FEMA act was enacted by the parliament on 29th December, 1999 with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. The act extends to the whole of India and applicable to all branches, offices and agencies outside India owned or controlled by a person resident in India and also to any contravention thereunder committed outside India by any person to whom this Act applies.
Important definitions under the FEMA Act
According to Section 2(h) of the Act “currency” includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank.
According to Section 2(i) of the Act “currency notes” means and includes cash in the form of coins and bank notes.
According to section 2(j) of the Act “current account transaction” means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes,—
(i) payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business,
(ii) payments due as interest on loans and as net income from investments,
(iii) remittances for living expenses of parents, spouse and children residing abroad, and
(iv) expenses in connection with foreign travel, education and medical care of parents, spouse and children.
According to section 2(l) of the act “export”, with its grammatical variations and cognate expressions, means—
(i) the taking out of India to a place outside India any goods,
(ii) provision of services from India to any person outside India;
According to section 2(m), “foreign currency” means any currency other than Indian currency.
According to section 2(n), “foreign exchange” means foreign currency and includes,—
(i) deposits, credits and balances payable in any foreign currency,
(ii) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency,
(iii) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency.
According to section 2(o) “foreign security” means any security, in the form of shares, stocks, bonds, debentures or any other instrument denominated or expressed in foreign currency and includes securities expressed in foreign currency, but where redemption or any form of return such as interest or dividends is payable in Indian currency.
According to section 2(u) “person” includes—
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) every artificial juridical person, not falling within any of the preceding sub-clauses, and
(vii) any agency, office or branch owned or controlled by such person.
According to section 2(v) “person resident in India” means—
(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include—
(A) a person who has gone out of India or who stays outside India, in either case—
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;
(B) a person who has come to or stays in India, in either case, otherwise than—
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
(ii) any person or body corporate registered or incorporated in India,
(iii) an office, branch or agency in India owned or controlled by a person resident outside India,
(iv) an office, branch or agency outside India owned or controlled by a person resident in India.
Regulation and Management of Foreign Exchange
Section 3 of the FEMA act provides that according to the provisions in this Act, rules or regulations made thereunder, or with the general or special permission of the Reserve Bank, no person shall—
(a) deal in or transfer any foreign exchange or foreign security to any person not being an authorised person;
(b) make any payment to or for the credit of any person resident outside India in any manner;
(c) receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner.
d) enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person.
Section 4 of the FEMA act provides that no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.
Section 5 of the FEMA act provides that any person may sell or draw foreign exchange to or from an authorised person if such sale or withdrawal is a current account transaction. Provided that the Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be prescribed.
According to section 6 of the FEMA act any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction. But the RBI in consultation with the Central Government must specify—
(a) any class or classes of capital account transactions which are permissible;
(b)the limit up to which foreign exchange shall be admissible for such transactions.
(c) any conditions which may be placed on such transactions.
The Central Government in consultation with the Reserve Bank can prescribe—
(a) any class or classes of capital account transactions, not involving debt instruments, which are permissible;
(b) the limit up to which foreign exchange shall be admissible for such transactions; and
(c) any conditions which may be placed on such transactions.
The Reserve Bank may, by regulations prohibit, restrict or regulate the following:—
(a) transfer or issue of any foreign security by a person resident in India;
(b) transfer or issue of any security by a person resident outside India;
(c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India;
(d) any borrowing or lending in foreign exchange in whatever form or by whatever name called;
(e) any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India;
(f) deposits between persons resident in India and persons resident outside India;
(g) export, import or holding of currency or currency notes;
(h) transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India;
(i) acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India;
(j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred—
(i) by a person resident in India and owed to a person resident outside India; or
(ii) by a person resident outside India.
(4) A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.
(5) A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.
(6) The Reserve Bank may prohibit, restrict, or regulate establishment in India of a branch, office or other place of business by a person resident outside India, for carrying on any activity relating to such branch, office or other place of business.
Section 8 of the act mentions that where any amount of foreign exchange is due or has accrued to any person resident in India, such person shall take all reasonable steps to realise and repatriate to India such foreign exchange within such period and in such manner as may be specified by the Reserve Bank.
Key takeaways-
Provisions Related to Authorised Person
section 10(1) of the FEMA act mentions that the Reserve Bank may authorise any person to deal in foreign exchange or in foreign securities, as an authorised dealer, money changer or off-shore banking unit or in any other manner as it deems fit.
