Prevention of Money Laundering Act 2002

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Karnataka High Court’s Judgment in Dreamz Infra India Limited v. Competent Authority - Yet another manifestation of primacy of the IBC

Since the introduction of the Insolvency and Bankruptcy Code, 2016 (“Code/IBC”), the courts and tribunals in India have had to constantly assess the application of the Code vis-à-vis other central and state legislations in light of the non-obstante clause under Section 238 of the Code.  The courts have time and again reiterated that the Code would have an overriding effect over other legislations to the extent of being repugnant  to the matters exhaustively dealt with under the Code. The courts have re-affirmed the primacy of the Code based on the premise that the IBC is a ‘complete and consolidated code in itself.’ For example, in Innoventive Industries Ltd. vs. ICICI Bank and Ors. (“Innoventive”), the Hon’ble Supreme Court upheld the primacy of the Code over the Maharashtra Relief Undertakings (Special Provisions) Act, 1958 and in Directorate of Enforcement vs. Manoj Kumar Agarwal & Ors (“Manoj Kumar Agarwal case”), the Hon’ble National Company Law Appellate Tribunal  (“NCLAT”) noted that the  provisions of the Code shall override the attachment of the properties of the Corporate Debtor under Sections 5 and 8 of the Prevention of Money Laundering Act, 2002.[1]
Continue Reading Karnataka High Court’s Judgment in Dreamz Infra India Limited v. Competent Authority: Yet another manifestation of primacy of the IBC

“A predicate offence is the sine qua non for the offence of money laundering” - IS IT REALLY

1. INTRODUCTION

The Prevention of Money Laundering Act, 2002 (“PMLA”) has proven to be a revolutionary legislation and is certainly one of its kind. The nature of the statute and the utmost necessity that it be enforced in a manner that fulfils the legislative intent thereby creating economic security as well as the nation’s requirements have resulted in wide powers being granted to the Enforcement Directorate (“ED”). Although there are significant judgments that have set the law straight, both procedural and substantive, or at least strived to, a fascinating, albeit controversial judgment has been passed by the High Court of Bombay recently in Babulal Verma and Ors. vs. Enforcement Directorate and Ors (“Babulal Judgment”).[1]
Continue Reading “A predicate offence is the sine qua non for the offence of money laundering” – IS IT REALLY?

Attachment Details Insolvency-and-Bankruptcy-Code-Re-affirming-its-primacy-over-the-Prevention-of-Money-Laundering-Act-2002

It has been an active month for the Insolvency and Bankruptcy Code, 2016 (“Code”/ “IBC”). On one hand, the legislature has inserted a new chapter into the Code providing for pre-packed insolvency resolution process for micro, small or medium enterprises (“MSMEs”) to ease and fast track the resolution for the stressed MSMEs, while on the other hand, Courts through various landmark decisions have upheld the primacy of the Code which will play a significant role in boosting the confidence of the stakeholders, particularly the creditors and the resolution applicants, in the sanctity of the corporate insolvency resolution process (“CIR Process”).
Continue Reading Insolvency and Bankruptcy Code: Re-affirming its primacy over the Prevention of Money Laundering Act, 2002

 

Serious Fraud Investigation Office – Keeping a close watch on frauds in India Inc

The Serious Fraud Investigation Office (‘SFIO’) is an organisation established under the aegis of the Ministry of Corporate Affairs (‘MCA’) – for investigation and prosecution of white-collar crimes. The SFIO was constituted in July 2003 following the recommendations of the Naresh Chandra Committee. In 2002, the Naresh Chandra Committee had recommended setting up a ‘Corporate Serious Fraud Office’, to uncover corporate fraud, and supervise prosecutions under various economic legislations.
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The PMLA – is the net cast too wide

The Prevention of Money Laundering Act, 2002 (‘PMLA’) has undergone multiple amendments after it was brought into operation on July 1, 2005. Most recently, the PMLA was amended through the –

  • Finance Act, 2015 (‘2015 Amendment’)
  • Finance Act, 2018 (‘2018 Amendment’)
  • Finance Act, 2019 (‘2019 Amendment’)

These amendments aimed to plug loopholes in the operation of the PMLA – to strengthen the framework for tackling money laundering. In furtherance of this objective, the 2019 Amendment has clarified the definition of “proceeds of crime” under Section 2(1)(u). Amendments were also made to Section 45, following the Supreme Court’s decision in the Nikesh Tarachand Shah[1] case – which struck down the pre-conditions for bail prescribed under Section 45(1). Over the years, the list of “scheduled offences” under Schedule I of the PMLA has also been amended significantly. Another aspect that arises in many PMLA proceedings is the admissibility of statements made to investigating officers.
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Vicarious Liability of Non-Executive Directors - A Case for Reform of Law

Context:

The vicarious liability provisions have been evolving ever since the evolution of law of torts. “Offence by companies” is a standard vicarious liability provision in most statutes, which is often used to fasten the liability on directors for the acts and omissions of the company. These vicarious liability provisions are borrowed from colonial-era laws and incorporated in our domestic legislations. As a rule, there is no concept of vicarious liability in criminal law. Such provisions imposing liability on directors for acts/ omissions of the company are present in most statutes.

