Centre's stand sought on plea against inclusion of CAs under money laundering law

The Delhi High Court on Monday sought the Centre's stand on a petition challenging the inclusion of chartered accountants, company secretaries and cost accountants within the ambit of “reporting entities” under the anti-money laundering law.

A bench headed by Chief Justice Satish Chandra Sharma granted time to the Additional Solicitor General Chetan Sharma to seek instructions on the petition by Rajat Mohan, a practising chartered accountant (CA).

The court, while listing the case for further hearing on October 4, noted that at this stage, the petitioner was not extending his challenge to the legality of certain provisions under the Prevention of Money Laundering Act with respect to the consequent liabilities imposed upon the professionals.

Observing that CAs were the “experts” in the field of accounting and the enhanced due diligence was with respect to “specified transactions” only, the bench -- also comprising Justice Sanjeev Narula-- asked the petitioner to state the “problem” with the new regime.

Senior advocate Trideep Pais, appearing for the petitioner, argued that the inclusion is “turning professionals into police” on “vague and subjective” basis, which is also in violation of the fiduciary relationship that they share with their clients.

Noting that onerous obligations have been put on practising CAs even when the client is not facing any criminal case, the senior lawyer said, “I can be prosecuted in PMLA...you are surveying your own client”.

ASG Sharma urged the court to not issue notice on the petition, and said “Any interference would upset the arch” for reporting transactions.

“We just want them to be our eyes and ears (on case to case basis),” he said, adding that a mechanism would be put in place in this regard and that the petitioner's prayer to annul the legal provisions under PMLA “has to go”.

ASG Sharma further informed that National Financial Fraud Reporting Authority has also been formed.

In the plea, the petitioner has said including CAs and other professionals within the definition of “reporting entities” under the Prevention of Money Laundering Act (PMLA), “onerous obligations” have been put on them with consequences of non-compliance leading to criminal prosecution, and it virtually makes such professionals engage in “policing” their own clients with whom they interact in fiduciary capacity.

“The petitioner by way of the present writ petition is challenging the validity of gazette notification No. S.O.2036(E) dated 03.05.2023 passed by the respondents wherein they have read into the provisions of the Prevention of Money Laundering Act, 2002 and expanded the definition of the word 'person' used in Section 2(1)(sa)(vi) as well as the definition of the word 'activity' used in PMLA.

Specifically, a class of professionals i.e., Chartered Accountants/Company Secretaries/Cost Accountants have been included within the definition of 'Reporting Entities',” the petition filed through advocates Shweta Kapoor and RK Kapoor has said.

The petition has said the notification violates Articles 14, 19, 20 (3), 21 and 300A of the Constitution as well as other civil and statutory rights, including the right of privacy as well as the protection accorded to professional, privileged, and confidential communications.

It has contended that the notification gives “unbridled and unlimited, arbitrary, and whimsical power” to the authority under the anti-money laundering law and creates the framework for a fishing and roving enquiry into every financial transaction of each individual/citizen of the country. 

“The scope and application of PMLA is extremely rigorous and strict and even a bonafide oversight shall put the life, liberty careers of the reporting entities under threat. A sword of Damocles would always remain hanging on the head of the petitioner,” the petition has submitted.

“It is left to the knowledge, comprehension and thought process of each Chartered Accountant/Company Secretary/Cost Accountant to judge the clients coming to them to understand their transactions from the perspective of money laundering and then increase their vigil on those accounts. This is the function of the state as per law and not of ordinary citizens who are merely professionals in a particular field and not qualified prosecutors,” it further said.