TaxTMI 
TaxTMI 
2024 (11) TMI 832
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....s, 2005 (in short `Rules of 2005). The penalty has been imposed by invoking Section 13 of the Act of 2002 in ignorance of the fact that the provision even permits warning but instead of doing it, the heavy penalty has been imposed against the appellant for alleged default in reporting cash transactions in the year 2015-16. It was in respect of Overdraft Account No. 050700000501 in the name of M/s Ansar India and another Overdraft Account No.000300003101 in the name of Shri Shyam Charan Mishra. 3. 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. 4. The learned counsel submitted that the RBI made a report for default of the Bank based on the statutory inspection/audit under Section 35 of the Banking Regulation Act, 1949 during the month of March and April, 2018. 5. Two bank loan accounts in Chhijarsi and Noida Branches being Account No. 050700000501 was the Over draft account in the name of M/s Ansar India and Account No. 000300003101 was the Overdraft against Term Deposits (FDR) in the name of Shri Shyam Charan Mishra. It was reported ....
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.... has been imposed holding it to be a case of 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. For every violation towards 16 CTRs, penalty of Rs. 50,000/- was imposed making it Rs. 8,00,000/- and for cumulative delay of 167 months in filing 6 CTRs, the penalty of Rs. 16,70,000/- (i.e. Rs. 10,000/- for each cumulative month's delay) was imposed. The penalty of Rs. 1,00,000/- was imposed separately alleging that the appellant bank was not having effective internal mechanism in place, as envisaged under the Act. 10. The counsel for the appellant submitted that imposition of penalty under Section 13(2) can be minimum of Rs. 10,000/- while it can be maximum of Rs. 1,00,000/- for each failure. In the instant case, the penalty of Rs. 50,000/- for each violation has been imposed while the appellant had no intention not to submit the report, rather it occurred due to bona fide mistake. Thus, extreme penalty of Rs. 50,000/- for each violation towards 16 CTRs is illegal. 11. It was submitted that alleged non-reporting of cash transactions in Loan Account No. 050700000501 for 9 months was from the month of June to Octo....
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.... to the Director, information relating to such "transactions" which are attempted or executed, the value of which is prescribed. The appellant bank failed to make report of many transactions in the years 2015 and 2016 in two Account Nos.050700000501 and 000300003101. In reply to the Show Cause Notice, the appellant bank admitted their error in non- submission of the report of high value cash transaction in two bank accounts but it was shown to be a bona fide error and, therefore, prayed for a favourable order. 16. The reference of facts as well as the provisions was made apart from the judgements of the Supreme Court and High Court to canvass that the order passed by the Director, FIU is sustainable in the eye of law, thus interference therein may not be made by the Appellate Tribunal. The elaborate arguments to contest the arguments of the appellant was made and we would deal with while recording the finding. Finding of the Tribunal 17. We have considered the rival submissions of the parties and perused the record carefully. 18. This case pertains to the alleged 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....
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....n-profit organisations of value more than rupees ten lakh, or its equivalent in foreign 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; (D) all suspicious transactions whether or not made in cash and by way of: (i) deposits and credits, withdrawals into or from any accounts in whatsoever name they are referred to in any currency maintained by way of: (a) cheques including third party cheques, pay orders, demand drafts, cashiers cheques or any other instrument of payment of money including electronic receipts or credits and electronic payments or debits, or (b) travellers cheques, or (c) transfer from one account within the same banking company, financial institution and intermediary, as the case may be, including from or to Nostro and Vostro accounts, or (d) any other mode in whatsoever name it is referred to; (ii) credits or debits into or from any non-monetary accounts such as d-mat account, security account in any currency maintained b....
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.... regulator from time to time. 2) Every reporting entity shall evolve an internal mechanism for maintaining such information in such form and manner and at such intervals as may be specified by its regulator from time to time. 3) It shall be the duty of every reporting entity, its designated director, officers and employees to observe the procedure and the manner of maintaining information as specified by its regulator under sub-rule (1). 7. Procedure and manner of furnishing information. - 1) Every reporting entity shall communicate to the Director the name, designation and address of the Principal Officer. (2) The Principal Officer shall furnish the information referred to in clauses (A), (B), (BA), (C) and (D) of sub-rule (1) of rule 3 to the Director on the basis of information available with the reporting entity. A copy of such information shall be retained by the Principal Officer for the purposes of official record. (3) Every reporting entity shall evolve an internal mechanism having regard to any guidelines issued by the Director in consultation with, its regulator, for detecting the transactions referred to in clauses (A....
