Legislation UpdatesNotifications

1. The Prevention of Money Laundering Act, 2002 (“PMLA”) was brought into force with effect from 1st July 2005. Necessary Notifications / Rules under the said Act were published in the Gazette of India on July 01, 2005 by the Department of Revenue, Ministry of Finance, Government of India.

2. As per the provisions of the PMLA, every banking company, financial institution (which includes chit fund company, a co-operative bank, a housing finance institution and a non- banking financial company) and intermediary (includes a stock-broker, sub-broker, share transfer agent, banker to an issue, trustee to a trust deed, registrar to an issue, asset management company, depository participant, merchant banker, underwriter, portfolio manager, investment adviser and any other intermediary associated with the securities market and registered under Section 12 of the Securities and Exchange Board of India Act, 1992 (SEBI Act)) shall have to adhere to client account opening procedures and maintain records of such transactions as prescribed by the PMLA and rules notified there under.

3. Pursuant to amendments made to the PMLA and Rules made thereunder, updated guidelines in the context of recommendations made by Financial Action Task force (FATF) on anti-money laundering standards is enclosed. These guidelines have been divided into two parts; the first part is an overview on the background and essential principles that concern combating Money Laundering (ML) and Terrorist Financing (TF). The second part provides a detailed account of the procedures and obligations to be followed by all registered intermediaries to ensure compliance with AML/ CFT directives. These guidelines shall also apply to registered intermediaries’ branches and subsidiaries located abroad, especially, in countries which do not or insufficiently apply the FATF Recommendations, to the extent local laws and regulations permit. When local applicable laws and regulations prohibit implementation of these requirements, the same shall be brought to the notice of SEBI.

4. The key circulars/ directives issued with regard to KYC, CDD, AML and CFT have been mentioned in Schedule I. These directives lay down the minimum requirements and it is emphasized that the intermediaries may, according to their requirements, specify additional disclosures to be made by clients to address concerns of money laundering and suspicious transactions undertaken by clients. Reference to applicable statutes and reporting guidelines for intermediaries is available at the website of the Financial Intelligence Unit – India (FIU-IND).

5. This Master Circular shall supersede the earlier Master Circular on AML/ CFT dated July 04, 2018.

*Please follow the link for detailed Circular: Notification

Securities Exchange Board of India

[Master Circular dt. 15-10-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for SAFEMA, FEMA, PMLA, NDPS & PBPT Act: Justice Manmohan Singh (Chairman), dismissed an appeal filed by a company challenging a show-cause notice for retention of its property, on the ground that no hardship was caused to the appellant-company by the impugned notice.

In the present case, FIR was registered by CBI against Videocon International Electronics Limited under Sections 120-B and 420 of Penal Code, 1860 and Sections 7 and 13(2) of Prevention of Corruption Act, 1988. It is pertinent to note that appellant’s name was not mentioned in the said FIR. An Enforcement Case Information Report (ECIR) was recorded, but appellant was not even supplied a copy of that report. Search was conducted by Enforcement Directorate (ED) at the appellant’s offices and various documents were seized without even mentioning what those files pertained to. An application was filed by the ED under Section 17(4) of the Prevention of Money Laundering Act, 2002 seeking retention of the seized property. The said application was allowed by the Adjudicating Authority, and appellant was served a show-cause notice under Section 8(1) PMLA seeking his reply as to sources of procurement of property seized. Aggrieved by the said order, the instant appeal was filed.

Learned counsels Vinit Virmani and  R.K. Gosain appearing on behalf of the appellant, submitted that the impugned notice was issued on the basis of reason to believe and there was non-application of mind because the Authority did not even peruse the report of records seized. Further, the details of seizure documents were not in the manner prescribed. Since a proper list of documents had not been supplied to the appellant, it was not even aware of the contents of seized documents. It was further contended that the name of the appellant was not even mentioned in the FIR. Lastly, the seizure memo prepared was contrary to Rule 3(3)(A) of PMLA (Restoration of Property) Rules read with Rule 5 of PMLA (Forms, Search & Seizure, Etc.) Rules, 2005.

Counsels for the respondent, Nitesh Rana and A.R. Aditya, submitted that the appeal filed was not maintainable. They argued that before issuing the notice, if there are certain mistakes and defects or omissions, the notice already issued cannot be declared invalid at this stage, under Section 68 of PMLA. It was contended that the Adjudicating Authority did not pass an order, but had merely issued a show-cause notice. An appeal can be filed under Section 26(1) PMLA before this Tribunal only against an order of the Adjudicating Authority which has been passed under Section 8(4) of PMLA. Further, if an appeal is allowed against every procedural act of the Adjudicating Authority, as is the case of appellant, it would lead to multiplicity of proceedings. Respondent’s counsels admitted that a thirty-day notice, as mandated under Section 8 PMLA, was not given prior to issuance of show-cause notice. But he submitted that it was a curable defect under Section 68 PMLA, and that appellant could still be given 30 days to file a reply to the notice.

