for its proposed initial public offering (IPO).

Karnataka High Court Rejects Razorpay Executives’ Petition

The petition was filed by Harshil Mathur, Razorpay’s whole-time director, and Shashank Kumar, the company’s managing director.

Both executives approached the Karnataka High Court challenging criminal proceedings initiated following an SFIO investigation into a network of companies allegedly involved in financial irregularities and illegal digital lending activities.

They were named as accused numbers eight and nine in the criminal complaint pending before the LIX Additional City Civil and Sessions Court in Bengaluru.

The executives argued that the SFIO had exceeded its jurisdiction by initiating proceedings against them because Razorpay was not among the 33 companies specifically identified in the Central government’s original investigation order.

They also challenged the allegations concerning KYC obligations, merchant onboarding and their personal responsibility as directors.

However, the High Court rejected their arguments at this stage, observing that the allegations involved factual issues that required examination during trial.

The court maintained that it could not conduct a mini-trial while considering a petition seeking to quash criminal proceedings.

Consequently, the proceedings against Mathur and Kumar will continue.

Why Is the SFIO Investigating Razorpay Cofounders?

The case originates from an SFIO investigation into a network of 33 companies allegedly created through Jilian Consultants India Pvt. Ltd. (JCIPL), a subsidiary of Fininty Pvt. Ltd.

According to the investigation, JCIPL allegedly established multiple companies using dummy directors, with links to entities controlled by Chinese interests.

One of the companies identified during the investigation was Mad Elephant Network Technology Pvt. Ltd. (MENTPL).

MENTPL allegedly entered into an arrangement with X10 Financial Services Ltd., a non-banking financial company (NBFC), to facilitate lending operations through digital platforms and mobile applications.

The SFIO alleged that the lending operation involved unethical and coercive loan recovery practices.

According to the complaint, MENTPL generated wrongful gains of approximately ₹56.63 crore through these activities.

The investigation subsequently examined the role of payment intermediaries that allegedly facilitated transactions connected to the lending operation.

SFIO Alleges Razorpay Processed ₹320 Crore in Transactions

One of the central allegations against the Razorpay executives concerns the company’s payment aggregation services for MENTPL.

The SFIO alleged that Razorpay acted as a payment intermediary for approximately ₹320 crore worth of transactions linked to the company.

The agency accused the executives of failing to ensure adequate merchant onboarding procedures, KYC verification, due diligence and monitoring of transactions.

The complaint alleges that the directors failed to exercise reasonable care, skill, diligence and independent judgment while discharging their responsibilities.

These allegations have been brought under Section 166 of the Companies Act, 2013, which establishes the duties and responsibilities of company directors.

The SFIO’s position is that the executives’ alleged failures require criminal examination because of the scale and nature of the transactions involved.

However, these remain allegations and have not been established through a final judicial determination.

What Did Razorpay Cofounders Argue Before the Court?

Mathur and Kumar challenged the SFIO proceedings on several legal grounds.

Their lawyers argued that the government’s original investigation order covered 33 companies and did not specifically include Razorpay.

They maintained that providing payment aggregation services to a merchant did not automatically make the company’s directors responsible for the merchant’s alleged illegal activities.

The executives also argued that full KYC verification obligations rested primarily with banks rather than payment intermediaries.

Another argument concerned criminal liability. They contended that alleged negligence in merchant onboarding could not independently establish a criminal offence or justify holding directors personally liable.

The petitioners further questioned why Razorpay had been singled out when other payment intermediaries involved in similar transactions had not been proceeded against.

They also raised objections concerning the limitation period and the absence of sufficient grounds for imposing criminal liability on the executives when Razorpay itself had not been named as an accused.

However, the SFIO opposed the petition.

Representing the Union government, Additional Solicitor General K. Arvind Kamath argued that Section 212(14) of the Companies Act permits prosecution not only of companies under investigation and their officers but also of other individuals directly or indirectly connected with their affairs.

The prosecution maintained that the alleged movement of approximately ₹320 crore through Razorpay warranted further examination.

Why the Karnataka High Court Refused to Quash the Case

In rejecting the petition, the Karnataka High Court focused on the distinction between examining allegations at an initial stage and determining criminal responsibility after a trial.

The court observed that questions concerning whether the executives fulfilled their fiduciary duties and conducted adequate due diligence could not be conclusively decided at the stage of quashing proceedings.

It also noted that the SFIO’s allegations involved disputed questions of fact.

The court said it could not conduct a mini-trial to determine whether the executives were guilty or innocent while exercising its jurisdiction to quash the complaint.

Another important observation concerned Razorpay’s position in the case.

Although the company itself has not been named as an accused in the complaint, the court indicated that its role could emerge as the proceedings progress.

The court therefore found no sufficient reason to interfere with the criminal proceedings at this stage.

The dismissal does not amount to a finding that the Razorpay executives are guilty. They will have the opportunity to establish their defence during the trial.

Razorpay Responds to the Court’s Decision

Following the development, Razorpay maintained that it had no association with the entities involved in the alleged illegal lending operations.

In a statement reported by The Economic Times, the company said the matter concerned loan applications that operated illegally through multiple payment gateways and banks in India.

Razorpay stated that it had no association with these entities and expressed confidence in the judicial process.

The company also said compliance and good governance remained central to its operations and that it would pursue appropriate legal remedies.

The statement highlights the company’s position that providing payment infrastructure should not be interpreted as participation in the underlying lending activities.

The legal proceedings will now determine the allegations against the executives.

Razorpay’s SFIO Case Comes Ahead of Its Proposed IPO

The court’s decision comes at an important time for Razorpay as it prepares to enter the public markets.

The fintech company has reportedly received SEBI’s final approval for its proposed IPO, which is expected to be worth between ₹5,000 crore and ₹6,000 crore.

The proposed offering is expected to value Razorpay at approximately $5 billion.

The company pre-filed its IPO papers earlier in 2026 and is reportedly targeting a stock market listing between January and March 2027.

The offering is expected to include a combination of fresh share issuance and an offer for sale (OFS), through which existing shareholders can sell part of their holdings.

The latest court development adds a legal matter to the list of issues investors may examine as Razorpay moves towards its public listing.

However, the rejection of the petition does not automatically establish wrongdoing by the company or its executives. The allegations remain subject to judicial examination.

The Bigger Picture

The Razorpay case highlights the growing compliance responsibilities facing India’s fintech and payment aggregation industry.

Payment gateways and aggregators play an important role in India’s digital financial ecosystem by enabling businesses to accept and process online payments. However, their services can also create compliance challenges when merchants are subsequently linked to fraudulent activities, illegal lending operations or questionable financial practices.

The allegations in this case raise important questions about merchant verification, transaction monitoring and the responsibilities of senior executives overseeing payment platforms.

For the broader fintech industry, the proceedings could draw attention to how regulators and investigative agencies interpret the responsibilities of payment intermediaries under existing corporate laws.

At the same time, the distinction between facilitating payments and participating in illegal financial activities will remain an important legal consideration.

Looking Ahead

The criminal proceedings against Harshil Mathur and Shashank Kumar will continue before the Bengaluru court. The trial will examine the allegations concerning merchant onboarding, KYC verification, transaction monitoring and the executives’ responsibilities under the Companies Act. The outcome could provide further clarity on the extent of directors’ accountability when payment infrastructure is allegedly used by businesses involved in illegal activities.

For Razorpay, the immediate challenge will be managing the legal proceedings while continuing its business operations and IPO preparations. With a proposed valuation of approximately $5 billion, the company will likely face scrutiny from investors over its governance, compliance systems and legal exposure as it moves closer to a potential stock market listing.