2024 (11) TMI 832 - AT - Money Laundering

Penalty u/s 26 of the Prevention of Money Laundering Act, 2002 - It was alleged that the appellant bank failed to make a report of cash transactions of high value or there was delay in making report, the heavy penalty of Rs. 25,70,000/- has been imposed - violation of Section 12(1)(b) of the Act of 2002 read with Rule 3(1)(A), 3(1)(B), 7(2) and 7(4) of the Rules of 2005 - HELD THAT - Section 12(1)(b) requires reporting entity to furnish information of transactions referred to in clause (a) of sub section (1) of Section 12 of PMLA to the Director FIU India within such time as may be prescribed. From plain reading and careful consideration of the language employed in section 12(1)(b), it becomes clear that the allegation made against the appellant was of delay in furnishing information of transactions referred to in Section 12(1)(a) of PMLA within such time as may be prescribed and it was even for non-reporting. Rule 8 prescribes the time by which information in respect of transactions is to be furnished. Thus the appellant was enjoined to furnish the information in respect of transactions every 15th day of succeeding month to the respondent. Section 12(1)(b) read with rule 3,7 and 8 enjoined the appellant to furnish the information in respect of transactions otherwise it was to attract penalty. The penalty is for each failure and in our considered opinion, the phrase each failure used in Section 13 refers to failure to furnish information or delay in furnishing the information in respect of each transaction which would be taken as each failure for imposition of penalty. The argument of the learned counsel for the appellant cannot be accepted that despite contravention of the provisions of the Act and Rules, the penalty should not have been imposed on the appellant rather it should have been a warning. The argument aforesaid could not be accepted because if the contraventions are ignored and only warning given in a non-deserving case, then would be taken as a course and in that case there would be no sanctity of the provisions of the Act and nobody would make compliances. The imposition of the penalty is to ensure firm compliances of the provisions of the Act and the rules made thereunder. If the facts of this case are taken into consideration, the appellants have admitted their error though said to be inadvertent. In the light of the judgment of the Apex Court in the case of Shriram Mutual Fund 2006 (5) TMI 191 - SUPREME COURT , the penalty for the failure of the appellant to make report of the CTRs or delay was rightly imposed. It is, however, urged that the minimum penalty is of Rs. 10,000/- as against 16 CTRs, penalty of Rs. 50,000/- has been imposed though for other 167 defaults, the minimum penalty of Rs. 10,000/- has been imposed. We do not find any substance in the argument for the reason that while adjudicating the appeal, this Tribunal has limited jurisdiction in causing interference on the imposition of penalty unless it is shown to be disproportionate. The case in hand is not of that nature because the appellant bank remained reckoned defaulter in making report of cash transaction for quite long and the report was made only when it was informed by the RBI to FIU. It was, however, urged that the appellant bank made the report but it was not accepted on computer. There was continuous contravention of the provisions of the Act and the Rules. It was thus rightly taken for imposition of appropriate punishment which on the facts cannot be said to be disproportionate. There are no merit in the appeal and accordingly the same is dismissed.

Issues Involved:

1. Alleged violation of Section 12(1)(b) of the Prevention of Money Laundering Act, 2002, and related rules.
2. Imposition of penalty by the Director, Financial Intelligence Unit India.
3. Interpretation of "each failure" under Section 13 of the Act.
4. Applicability of judicial precedents regarding penalty imposition.

Issue-Wise Detailed Analysis:

1. Alleged Violation of Section 12(1)(b) of the Act:

The appellant, a Co-operative Bank, was alleged to have violated Section 12(1)(b) of the Prevention of Money Laundering Act, 2002, by failing to report high-value cash transactions in two overdraft accounts during 2015-16. The transactions in question were not reported in a timely manner as required by Rule 3, 5, 7, and 8 of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. The bank argued that the failure to report was due to a bona fide error and not intentional, and that they took corrective measures by filing revised Cash Transaction Reports (CTRs).

2. Imposition of Penalty:

The Director, Financial Intelligence Unit (FIU) India, imposed a penalty of Rs. 25,70,000/- on the appellant for the alleged violations. The penalty was calculated as Rs. 50,000/- for each of the 16 CTR violations and Rs. 16,70,000/- for cumulative delays in filing 6 CTRs, with an additional Rs. 1,00,000/- for not having an effective internal mechanism. The appellant contested the penalty, arguing that the imposition was excessive and that a warning could have been issued instead, as permitted under Section 13 of the Act.

3. Interpretation of "Each Failure" Under Section 13:

The tribunal examined the term "each failure" as used in Section 13 of the Act, which permits the imposition of a penalty for each instance of non-compliance. The tribunal clarified that "each failure" refers to each transaction that was not reported or was delayed, and not merely to each month of non-compliance. The tribunal emphasized that the penalty is intended to ensure compliance with the Act and that the appellant's argument for a more lenient interpretation was not persuasive.

4. Applicability of Judicial Precedents:

The appellant cited the Supreme Court's judgment in Hindustan Steel Ltd. v. State of Orissa, arguing that penalties should not be imposed for bona fide errors. However, the tribunal distinguished this case, noting that the judgment pertained to quasi-criminal proceedings, whereas the current case involved civil penalties under the Prevention of Money Laundering Act. The tribunal also referred to subsequent judgments, such as SEBI v. Cabot International Capital Corporation and Chairman, SEBI v. Shriram Mutual Fund, which clarified that mens rea is not required for civil penalties under regulatory statutes.

Conclusion:

The tribunal upheld the penalty imposed by the Director, FIU India, finding that the appellant had indeed violated the provisions of the Act and the Rules by failing to report transactions in a timely manner. The tribunal dismissed the appeal, emphasizing the importance of compliance with statutory obligations and the role of penalties in enforcing such compliance. The tribunal also noted that the penalty was not disproportionate given the appellant's repeated failures to report transactions over an extended period.

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