Fino MD's arrest highlights GST liability risks in digital payments chain

The DGGI's arrest of Fino Payments Bank MD Rishi Gupta in a probe linked to banned online gaming has intensified scrutiny of GST liability, programme managers and compliance networks

Armed with legislative powers, the government has been acting on online gaming for over a year. The crackdown has now reached a high-profile domestic case.

 

In March last year, the Directorate General of Goods and Services Tax Intelligence (DGGI) had launched a drive against offshore online money-gaming entities, blocking 357 websites/uniform resource locators, freezing nearly 2,400 bank accounts, and attaching ₹126 crore in suspected proceeds. Three Indian nationals facilitating such platforms from abroad were arrested in that operation.

 

The DGGI probe that led to the arrest of Fino Payments Bank Managing Director (MD) and Chief Executive Officer (CEO) Rishi Gupta centres on banned online money gaming and has uncovered the involvement of a senior bank functionary in facilitating GST (goods and services tax) evasion, sources in the Union finance ministry say.

 

Real-money online gaming has been banned nationwide under the Promotion and Regulation of Online Gaming Act, 2025, which received presidential assent and was notified on August 22, 2025, with full rules coming into effect on October 1, 2025.

 

Earlier, illicit funds from such activities often flowed through offshore channels that were difficult to trace. The explosion of fully traceable digital payments — Unified Payments Interface, banking rails, and payment aggregators — has made enforcement easier.

 

“In the Fino Payments Bank case arrest, the DGGI is investigating a case of online money gaming, which is banned. Initial investigation indicates GST evasion of several crores, involving many shell and non-existent entities, payment aggregators, etc. which have been used to funnel the illicit funds being generated by online money gaming. Investigation conducted so far has brought out the involvement of a senior bank functionary in the fraud, who has been placed under arrest,” a source in the know said.

 

Gupta was arrested in Mumbai in the early hours of February 27 by the DGGI’s Hyderabad unit under Sections 132(1)(a) and 132(1)(i) of the Central GST and State GST Acts, 2017. He was later shifted to JJ Hospital after he complained of chest pain and is waiting to be produced before court.

 

The ‘violation’ explained

 

Section 132(1)(a) deals with the supply of goods or services without issuing any invoice (or issuing false invoices) with the intent of evading tax. Section 132(1)(i) covers wrongful availing or utilisation of input tax credit. When the amount involved exceeds ₹5 crore, the offence becomes cognizable and non-bailable, punishable with imprisonment up to five years and fine. 

 

According to reports, investigators have alleged dummy merchants were taken on board through the bank’s programme managers and payment aggregators to route nearly ₹3,000 crore linked to banned real-money gaming transactions without proper invoicing or tax payment. The broader network under scrutiny is estimated at up to ₹13,000 crore.

 

Where responsibility lies

 

The bank has strongly denied any wrongdoing at institutional or leadership levels. In its regulatory filing, the bank said the investigation “relates to business partner(s) of the Bank and not relating to the GST compliance of the Bank … The Bank and its MD & CEO, Rishi Gupta, have nothing to do with the actions of the business partner(s)”. Chief Financial Officer (CFO) Ketan Merchant was appointed head of the organisation the same evening.

 

The Finance Ministry sources directly counters that position by flagging “the involvement of a senior bank functionary in the fraud”. Under GST law, “persons responsible” - including the MD/CEO - can face personal liability if there is evidence of knowledge, consent or connivance.

Abhishek A Rastogi, Mumbai-based tax lawyer and founder of Rastogi Chambers, who has argued on this issue before courts, said: “Mere association with a non-compliant programme manager may not be enough unless investigators show active facilitation and retention of benefit at the top level.”

 

Penalty provisions

 

According to Prashanth Agarwal, partner with Price Waterhouse, the powers to arrest under GST flow from Section 69, read with Section 132. 

 

“Section 69 of CGST Act empowers the commissioner to authorise an arrest where he has ‘reasons to believe’ that a person has committed under Section 132 an offence that is cognizable and non-bailable,” he said. 

 

According to GST law, when more than ₹5 crore has been evaded, the responsible officer faces up to five years in jail plus a fine equal to the tax evaded. The company is liable for the paying tax, interest, and penalty (often 100-200 per cent of the amount evaded). Programme managers and payment aggregators face the same provisions if they have aided or abetted the fraud, according to Agarwal. Meanwhile, regulated banks have no blanket immunity; the Reserve Bank of India (RBI) oversight runs parallel to GST enforcement, say experts. 

 

Action part of a continuing drive

 

On February 27, the Belagavi zonal unit announced the arrest of the mastermind of a ₹593 crore fake invoice racket in Bengaluru.

 

On February 7, the Visakhapatnam unit arrested a proprietor of a mineral firm for taking and utilising wrongful input tax credit of ₹6.59 crore. In the same gaming-related probe, Pankaj Kumar of Adsum was arrested on February 20 for allegedly providing fraudulent KYC facilitation, which helped route funds through shell entities.

 

Implications 

 

The Fino episode, set against the sustained enforcement since the 2025 ban, has started a debate on overreach. Industry veteran TV Mohandas Pai flagged his concern on X, prompting Union Finance Minister Nirmala Sitharaman to reply: “Thanks for sharing this. Will check.” The Central Board of Indirect Taxes and Customs (CBIC) is reviewing the matter.

 

According to a former banking official, for the fintech sector, the case highlights risks in relying on programme managers and aggregators. He expects tighter RBI-CBIC coordination on partner due diligence and data sharing.

 

Fino recently received RBI clearance for Gupta’s three-year reappointment and an in-principle nod for converting itself into a small finance bank.

 

Gupta’s court production and the outcome of the ministerial review will be closely watched.