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....which appear unusual, if any such analysis has been done". 19. Section 12 of the Act of 2002 imposes obligation on every reporting entity to maintain record of all transactions and information covered under clause (b). It is to be reported to FIU. The report includes the report of cash transaction, suspicious transaction and counterfeit currency transaction, etc. 20. Rule 3 of the Rules of 2005 requires every reporting entity to maintain record of all the transactions specified therein. Rules 5,7 and 8 of the Rules of 2005 prescribe the procedure and the manner of furnishing information. Rule 7(3) requires every reporting entity to evolve an internal mechanism having regard to any guidelines issued by its regulator for detecting the transactions referred under Rule 3 (1) for furnishing information. 21. Section 13 of the Act of 2002 confers certain powers on the Director, FIU India which includes imposition of penalty on the reporting entity or its designated director of the Board or any of its employees, which should not be less than Rs. 10,000/- but may extend to Rs. 1,00,000/- for each failure. The word "each failure" is of great significance and we would elaborately dis....
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....ted that there was delay in filing of 6 CTRs. It was further submitted that the Bank was not reporting CTRs for transactions in loan accounts previously. The Director, FIU considered the submission made by the representative appeared for the Bank and found violation of the provisions of the Act and the Rules made thereunder. It was admitted by the appellant bank that it could notice failure only when they were served with the SCN. The appellant bank further submitted that they could not know as to how to file the rejected CTRs. The violation of the provisions of the Act and the Rules was thus found proved on the face of the record. 25. The allegation against the appellant bank was for cumulative delay in filing 6 CTRs. The delay to submit 6 CTRs was found established and otherwise as per Rule 8(1) of the Rules of 2005, the reporting entity has to file CTR to the Director, FIU India by the 15th day of the succeeding month. The Bank in its oral submission on 03.01.2020 admitted delay in filing of 6 CTRs and accordingly allegation against the appellant bank was found proved. Non reporting of 16 CTRs was also found proved. 26. The allegation for their failure to put in place an e....
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....al Payments Pvt. Ltd. (supra), the parties before the High Court did not refer to the subsequent judgment wherein the earlier judgment of Hindustan Steel Ltd. (supra) was distinguished. Elaborately, these facts have been given by the respondent who have relied upon the subsequent judgment of the Apex Court in the case of SEBI Vs. Cabot International Capital Corporation (2005)123 Comp Cases 841 and also the judgment in the case of Chairman, SEBI Vs. Shriram Mutual Fund &Anr. (2006(5) SCC 361). The relevant paragraph of the judgment in Shriram Mutual Fund (supra) is quoted thus: "However, we are not in agreement with the appellate authority in respect of the reasoning given in regard to the necessity of mens rea being essential for imposing the penalty. According to us, mens rea is not essential for imposing civil penalties under the SEBI Act and Regulations." The Tribunal has erroneously relied on the judgment in the case of Hindustan Steel Ltd. Vs. State of Orissa, AIR 1970 SC 253 which pertained to criminal/quasi-criminal proceeding. That Section 25 of the Orissa Sales Tax Act which was in question in the said case imposed a punishment of imprisonment up to six m....
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....ary to ascertain whether such a violation was intentional or not. The later judgment of the Supreme Court applies to the facts of the case and inadvertently it was not cited before Delhi High Court which has relied on the judgment of the Hindustan Steel Ltd. (supra). We further need to refer the word 'transaction' as defined in sub rule (h) of Rule 2 which reads as under: "2(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" 32. 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. 33. Rule 8 prescribes the time by which information in r....
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....ot 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 under sub-section (2) to every banking company, financial institution or intermediary or person who is a party to the proceedings under that sub-section. Explanation. --For the purpose of this section, "accountant" shall mean a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949)". 34. In the light of the reason given above, we are unable to accept the argument of the learned counsel for the appellant 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. 35. If the facts of this ca....