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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 ..... sent of counsels for both the parties. 2. The counsel for the appellant submitted that appellant- Allahabad Bank limited is a banking company and body corporate constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 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 Rs. 8 lakh and Rs. 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, Kolk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em in the mechanism evolved by the appellant for filing of the CTR. He submitted that the appellant filed reply dated 21st July, 2011, thereafter, there was no notice from the respondent for almost two years, then suddenly a show cause notice 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 Rs. 10,04,964/- in two lots of Rs. 2,00,993/- and Rs. 8,03,971/- by two consecutive application forms no. 36194/5 and 36193/5 and issued two demand drafts of Rs. 2 lakh and Rs. 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 Rs. 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions integrally connected to each other and where such series of transactions take place within a month and furnish the information of such transactions to the respondent within 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 reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... currency; (C) all cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place facilitating the transactions. ..............." 10. The counsel submitted that the word "client" 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 activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp;The principal officer of a banking company, a financial institution and an intermediary, as the case may be, shall furnish the information promptly in writing or by fax or by electronic mail to the Director in respect of transactions referred to in clause (D) of sub-rule (1) of rule 3 not later than seven working days on being satisfied that the transaction is suspicious : Provided that a banking 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards exchange and Service Tax payable to the appellant bank. He contended that the amount of Rs. 4,694/- was directly deposited to appellant bank's internal revenue account without effecting in the customer's account. He pleaded that the Regulator under PMLA is RBI and the appellant has followed the Regulator's guidelines and accordingly excluded the amount of Rs. 4,694/- towards exchange. He argued that after excluding the exchange amount, as the cash transactions carried out on behalf of the customer did not exceed Rs. 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 Rs. 2 lakh and Rs. 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 reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions were made on behalf of appellant's existing customer and the aggregate amount of cash draft did not exceed Rs. 10 lakh and exchange amount/service tax were not 'transaction' as those are paid to Bank's internal account, therefore, the respondent do not have any jurisdiction under PMLA to initiate proceedings and impose fine under Section 13 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 pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as part of transaction is not acceptable as the requirement under the act and the rules is to report all series of cash transactions integrally connected to each other which have been valued below rupees ten lakh where such series of transactions have taken place within a month without distinguishing as to under which accounting head a cash transaction would be classified. In the present case, both the transactions took place through two consecutive application forms no. 036193/06 and 036194/05 both dated 13th April, 2011 for amounts of Rs. 8,03,971 and Rs. 2,00,993 respectively, adding upto Rs. 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 furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011 i.e. 61 months for furnishing information required under the Act and the Rules." 21. It was argued on behalf of the respondent that all cash transaction of more than Rs. 10 lakh as prescribed under Rule 3 of the Rules are to be reported irrespective of the belief whether the transactions are bona fide or not and whether by an existing customer or not. He contended that for the purpose of reporting 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guidelines of the appellant bank talks of the amount to be collected from the customer towards service charges only and it has no relevance in the context of the obligations of the appellant on reporting of cash transactions under PMLA. 23. The counsel submitted that the proceedings by RBI as regulator under Banking Regulation Act and proceedings by the Director under PMLA are independent 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r its equivalent in foreign currency where such series of transactions have taken place within a month and Rule 7(2) of the Rules provides that the Principal Officer of the banking company shall furnish the information referred to in Rule 3(1)(B) of the Rules to Director. The provisions of Rule 3(1)(B) of the Rules clearly states in respect of all series cash transactions integrally connected to each other which have been valued below rupees ten lakh (emphasis supplied) and it does not provide that 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 Rs. 10 lakh which was valued below rupees ten lakh by splitting into two demand drafts of Rs. 2 lakh and Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 for the reasons discussed below. 33. Para 2.20(a)(iv) of the RBI Master Circular No. 2010-11/75/DBOD. AML. BC.No. 2/14-1-2001/2010-2011 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 Rs. 10,04,694/- i.e. Rs. 2,00,993/- + Rs. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, you may exercise due care and caution in handling such transactions in future in order to ensure that the same are fully compliant with respective rules and regulations of RBI." 37. From perusal of RBI letters dated 28-4-2011 and 2-6-2011, it is clear that the RBI proceedings were in respect of non adherence of the guidelines as mentioned in para 2.1(ii) of the Master Circular as adverted to below and not in respect of violation of non filing of CTR in terms 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, repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 tran ..... X X X X Extracts X X X X X X X X Extracts X X X X
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