Section 10(3) provides that the authorisation granted may be revoked by the Reserve Bank at any time if the Reserve Bank is satisfied that—
(a) it is in public interest so to do; or
(b) the authorised person has failed to comply with the condition subject to which the authorisation was granted.
Section 10(4) An authorised person shall, in all his dealings in foreign exchange or foreign security, comply with such general or special directions or orders as the Reserve Bank may, from time to time, think fit to give, and, except with the previous permission of the Reserve Bank.
Section 10(5) of the FEMA act provides that before undertaking any transaction on behalf of any person an authorised person must make a declaration that person to make such declaration and give such information as will reasonably satisfy him that the transaction will not involve, and is not designed for the purpose of any contravention or evasion of the provisions of this Act or of any rule, regulation, notification, direction or order made thereunder.
Section 11of the FEMA act provides that Reserve Bank has powers to issue directions to authorised person regarding the following grounds-
(1) The Reserve Bank may, give direction in regard to making of payment or the doing or desist from doing any act relating to foreign exchange or foreign security.
(2) The Reserve Bank may direct any authorised person to furnish such information, in such manner, as it deems fit.
(3) Where any authorised person contravenes any direction given by the Reserve Bank under this Act or fails to file any return as directed by the Reserve Bank, the Reserve Bank may, after giving reasonable opportunity of being heard, impose on the authorised person a penalty which may extend to ten thousand rupees and in the case of continuing contravention with an additional penalty which may extend to two thousand rupees for every day during which such contravention continues.
Section 12 empowers the RBI to inspect authorised person in the following cases-
(1) The Reserve Bank may, at any time inspect the business of any authorised person for the purpose of—
(a) verifying the correctness of any statement, information or particulars furnished to the Reserve Bank;
(b) obtaining any information or particulars which such authorised person has failed to furnish on being called upon to do so;
(c) securing compliance with the provisions of this Act or of any rules, regulations, directions or orders made thereunder.
(2) It shall be the duty of every authorised person, and where such person is a company or a firm, every director, partner or other officer of such company or firm to produce to any officer making an inspection the books, accounts and other documents in his custody or power and to furnish any statement or information relating to the affairs of such person, company or firm as the said officer may require within such time and in such manner as the said officer may direct.
Key takeaways-
Contravention and penalties
According to section 13(1) if any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.
According to section 13(2) of the FEMA any Adjudicating Authority adjudging may, if he thinks fit in addition to any penalty which he may imposed direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government and further direct that the foreign exchange holdings, if any, of the persons committing the contraventions or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf.
Section 14 of the FEMA act deals with the enforcement of the orders of Adjucating Authority which are as follows-
(a) that the defaulter, with the object or effect of obstructing the recovery of penalty, has after the issue of notice by the Adjudicating Authority, dishonestly transferred, concealed, or removed any part of his property, or
(b) that the defaulter has, or has had since the issuing of notice by the Adjudicating Authority, the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same.
3. A warrant for the arrest of the defaulter may be issued by the Adjudicating Authority if the Adjudicating Authority is satisfied, by affidavit or otherwise, that with the object or effect of delaying the execution of the certificate the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Adjudicating Authority.
4. Where appearance is not made pursuant to a notice issued and served, the Adjudicating Authority may issue a warrant for the arrest of the defaulter.
5. A warrant of arrest issued by the Adjudicating Authority may also be executed by any other Adjudicating Authority within whose jurisdiction the defaulter may for the time being be found.
6. Every person arrested in pursuance of a warrant of arrest under this section shall be brought before the Adjudicating Authority issuing the warrant as soon as practicable and in any event within twenty-four hours of his arrest.
7. When a defaulter appears before the Adjudicating Authority pursuant to a notice to show cause or is brought before the Adjudicating Authority under this section, the Adjudicating Authority shall give the defaulter an opportunity showing cause why he should not be committed to the civil prison.
8. Pending the conclusion of the inquiry, the Adjudicating Authority may, in his discretion, order the defaulter to be detained in the custody of such officer as the Adjudicating Authority may think fit or release him on his furnishing the security to the satisfaction of the Adjudicating Authority for his appearance as and when required.
9. Upon the conclusion of the inquiry, the Adjudicating Authority may make an order for the detention of the defaulter in the civil prison and shall in that event cause him to be arrested if he is not already under arrest.
