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TMI Blog2015 (9) TMI 1602X X X X Extracts X X X X X X X X Extracts X X X X ..... lakh. Thus in the present case even if the service charges are excluded from consideration, the value of integrally connected cash transactions i.e. two demand drafts is ₹ 10 lakh which was valued below rupees ten lakh by splitting into two demand drafts of ₹ 2 lakh and ₹ 8 lakh and thus falls within the four corners of the provisions of Rule 3(1)(B) of the Rules. The show cause notice was clearly on account of failure of the appellant to report cash transactions integrally connected to each other which have been valued below ₹ 10 lakh where such series of transactions have taken place within a month. Show cause notice did not say that the aggregate value of the integrally connected cash transactions is more than Rs. ten lakh. As regards argument of the appellant that service/bank charges for issue of demand draft should be excluded from the value of transactions as it does not form part of the transactions as it is directly credited by the appellant to bank charges account and in view of the guidelines issued by the regulator RBI vide para 2.20(a)(iv) of the Master Circular, is without merits and the same cannot be sustained Further the plea of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1970 having its head office at Kolkata and branches all over the India; on 13th April, 2011, the representative of The All India Trinamool Congress, Kolkata, who is existing customer of appellant s Harish Mukherjee Road Branch, Kolkata approached the appellant for purchase of two demand drafts of ₹ 8 lakh and ₹ 2 lakh in favour of Mpower Global Access India Private Limited stating that the authorized signatory of the account were not available at the moment and the following two days i.e. 14th and 15th April, 2011 were holiday; they expressed that they were carrying considerable amount of cash and were in not a position to go anywhere for deposit of that amount towards the closing hours of the bank business; they requested the appellant to issue two demand drafts against deposit of cash as they were in urgent need of the same; considering that they are existing account holders with appellant s Harish Mukherjee Road Branch, Kolkata, appellant s Kolkata Main Branch was asked to issue two demand drafts. The counsel submitted that Shri Mukul Roy (one of the authorized signatory) to the bank account maintained by The All India Trinamool Congress with the appellant s Hari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice F. No. 9-69/2009/FIU-IND, dated 10th May, 2013 was issued by the respondent to appellant stating that the appellant s Kolkata Main Branch allowed on 13th April, 2011 customers to deposit cash of ₹ 10,04,964/- in two lots of ₹ 2,00,993/- and ₹ 8,03,971/- by two consecutive application forms no. 36194/5 and 36193/5 and issued two demand drafts of ₹ 2 lakh and ₹ 8 lakh respectively in the name of same beneficiary and alleging that this was intended to flout the appellant bank s own instructions for the issuance of a signal instrument of ₹ 10 lakh and above against cash which require prior request from the Branch/Zonal office, usually one day in advance, is to be provided to the Core Banking System. The value of these two integrally connected cash transactions amounted to ₹ 10,04,964/- but these were not reported to respondent, which was in contravention of Rule 7(2) read with Rule 8(1) of the Rules and the branch manager of Kolkata Main Branch also did not reported the incident to the Principal Officer of the appellant which indicates that the appellant had not evolved an internal mechanism for furnishing information in respect of such t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such time as may be prescribed. He drew our attention to the provisions of Section 12 of PMLA which reads as follows:- 12. Banking companies, financial institutions and intermediaries to maintain records. - (1) Every banking company, financial institution and intermediary shall - (a) Maintain a record of all transactions, the nature and value of which may be prescribed, whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other, and where such series of transactions take place within a month; (b) Furnish information of transactions referred to in clause (a) to the Director within such time as may be prescribed; (c) Verify and maintain the records of the identity of all its clients, and such manner as may be prescribed : Provided that where the principal officer of a banking company or financial institution or intermediary, as the case may be, has reason to believe that a single transaction or series of transactions integrally connected to each other have been valued below the prescribed value so as to defeat the provisions of this section, such officer shall furnish information in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is defined in Rule 2(1)(b) of the rules, the expression prescribed value is defined in Rule 2(1)(e) of the rules, the word regulator is defined in Rule 2(1)(fa) of the Rules and the word transactions is defined in Rule 2(1)(h) of the Rules which are referred to as follows:- Rule 2(1)(b) :- client means a person that engages in a financial transaction or activity with a baking company, or financial institution or intermediary and includes a person on whose behalf the person that engages in the transaction or activity, is acting. Rule 2(1)(e) :- Prescribed value means the value of transaction prescribed under these rules; Rule 2(1)(fa) :- Regulator means a person or an authority or a Government which is vested with the power to license, authorize register, regulate or supervise the activity of banking companies, financial institutions or intermediaries, as the case may be; Rule 2(1)(h) Transaction includes deposit, withdrawal, exchange or transfer of funds in whatever currency, whether in cash or by cheque, payment order or other instruments or by electronic or other non-physical means. 