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June, 15

PMLA: Delhi HC seeks Centre’s response on petition against inclusion of CAs

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The Delhi High Court has sought a reply from the Central Government on a petition against the inclusion of chartered accountants under the ambit of the Prevention of Money Laundering Act (PMLA).

According to the court website, the next date of hearing will be October 4. The petition filed by a practising chartered accountant, Rajat Mohan, seeks quashing a Finance Ministry notification dated May 3, 2023, and the application of five sections (11A,12,12A,12AA,13) of PMLA to the petitioner. Section 11A deals with verification of identity by a reporting entity. Section 12 prescribes the reporting entity to maintain records. Section 12A deals with access to information while section 12AA is about enhanced due diligence.

The Finance Ministry notification categorised practising chartered accountants, company secretaries and cost accountants as a ‘reporting entity’ under the PMLA for certain activities undertaken by them on behalf of their clients. These activities include (i) buying and selling of immovable property; (ii) managing of client money, securities or other assets; (iii) management of bank, savings or securities accounts; (iv) organisation of contributions for the creation, operation or management of companies; and (v) creation, operation or management of companies, limited liability partnerships or trusts, and buying and selling of business entities.

Also read:Editorial. Accountants rightly under PMLA lens for reporting transactions

Accordingly, the PMLA makes it obligatory for these practising professionals — CAs, CS and Cost accountants — to complete the know-your-client (KYC) norms of all clients entering into the specified activities and maintain a record for a certain period. 

The petitioner submitted that the impugned notification is ultra vires the PMLA. It creates a framework for a fishing and roving enquiry into every financial transaction of each individual/citizen who engages the services of the petitioner even before a money laundering proceeding has been initiated against any such citizen/individual or juristic entity. “In effect, the impugned notification has virtually put the cart before the horse,” the petition read.

Further, the obligation to report the transaction when any information is sought from the ‘reporting entities’ — that is, chartered accountants/ company secretaries/ cost accountants — is regardless of the amount involved in the transaction. “Any citizen of the country engaging the services of the chartered accountants/ company secretaries/ cost accountants for transactions specified in the impugned notification can be subjected to scrutiny even before an enquiry under the PMLA commences, as the authority under the PMLA can summon information from the reporting entities at any point of time simply for the purposes of PMLA,” the petition said.

It has been said that the very transactions/ activities mentioned in the impugned notification are routine work for these professionals and shall be stalled on account of the notification, thereby violating the right to livelihood of the petitioner.

“There are regulatory bodies to regulate the professional misconduct of the professionals covered under the impugned notification. The petitioner, who is covered under the Chartered Accountants Act, is regulated by the provisions of the said Act. It is submitted that the impugned notification does not reconcile the provisions of misconduct in that Act with the rigours suffered under PMLA by the petitioner and like professionals,” the petition said.





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