Pmla allied laws icai presentation 19.06.2016

19.06.2016 P. P. Shah & Associates 1
ICAI’s CERTIFICATE COURSE ON
ANTI MONEY LAUNDERING
OVERVIEW OF ALLIED LAWS IMPACTING PMLA
by: Mr. Paresh P. Shah
P.P. Shah & Associates
Chartered Accountants
Email: ppshahandassociates.com

Overview
ALLIED LAWS IMPACTING PMLA
 Undisclosed Foreign Income and Assets (Imposition
of Tax) Act, 2015
 Narcotic Drugs and Psychotropic Substances Act,
1988
 Benami Transactions (Prohibition) Act, 1988
 Foreign Exchange Management Act, 1999

PMLA OVERVIEW
 The PML Act seeks to combat money laundering in
India and has three main objectives:
• To prevent and control money laundering
• To confiscate and seize the property obtained
from the laundered money; and
• To deal with any other issue connected with
money laundering in India.
 The Act also proposes punishment under sec.4

19.06.2016 4
 Sec. 3 of PMLA defines offence of money laundering as whosoever
directly or indirectly attempts to indulge or knowingly assists or
knowingly is a party or is actually involved in any process or
activity connected with the proceeds of crime and projecting it as
untainted property shall be guilty of offence of money-laundering.
 Obligation on banking companies, financial institutions and
intermediaries for verification and maintenance of records of the
identity of all its clients and also of all transactions and for
furnishing information of such transactions in prescribed form to
the Financial Intelligence Unit-India (FIU-IND).
 Director of FIU-IND is empowered to impose fine on banking
company, financial institution or intermediary if they or any of its
officers fails to comply with the provisions of the Act as indicated
above.
PMLA OVERVIEW (cont’d)
P. P. Shah & Associates

19.06.2016 5
 PMLA empowers Enforcement Directorate to carry out
investigations in cases involving offence of money laundering
and also to attach the property involved in money laundering.
 PMLA envisages setting up of an Adjudicating Authority to
exercise jurisdiction, power and authority conferred by it
essentially to confirm attachment or order confiscation of
attached properties.
 It also envisages setting up of an Appellate Tribunal to hear
appeals against the order of the Adjudicating Authority and the
authorities like Director FIU-IND

19.06.2016 6
 Preamble of PMLA
‘An Act to prevent money-laundering and to provide for confiscation of
property derived from, or involved in, money-laundering and for
matters connectedtherewith or incidental thereto’
 Definition: Proceeds of crime (Sec. 2(u)):
"proceeds of crime" means any property derived or obtained, directly
or indirectly, by any person as a result, of criminal activity relating to a
scheduled offence or the value of any such property
 Definition: Money-laundering (Sec. 2(p)):
“money -laundering" has the meaning assigned to it in section 3 as:
Whosoever directly or indirectly attempts to indulge or knowingly
assists or knowingly is a party or is actually involved in any process or
activity connected with the proceeds of crime including its
concealment, possession, acquisition or use and projecting or claiming
it as untainted property shall be guilty of offence of money-laundering.

19.06.2016 7
 Structure of PMLA
Section No. Description
3 Offence of Money-laundering
4 Punishment for Money-laundering
5 Attachment of Property involved in Money-laundering
6 Adjudicating authorities, composition, powers, etc.
7 Staff of Adjudicating authorities
8 Adjudication
9 Vesting of Property in Central Government
10 Management of Properties confiscated
11 Power regarding summons, evidence, etc.
12 Obligation of Banking companies, FIs & intermediaries
12A Access to information from reporting entity

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 Structure of PMLA
Section No. Description
17 Search & Seizure
18 Search of persons
19 Power to arrest
26 Appeal to Appellate Tribunal
50 Powers of authorities regarding summons, production of
documentation and to give evidence, etc.
58 Assistance to a Contracting State in certain cases
58A Special Court to release Property
58B Letter of request of a Contracting State or authority for
confiscation or release of Property

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Objective of the Black Money Act:
 To curb black money and disclosure of foreign assets
and income for imposition of tax on such asset and
income
Structure of the Act:
 Preliminary
 Basis of Charge (Sec. 3, 4, 5)
 Tax Management (Sec. 10)
 Penalties (Sec. 41 to 47)
 Offences and Prosecution (Sec. 49 to 53)
 Onetime Disclosure Window (Sec. 59 to 71)
 General Provisions (Sec. 88, Sec. 148 of ITA)
The Black Money (Undisclosed Foreign Income and
Assets) and Imposition of Tax Act, 2015- Overview