11. The Counsel submitted that the procedure and manner and tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, financial institution or intermediary, as the case may be, and its employees shall keep the fat of furnishing information in respect of transactions referred to in clause (D) of sub-rule (1) of rule 3 strictly confidential. 12. The counsel for appellant submitted that provisions of Section 12 of PMLA provides that a banking company shall maintain a record of all transactions, the nature and value of which may be prescribed, whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other, and where such series of transactions take place within a month and furnish information of such transactions to the Director within the time as may be prescribed. He submitted that Rule 3 of the Rules provides that every banking company shall maintain the record of all transactions including the record of all cash transactions of the value of more than rupees ten lakh or its equivalent in foreign currency and of all series of cash transactions integrally connected to each other which have been valued below rupees ten lakh or its equivalent in foreign currency where such series of transactions have taken place within a month. He s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange. He argued that after excluding the exchange amount, as the cash transactions carried out on behalf of the customer did not exceed ₹ 10 lakh, therefore, the same were not reported in CTR for the respective month i.e. April 2011. 15. The counsel submitted that the transactions for issue of two demand drafts for ₹ 2 lakh and ₹ 8 lakh are well within the permissible limit as provided under Rule 3 of the Rules. He submitted that a fee is the price one pays towards carrying out a transaction as remuneration for service which the appellant bank can exempt/waive on case to case basis and such fee cannot be treated as part and parcel of transaction for which such fee is charged. The exchange collected as fee for service rendered for issue of demand draft is credited in the appellant s revenue account and does not form part of the transaction for issue of demand draft and hence the same was not clubbed for the purpose of reporting under CTR. He submitted that the value of transaction in the present case for issue of two demand drafts is ₹ 10 lakh (i.e. ₹ 2 lakh + ₹ 8 lakh) and not ₹ 10,04,964/- and the same is well within the permissible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of PMLA. 19. The counsel submitted that if any question arises relating to the interpretation of the rules, the matter shall be referred to the Central Government under Rule 11 of the Rules and the decision of the Central Government shall be final. He contended if there is any ambiguity in the interpretation of the rules, the respondent should have referred the matter to Central Government for its decision. He submitted that after the RBI has closed the matter accepting explanation of appellant, the respondent have no jurisdiction to initiate separate proceedings and if there was any ambiguity, respondent should have referred the matter to Central Government. 20. The counsel for respondent vehemently contested the pleas and contentions raised on behalf of the appellant and pleaded that there is no infirmity in the order passed by the Director. He submitted that the Director has dealt with all the objections taken by the appellant and drew our attention to paragraph 14 of the impugned order which are adverted to as follows : 14. I have gone through the facts and circumstances of the case and ABL s replies dated 13th June, 2013 and 22nd August, 2013 to the SCN and the submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... took place through two consecutive application forms no. 036193/06 and 036194/05 both dated 13th April, 2011 for amounts of ₹ 8,03,971 and ₹ 2,00,993 respectively, adding upto ₹ 10,04,964. Being integrally connected, as the applicants of both the drafts were same and the drafts were also made for the same beneficiaries, the transactions were reportable under Section 12 of the Act read with Rule 3(1)(8) of the Rules as CTR but were not reported. The failure to report these two transactions would constitute two failures in terms of Section 13 of the Act. (vi) The word failure in Section 13(2) of the PMLA has been qualified by the word each . It makes it categorically clear that the legislature intended to provide that for each failure of furnishing information of prescribed cash transactions fine has to be imposed. If each failure is not penalized then it will encourage non-compliance or partial compliance, and will defeat the purpose and intent of the legislature. In the instant case, there were two transactions which taken together exceeded ₹ 10 lakhs, which is the threshold for filing CTR. Both these transactions were reportable in the CTR, being inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eporting cash transactions, the amount of bank charges which was also paid in cash would not be excluded as the same also form part of the transaction for issue of demand draft. He contended that bank charges would not be a transaction between the internal accounts of the bank as stated in the RBI Master Circular. He pleaded that such an interpretation by the appellant is completely erroneous and against the provisions of PMLA and the rules prescribed thereunder. He contended that plea of the appellant that it has power to waive/exempt bank charges for issue of demand draft is also irrelevant in the facts of the present case as they were not waived by the appellant. Drawing our attention to the reply dated 22-8-2013, the counsel pointed that Shri Mukul Roy, who wrote a letter to the appellant for issue of demand drafts against cash, himself is an authorised signatory to the bank account maintained by The All India Trinamool Congress with appellant s Harish Mukherjee Road Branch, therefore, the plea of the appellant that demand drafts were issued in cash because authorised signatories of the account were not available is not correct. He contended that as both the drafts were issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and different in nature from each other and the respondent is not bound by the outcome in the proceedings initiated by the RBI. He argued that for any failure to comply with the provisions of Section 12 of PMLA read with the Rules, it is the Director only who has jurisdiction to initiate proceedings for imposition of fine under Section 13 of PMLA and to impose fine. 24. The counsel submitted that there is no ambiguity giving rise to any question relating to interpretation of the Rules which required the matter to be referred to the Central Government and the appellant never raised any such point in the proceedings before the Director for reference to the Central Government. 