10. When the Adjudicating Authority does not make an order of detention, he shall, direct release of the defaulter.
Key takeaways-
Adjudication and appeal
Section 16(1) of the FEMA act provides that the Central Government may, by an order published in the Official Gazette, appoint as many officers of the Central Government as it may think fit, as the Adjudicating Authorities for the purpose of adjudication in their respective jurisdiction. Every Adjudicating Authority shall deal with the complaint as expeditiously as possible and endeavour shall be made to dispose of the complaint finally within one year from the date of receipt of the complaint.
Section 17(1) The Central Government shall, by notification, appoint one or more Special Directors (Appeals) to hear appeals against the orders of the Adjudicating Authorities and shall also specify in the said notification the matter and places in relation to which the Special Director (Appeals) may exercise jurisdiction.
(2) Any person aggrieved by an order made by the Adjudicating Authority, being an Assistant Director of Enforcement or a Deputy Director of Enforcement may prefer an appeal to the Special Director (Appeals).
(3) Every appeal shall be filed within forty-five days from the date on which the copy of the order made by the Adjudicating Authority is received by the aggrieved person and it shall be in such form, verified in such manner and be accompanied by such fee as may be prescribed:
(4) The Special Director (Appeals) may after giving the parties to the appeal an opportunity of being heard, pass such order thereon as he thinks fit, confirming, modifying or setting aside the order appealed against.
(5) The Special Director (Appeals) shall send a copy of every order made by him to the parties to appeal and to the concerned Adjudicating Authority.
(6) The Special Director (Appeals) shall have the same powers of a civil court which are conferred on the Appellate Tribunal and—
(a) all proceedings before him shall be deemed to be judicial proceedings;
(b) shall be deemed to be a civil court.
Section 19 (1) provided that the Central Government or any person aggrieved by an order made by an Adjudicating Authority, may prefer an appeal to the Appellate Tribunal. Every appeal shall be filed within a period of forty-five days from the date on which a copy of the order made by the Adjudicating Authority is received by the aggrieved person or by the Central Government [section 19(2)]. The appeal filed before the Appellate Tribunal shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within one hundred and eighty days from the date of receipt of the appeal [section 19(5)].
Key takeaways-
1. The Central Government may, by an order published in the Official Gazette, appoint as many officers of the Central Government as it may think fit, as the Adjudicating Authorities for the purpose of adjudication in their respective jurisdiction.
4.2 Prevention of Money Laundering Act, 2002
The Prevention of Money laundering Act, 2002 is enacted by parliament and came into force on such date as notified by Central Government in the official gazette. The act was formulated with objective to-
i) to prevent money-laundering,
ii) to provide for confiscation of property derived from, or involved in, money-laundering and
iii) for matters connected therewith or incidental thereto.
Some of the important definitions under the Money Laundering Act
Section 2(e) "banking company" means a banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act.
Section 2(h) "chit fund company" means a company managing, conducting or supervising, as foreman, agent or in any other capacity, chits as defined in section 2 of the Chit Funds Act, 1982.
Section 2(i) "co-operative bank" shall have the same meaning as assigned to it in clause (dd) of section 2 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961.
Section 2(n) "intermediary" means,-
(i) a stock-broker, sub-broker share transfer agent, banker to an issue, trustee to a trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser or any other intermediary associated with securities market and registered under section 12 of the Securities and Exchange Board of India Act, 1992; or
(ii) an association recognised or registered under the Forward Contracts (Regulation) Act, 1952 or any member of such association; or
(iii) intermediary registered by the Pension Fund Regulatory and Development Authority; or
(iv) a recognised stock exchange referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956.
Section 2(ra) "offence of cross border implications", means-
(i) any conduct by a person at a place outside India which constitutes an offence at that place and which would have constituted an offence specified in Part A, Part B or Part C of the Schedule, had it been committed in India and if such person transfers in any manner the proceeds of such conduct or part thereof to India; or
(ii) any offence specified in Part A, Part B or Part C of the Schedule which has been committed in India and the proceeds of crime, or part thereof have been transferred to a place outside India or any attempt has been made to transfer the proceeds of crime, or part thereof from India to a place outside India.
Section 2(rb) "payment system" means a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them.
Section 2(s) "person" includes;-
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) every artificial juridical person, not falling within any of the preceding sub-clauses, and
(vii) any agency, office or branch owned or controlled by any of the above persons.