The Tribunal placed reliance on Farida Begum Biswas v. UOI, 2015 SCC OnLine Del 11834 where it was held that “Any person aggrieved by an order made by the Adjudicating Authority under Section 8 of PMLA can avail the remedy of appeal under Section 26 of PMLA to the Appellate Tribunal” It was opined that an appeal under Section 26 PMLA may or may not be maintainable. An appeal before PMLA may be maintainable in exceptional circumstances such as great hardship being caused to a party, abuse of the law, injustice, irreparable loss and great prejudice to party concerned. Thus, maintainability as an issue could only be decided on the facts and circumstances of each case.

It was noted that in the present case, the respondent had merely seized two files containing papers, and the appellants were entitled to receive copies of the same under Section 21(2) PMLA at the appropriate time. Therefore, no hardship was being caused to the appellant if the objections raised by it would be decided by the Adjudicating Authority within a time-bound manner. Moreover, appellant always had the remedy to challenge the Authority’s order in appeal after the retention order under Section 17(4) PMLA is passed.

In view of the above, the present appeal was dismissed.[Pacific Capital Services (P) Ltd v. Deputy Director, Directorate of Enforcement, Mumbai, 2019 SCC OnLine ATPMLA 26, decided on 30-05-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for SAFEMA, FEMA, PMLA, NDPS & PBPT Act: A Coram of Manmohan Singh (Chairman), J. and G.C. Mishra (Member) set aside the Adjudicating Authority’s order allowing retention of seized property, on the ground of non-compliance of provisions of Prevention of Money Laundering Act, 2002.

An investigation was initiated on the basis of a notice issued by the Income Tax Department under Black Money Act, 2015 against one Sanjay Bhandari for not disclosing his foreign assets for the purpose of taxation before the tax authorities. Since the appellant had received a certain sum as legal fees for advice rendered to Sanjay Bhandari, a search and seizure was initiated against him pursuant to which the respondent prayed for retention of seized property. Appellant objected to the same stating that the seized material was not connected with the proceedings related to Sanjay Bhandari. Adjudicating Authority allowed retention of documents under Section 17(4) PMLA vide order dated 26-05-2017. Hence, the present appeal.

The Tribunal noted that neither any report against the appellant had been forwarded to the Magistrate, nor had any complaint against the appellant been filed before a Magistrate. It was observed that the prescribed period for filing prosecution complaint is ninety days. But in the present case, no prosecution complaint had been filed even after almost a year and ten months had passed. Further, Section 8(3)(a) of PMLA provides that attachment or retention of seized property shall continue during an investigation for a period not exceeding ninety days. The said prescribed period had already expired as more than a year had elapsed but the properties and records had not been returned so far which was in clear violation of the provisions of PMLA.

It was opined that if a particular thing is to be done in a particular manner, it must be done in that way and none other. Reliance in this regard was placed on Dipak Babaria v. State of Gujarat, (2014) 3 SCC 502.

In view of the above, the appeal was allowed directing the respondent to return seized documents/records to the appellant.[Sanjeev Kapoor v. Deputy Director, Directorate of Enforcement, Delhi, 2019 SCC OnLine ATPMLA 8, decided on 09-04-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for SAFEMA, FEMA, PMLA, NDPS & PBPT Act: The coram of Manmohan Singh, J. (Chairman) and G.C. Mishra (Member) ordered to keep an appeal filed before this Tribunal in abeyance until the Special Court, which had already taken cognizance of the matter at hand, finally disposed of the case.

Facts of the case were that one Mr Anup Prakash Garg who was a Director in Andhra Bank from had hatched a criminal conspiracy with Sterling Biotech Ltd. (SBL) and cheated Andhra Bank to the tune of Rs 5382 crores, which was received by him as gratification for favouring SBL group in his capacity as Director of Andhra Bank. The case of the Enforcement Directorate was that the said amount was received by Mr. Garg in cash, and was layered into the appellant company set up by him with his son, wife and his daughter-in-law who were Directors in the appellant company. Aggrieved by the ED’s case in Special Court, the instant appeal was filed.

The preliminary objection taken by counsel for the respondent Mr Nitesh Rana was that ED had filed a case in the Special Court under Prevention of Money Laundering Act, 2002 and the Special Court had already taken cognizance of the same. Therefore, it was pleaded that this case be kept pending till disposal by the Special Court.

The Court noted that the entire scheme of PMLA provides that only a Special Court can adjudge on the offence of money laundering. Section 44(1)(a) of PMLA specifically states that an offence punishable under Section 4 and any scheduled offence connected to the offence under that Section shall be triable by a Special Court. Reliance in this regard was placed on Nikesh Tarachand Shah v. Union of India, (2018) 11 SCC 1.

In view of the above, it was held that only the Special Court had the power to decide on the offence of money laundering.[RAG Buildtech (P) Ltd. v. Deputy Director, Directorate of Enforcement, Delhi, FPA-PMLA-2548/DLI/2018, decided on 26-03-2019]