25. The counsel for appellant pleaded that the RBI alone is the regulator to supervise the appellant under PMLA and what is permitted by the RBI will supersede. He submitted that the appellant has no reason to ask the Director for seeking clarification from the Central Government as it was under bona fide belief that bank charges are to be excluded and if there is any ambiguity then Director on its own is obligated to refer the matter to the Central Government. No other plea was raised by the counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the total value of all series of integrally connected cash transactions should be over rupees ten lakh. Thus in the present case even if the service charges are excluded from consideration, the value of integrally connected cash transactions i.e. two demand drafts is ₹ 10 lakh which was valued below rupees ten lakh by splitting into two demand drafts of ₹ 2 lakh and ₹ 8 lakh and thus falls within the four corners of the provisions of Rule 3(1)(B) of the Rules. 28. It is to be noted that Rule 3(1)(B) of the Rules was substituted by G.S.R. 576(E), dated 27th August, 2013 as under : 3(1)(B) all series of cash transactions integrally connected to each other which have been individually valued below rupees ten lakh or its equivalent in foreign currency where such series of transactions have taken place within a month and the monthly aggregate exceeds an amount of ten lakh rupees or its equivalent in foreign currency; 29. From the above substituted rule, it is clear that it is only w.e.f. dated 27th August, 2013, that if the aggregate value of cash transactions exceeds rupees ten lakh then it would be reportable under CTR. Thus on dated 13th April, 2011 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-1-2001/2010-2011 is adverted to as follows : CTR should contain only the transactions carried out by the bank on behalf of their clients/customers excluding transactions between the internal accounts of the bank. 34. The above guideline as stated m the RBI Master Circular clearly state that CTR should exclude the transactions between (emphasis supplied) the internal accounts of the bank. The customer i.e. The All India Trinamool Congress has deposited a total sum of ₹ 10,04,694/- i.e. ₹ 2,00,993/- + ₹ 8,03,971/- in cash with the appellant bank for issue of two demand drafts which constitutes one part of the transaction and the other part of the transaction is in the internal account of the appellant bank. Thus the transactions are not between the internal accounts of the bank as the same are between the customer by deposit of cash on one hand and internal account of the bank i.e. bank charges on the other. The argument of the appellant, is completely erroneous and untenable. Further, the argument of appellant that it is entitled to waive/exempt service/bank charges for issue of demand draft is also to be disregarded as in the present case, admittedly, ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of para 2.20(a)(iv) : 2.1 (ii) Banks should ensure that any remittance of funds by way of demand draft, mail/telegraphic transfer or any other mode and issue of travellers cheques for value of Rupees fifty thousand and above is effected by debit to the customer s account or against cheques and not against cash payment. 38. Another argument of the appellant that the regulator RBI only has jurisdiction under PMLA to impose fine and not the Director is also without merit. The provisions of Section 13 of PMLA are plain and clear which authorises the Director to initiate proceedings and impose fine. 39. As regards plea of the appellant that as per the provisions of Section 12 of PMLA, reporting of the transactions is statutorily dependent on reason to believe of only the Principle Officer of the appellant and therefore, it is the discretion of the Principal Officer to conclude whether particular transactions are integrally connected or not and as in the opinion of the Principal Officer the transactions were bona fide and were related to appellant bank s existing account holder with Harish Mukherjee Road Branch, Kolkata, therefore, the same were not considered suspiciou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defeat the provisions of this section, such officer shall furnish information in respect of such transactions to the director within the prescribed time. 40. Further the plea of the appellant that the above cash transactions were bona fide in nature is also without merits as the provisions of PMLA and Rules made there under does not provide any such exclusion in respect of CTR. All the cash transactions irrespective of their bona fide nature which are covered by the provisions prescribed at the relevant time as per PMLA and Rules made thereunder are to be reported in CTR and if any cash transaction is suspicious in nature then irrespective of its value, the same is also to be reported in Suspicious Transaction Report. If it were a clear and bona fide transaction, there could have been no need to split up the payment of ₹ 10 lakh to the same recipient on same day at the same time so that each component remains below ₹ 10 lakh. If such a transaction did not raise an alert, then the internal system of the bank is inadequate. 41. As regards argument of the appellant that in case any question arises relating to the interpretation of the Rules, the Director should have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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