Section 2(sa) "person carrying on designated business or profession" means,-
(i) a person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino;
(ii) a Registrar or Sub-Registrar appointed under section 6 of the Registration Act, 1908 (16 of 1908) as may be notified by the Central Government;
(iii) real estate agent, as may be notified by the Central Government;
(iv) dealer in precious metals, precious stones and other high value goods, as may be notified by the Central Government;
(v) person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the Central Government; or
(vi) person carrying on such other activities as the Central Government may, by notification, so designate, from time-to-time.
Offence of money-laundering
Section 3 of the act mentions that whosoever directly or indirectly attempts to indulge or knowingly assists activity connected proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering. The guilty person is punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine (section 4).
Attachment of property involved in money laundering (section 5)
(1) Where the Director or any other officer not below the rank of Deputy Director authorised by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that-
(a) any person is in possession of any proceeds of crime; and
(b) he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed.
(2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment forward a copy of the order, along with the material in his possession, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed.
(3) Every order of attachment made shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order, whichever is earlier.
(4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment.
(5) The Director or any other officer who provisionally attaches any property shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority.
Key takeaways-
1. The Director or any other officer not below the rank of Deputy Director authorised by the Director, has reason to believe, on the basis of material in his possession than he can attach the property involved in money laundering.
Provisions related to adjudicating authority (section 6)
(l) The Central Government shall, by notification, appoint an Adjudicating Authority to exercise jurisdiction, powers and authority conferred by or under this Act.
(2) An Adjudicating Authority shall consist of a Chairperson and two other Members who shall be a person having experience in the field of law, administration, finance or accountancy.
(3) A person shall be qualified for appointment as Member of an Adjudicating Authority-
(a) in the field of law, if he is qualified for appointment as District Judge or has been a member of the Indian Legal Service and has held a post in Grade I of that service.
(b) in the field of finance, accountancy or administration unless he possesses such qualifications, as may be prescribed.
(4) The Central Government shall appoint a Member to be the Chairperson of the Adjudicating Authority.
(5) The jurisdiction of the Adjudicating Authority may be exercised by benches which constituted by the chairperson with one or two members.
(6) The Chairperson may transfer a Member from one Bench to another Bench.
(7) If at any stage of the hearing of any case or matter it appears to the Chairperson or a Member that the case or matter is of such a nature that it ought to be heard by a Bench consisting of two Members, the case or matter may be transferred by the Chairperson or, as the case may be, referred to him for transfer, to such Bench as the Chairperson may deem fit.
(8) The Chairperson and every Member shall hold office as such for a term of five years from the date on which he enters upon his office:
Provided that no Chairperson or other Member shall hold office as such after he has attained the age of sixty-five years.
(9) The salary and allowances payable to and the other terms and conditions of service of the Member shall be such as may be prescribed.
(10) If any temporary vacancy occurs in the office of the Chairperson or any other Member, then the Central Government shall appoint another person in accordance with the provisions of this Act to fill the vacancy and the proceedings may be continued before the Adjudicating Authority from the stage at which the vacancy is filled.
(11) The Chairperson or any other Member may, by notice in writing under his hand addressed to the Central Government, resign his office.
(12) The Chairperson or any other Members shall not be removed from his office except by an order made by the Central Government after giving necessary opportunity of hearing.
(13) In the event of the occurrence of any vacancy in the office of the Chairperson by reason of his death, resignation or otherwise, the senior-most Member shall act as the Chairperson of the Adjudicating Authority until the date on which a new Chairperson appointed.
(14) When the Chairperson of the Adjudicating Authority is unable to discharge his functions owing to absence, illness or any other cause, the senior- most Member shall discharge the functions of the Chairperson of the Adjudicating Authority until the date on which the Chairperson of the Adjudicating Authority resumes his duties.
(15) The Adjudicating Authority shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice and, subject to the other provisions of this Act, the Adjudicating Authority shall have powers to regulate its own procedure.
Key takeaways-
1. The Central Government shall, by notification, appoint an Adjudicating Authority which consist of consist of a Chairperson and two other Members who shall be a person having experience in the field of law, administration, finance or accountancy.
Adjudication (section 8)
(1) If the Adjudicating Authority has reason to believe that any person has committed an offence or is in possession of proceeds of crime, he may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached, or, seized or frozen, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person.