The vicarious liability provisions have a standard language providing that the person-in-charge of and responsible for the conduct of the business of the company at the time of the commission of the offence, as well as other officers are liable for that offence. However, those provisions do not make a distinction between Managing Directors (“MDs”)/ Executive Directors (“EDs”) and Non-Executive Directors (“NEDs”)/ Independent Directors (“IDs”).
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Corporate Frauds – Emerging Legal Architecture & Judicial Trends

Corporate scandals and frauds in India are as old as the hills. The 1950s witnessed the infamous LIC/ Mundhra scam, which was the first major financial fraud of the independent India. Frauds continued with an alarming regularity thereafter in every decade – the infamous Harshad Mehta, Ketan Parekh, Sahara, and Satyam scams are just a few of them. These frauds were investigated by the law enforcement agencies under the relevant provisions of the Indian Penal Code, 1860 (IPC). The Companies Act, 1956 did not have any separate definition of ‘fraud’. Legally, it was not necessary to have a separate one as Lord Macaulay’s IPC adequately dealt with all such crimes. The Companies Bill, 2008 was the original legislative proposal to replace the Companies Act, 1956 basis Dr. J.J. Irani Committee Report (Irani Report). The Irani report did not have any recommendation for a provision like Section 447 dealing with frauds. It seems the intervening major corporate scandals of 2007-08 led the Parliamentary Standing Committee to recommend two new legislative changes:
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Overriding the IBC’s over-rider

Insolvency resolution regimes, globally, function as an exception to otherwise accepted norms of commercial law.[1] The Indian Insolvency and Bankruptcy Code, 2016 (“Code”), is no exception: a mere glance at the Code will display how it has a liberal sprinkling of non-obstante clauses.[2] From a specific dispute resolution mechanism, to an overarching carve out for insolvency resolution mechanism, the legislature has inserted non-obstante clauses in the Code as guidance of its intent. One would imagine that this would have ensured sufficient clarity for all stakeholders, avoided disputes and ensured timely insolvency resolution. Yet, as market participants try to understand the scope and intent of non-obstante clauses in the Code, such clauses continue to generate legal debate and litigation[3]. Perhaps, the stakes are too high for the parties to resist litigating. And some would argue not without good legal reason: after all, the Hon’ble Supreme Court has over the years identified exceptions[4] to the Latin maxim ‘leges posteriores priores contraries abrogant’ i.e. in the event two special statutes contain non obstante clauses, the non-obstante clause in the chronologically later special statute shall prevail[5].
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Barbarians at the gate – no entry without approval

To say that the Covid-19 has unleashed unprecedented times is an understatement. Every country, government, regulator and citizen across the globe is trying to come to terms with the implications of this deadly virus and surviving it. It is indeed a Hobson’s Choice – to save lives or to save the economy. But several countries, in said and unsaid words, have expressed vulnerability to the corporate raiders from China! They are literally at the gate and it has become a cause of worry for most governments and corporations.

Japan has proposed building an economy that is less dependent on China, so that Japan can mitigate supply chain disruptions caused by the current Covid-19 pandemic. To this end, Japan announced an emergency economic package on April 7, 2020, earmarking 240 billion yen (approximately USD 2.2 billion) for fiscal 2020 to pay  Japanese manufacturing firms to leave China and relocate production either to their home country or to diversify their production bases into South East Asia. Australia, Italy, Spain, and Germany have announced amendments to their respective foreign investment laws to make acquisitions and takeovers by foreigners much harder. So has the European Union. The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) of the United States has seen increased review of foreign investments under the Trump administration due to security and national interest concerns.
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Finance Act 2019 - Prevention of Money Laundering Act Amendment

The Finance Act, 2019 (the 2019 Act) is the Central Government’s endeavour to tighten the gaps around the existing provisions of the Prevention of Money Laundering Act, 2002 (PMLA). Amidst the growing number of financial crimes and high-profile cases, the 2019 Act attempts to make the existing provisions stricter and better armoured to detect suspicious transactions. Additionally, the Act, along with the other amendments, has a greater aim of targeting money laundering and terrorist financing. The 2019 Act attempts to remove the ambiguity in the existing provisions by amending eight clauses of the PMLA.
Continue Reading PMLA Amendment 2019 – Plugging the Loopholes