(2) The Adjudicating Authority shall, after considering the reply to the notice issued hearing the aggrieved person by an order, record a finding whether all or any of the properties referred to in the notice issued.
(3) Where the Adjudicating Authority decides that any property is involved in money-laundering, he shall by an order in writing confirm the attachment of the property or retention of property or record seized or frozen and record a finding to that effect.
(4) Where the provisional order of attachment made has been confirmed the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the property attached.
(5) Where on conclusion of a trial of an offence the Special Court finds that the offence of money-laundering has been committed, it shall order that such property involved in the money-laundering or which has been used for commission of the offence of money-laundering shall stand confiscated to the Central Government.
(6) Where on conclusion of a trial under this Act, the Special Court finds that the offence of money-laundering has not taken place or the property is not involved in money-laundering, it shall order release of such property to the person entitled to receive it.
(7) Where the trial under this Act cannot be conducted by reason of the death of the accused or the accused being declared a proclaimed offender or for any other reason or having commenced but could not be concluded, the Special Court shall, on an application moved by the Director or a person claiming to be entitled to possession of a property in respect of which an order has been passed.
Key takeaways-
1. If the Adjudicating Authority decides that any property is involved in money-laundering, he shall by an order in writing confirm the attachment of the property or retention of property or record seized or frozen and record a finding to that effect.
Management of confiscated properties (section 10)
(1) The Central Government may, by order published in the Official Gazette, appoint as many of its officers (not below the rank of a Joint Secretary to the Government of India) as it thinks fit, to perform the functions of an Administrator.
(2) The Administrator appointed shall receive and manage the property in relation to which an order has been made.
(3) The Administrator shall also take such measures, as the Central Government may direct, to dispose of the property which is vested in the Central Government.
Obligations of banking companies, financial institutions and intermediaries
Section 12 of the act deals with reporting entity to maintain records.-
(l) Every reporting entity shall-
(a) Maintain a record of all transactions, including information relating to transactions covered under clause (b), in such manner as to enable it to reconstruct individual transactions;
(b) Furnish to the Director within such time as may be prescribed, information relating to such transactions, whether attempted or executed, the nature and value of which may be prescribed;
(c) Verify the identity of its clients in such manner and subject to such conditions, as may be prescribed;
(d) Identify the beneficial owner, if any, of such of its clients, as may be prescribed;
(e) Maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to clients.
(2)Every information maintained, furnished or verified, save as otherwise provided under any law for the time being in force, shall be kept confidential.
(3) The records shall be maintained for a period of five years from the date of transaction between a client and the reporting entity.
(4) The records shall be maintained for a period of five years after the business relationship between a client and the reporting entity has ended or the account has been closed, whichever is later.
(5) The Central Government may, by notification, exempt any reporting entity or class of reporting entities from any obligation.
Section 12A mentions that the director may access to information of any reporting entity if he considers it necessary for the purposes of this Act.
Section 13 of the act deals with power of director to impose fine-
1) The Director may make inquiry as he thinks fit to be necessary, with regard to the obligations of the reporting entity.
2) If the Director, in the course of any inquiry, finds that a reporting entity or its designated director on the Board or any of its employees has failed to comply with the obligations, then he may-
(a) issue a warning in writing; or
(b) direct such reporting entity or its designated director on the Board or any of its employees, to comply with specific instructions; or
(c) direct such reporting entity or its designated director on the Board or any of its employees, to send reports at such interval as may be prescribed on the measures it is taking; or
(d) by an order, impose a monetary penalty on such reporting entity or its designated director on the Board or any of its employees, which shall not be less than ten thousand rupees but may extend to one lakh rupees for each failure.
3) The Director shall forward a copy of the order passed to every banking company, financial institution or intermediary or person who is a party to the proceedings.
Section 15 of the act mentions that the Central Government may in consultation with the Reserve Bank of India, prescribe the procedure and the manner of maintaining and furnishing information by a reporting entity.
Key takeaways-
1. Every reporting entity shall maintain a record of all transactions and furnish to the Director within such time as may be prescribed.
2. The Central Government may in consultation with the Reserve Bank of India, prescribe the procedure and the manner of maintaining and furnishing information by a reporting entity.
Summons, searches and seizures, etc.
Power to survey (section 16)
(i) within the limits of the area assigned to him; or
(ii) in respect of which he is authorised for the purposes.
2. The authority immediately after completion of survey, forward a copy of the reasons so recorded along with material in his possession, to the Adjudicating Authority in a sealed envelope in the manner as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period as may be prescribed.
3. An authority acting' under this section may-
(i) place marks of identification on the records inspected by him and make or cause to be made extracts or copies therefrom,
(ii) make an inventory of any property checked or verified by him, and
(iii) record the statement of any person present in the place which may be useful for, or relevant to, any proceeding under this Act.
Search and seizure (section 17)
1) Where the Director or any other officer not below the rank of Deputy Director authorised by him on the basis of information in his possession, has reason to believe that any person-
(i) has committed any act which constitutes money-laundering, or
(ii) is in possession of any proceeds of crime involved in money- laundering, or
(iii) is in possession of any records relating to money-laundering, or
(iv) is in possession of any property related to crime
than he may authorise any officer subordinate to him to-
(a) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept;
(b) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (a) where the keys thereof are not available.
(c) seize any record or property found as a result of such search;
(d) place marks of identification on such record or property, if required or make or cause to be made extracts or copies therefrom;
(e) make a note or an inventory of such record or property;
(f) examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act.
2) The authority shall, immediately after search and seizure or upon issuance of a freezing order forward a copy of the reasons so recorded along with material in his possession to the Adjudicating Authority in a sealed envelope.
3) Where an authority is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may, enter and search the building or place where such evidence is located and seize that evidence.
4) The authority seizing any record or property or freezing any record or property shall, within a period of thirty days from such seizure or freezing, file an application, requesting for retention of such record or property seized or for continuation of the order of freezing served before the Adjudicating Authority.
Power to arrest (section 19)
(l) If the Director, Deputy Director, Assistant Director, or any other officer authorised, on the basis of material in his possession reason to believe that any person has been guilty of an offence punishable under this Act, he may arrest such person and inform him of the grounds for such arrest.
(2) He forward a copy of the order, along with the material in his possession, to the Adjudicating Authority, in a sealed envelope and such Adjudicating Authority shall keep such order and material for such period, as may be prescribed.
(3) Every person arrested shall within twenty-four hours, be taken to a Judicial Magistrate or a Metropolitan Magistrate.
Retention of property (section 20)
1) Where any property has been seized and the officer authorised by the Director in this behalf has, on the basis of material in his possession, reason to believe that such property is required to be retained for the purposes of adjudication if seized, be retained or if frozen, may continue to remain frozen, for a period not exceeding one hundred and eighty days from the day on which such property was seized or frozen.
2) The officer authorised by the Director shall forward a copy of the order along with the material in his possession to the Adjudicating Authority.
3) On the expiry of the period specified the property shall be returned to the person from whom such property was seized or whose property was ordered to be frozen unless the Adjudicating Authority permits retention or continuation of freezing of such property beyond the said period.
4) The Adjudicating Authority, before authorising the retention or continuation of freezing of such property beyond the period shall satisfy himself that the property is prima facie involved in money-laundering.
5) After passing the order of confiscation, the Court or the Adjudicating Authority, shall direct the release of all property other than the property involved in money-laundering to the person from whom such property was seized or the persons entitled to receive it.
6) Where an order releasing the property has been made by the Court or by the Adjudicating Authority, the Director or any officer authorised by him in this behalf may withhold the release of any such property for a period of ninety days from the date of such order, if he is of the opinion that such property is relevant for the appeal proceedings under this Act.
Key takeaways-
Appellate tribunal
Section 25 provides that the Central Government shall, by notification, establish an Appellate Tribunal to hear appeals against the orders of the Adjudicating Authority and the authorities under this Act.
Section 26 of the act deals with provisions related to appeals to appellate tribunal-
1) The Director or any person aggrieved by an order made by the Adjudicating Authority under this act, may prefer an appeal to the Appellate Tribunal.
2) Any reporting entity aggrieved by any order of the Director may prefer an appeal to the Appellate Tribunal.
3) Every appeal shall be filed within a period of forty-five days from the date on which a copy of the order made by the Adjudicating Authority or Director is received and it shall be in such form and be accompanied by such fee as may be prescribed.
4) On receipt of an appeal the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.
5) The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned Adjudicating Authority or the Director.
6) The appeal filed before the Appellate Tribunal shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within six months from the date of filing of the appeal.
Key takeaways-
1. The Central Government shall, by notification, establish an Appellate Tribunal to hear appeals against the orders of the Adjudicating Authority.
References-