19.06.2016 10
Scope of the Black Money Act:
 Preamble
‘An Act to make provisions to deal with the problem of the Black
money that is undisclosed foreign income and assets, the
procedure for dealing with such income and assets and to
provide for imposition of tax on any undisclosed foreign income
and asset held outside India and for matters connected
therewith or incidental thereto’.
 Black Money Act applies to all persons who are ‘resident and
ordinarily resident’ in India.
(cont’d)

19.06.2016 11
 “Undisclosed asset located outside India” (Sec. 2(11)) means an
asset (including financial interest in any entity) located outside
India:
held by the assessee in his name or where he is a ‘beneficial
owner’; AND
he has no explanation about the source of investment
in such asset; OR
the explanation given by him is in the opinion of the
assessing officer unsatisfactory.
 “Undisclosed foreign income and asset” (Sec. 2(12)) means the
total amount of undisclosed income of an assessee from a
source located outside India and the value of an undisclosed
asset located outside India referred to under Sec. 4 and
computed in a manner laid down in Sec. 5
(cont’d)

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Section 2(1) defines “Assessee” as under:
 “assessee” means a person, being a resident other than not ordinarily
resident in India within the meaning of clause (6) of section 6 of the
Income-tax Act, by whom tax in respect of undisclosed foreign income
and assets, or any other sum of money, is payable under this Act and
includes every person who is deemed to be an assessee in default
under this Act”
 The term ‘person’ is not defined in the Black Money Act so its definition
under the ITA must be adopted. Accordingly, assessee will include
individual, HUF, company, firm, AOP, BOI, local authority and every
artificial judicial person.
 This Act will not apply to any person who is Not Ordinary Resident and
Non Resident.
(cont’d)

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Basis of Charge (Section 3):
 The charge is for every assessment & hence this Act is permanent
feature of our tax system & will act as a deterrence to accumulate
income or assets abroad.
 The Act prescribes a tax in respect of a resident assessee’s at the rate
of thirty per cent on:
(a) total amount of undisclosed income of an assessee from a source
located outside India and
(b) the fair market value of an undisclosed asset located outside India
 Tax as above charged in the previous year in which it has come to the
notice of the assessing officer. No Surcharge and Education Cess on
Tax or Penalty.
(cont’d)

19.06.2016 14
Computation of total undisclosed foreign income and asset (Section 5):
 In computing tax incidence, no deduction shall be allowed in respect of
any expenditure or allowance or set off of any loss.
 However, any income previously assessed under Income Tax Act or
which is assessable or has been assessed to tax under this Act shall be
reduced from the value of the undisclosed asset located outside India,
if, the assessee furnishes evidence to the satisfaction of the Assessing
Officer that the asset has been acquired from the income which has
been assessed or is assessable.
 In case of an immovable property, the deduction as above, shall be the
amount which bears to the value of the asset as on the first day of the
financial year in which it comes to the notice of the Assessing Officer,
the same proportion as the assessable or assessed foreign income
bears to the total cost of the asset.
(cont’d)

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Assessment Procedures under the Act:
 Assessment shall be made under section 10 of the Act, wherein the
order for assessment shall be passed within two years from the end of
the Financial Year in which the notice for assessment was issued by the
Assessing Officer;
 Furthermore, in case the assessee fails to comply the notice issued by
the Assessing Officer, the officer can make a best judgement
assessment on the basis of the information available;
 Time period for rectification of order is four years from the end of the
financial year in which the order sought to be amended was passed as
per section 12 of the Act;
 Any application made by the assessee for rectification shall be dispose
off within six months from the end of the month in which the
application is received
(cont’d)

19.06.2016 16
Assessment Procedures under the Act:
 Sec. 10(1) For the purposes of making an assessment or reassessment under
this Act, the Assessing Officer may, on receipt of an information from an
income-tax authority under the Income-tax Act or any other authority under any
law for the time being in force or on coming of any information to his notice,
serve on any person, a notice requiring him on a date to be specified to produce
or cause to be produced such accounts or documents or evidence as the
Assessing Officer may require for the purposes of this Act and may, from time to
time, serve further notices requiring the production of such other accounts or
documents or evidence as he may require.
 Sec. 10(2) The Assessing Officer may make such inquiry, as he considers
necessary, for the purpose of obtaining full information in respect of undisclosed
foreign income and asset of any person for the relevant financial year or years.
 Sec. 10(3) The Assessing Officer, after considering such accounts, documents or
evidence, as he has obtained under sub-section (1), and after taking into
account any relevant material which he has gathered under sub-section (2) and
any other evidence produced by the assessee, shall by an order in writing,
assess the undisclosed foreign income and asset and determine the sum
payable by the assessee.
(cont’d)

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Assessment Procedures:
 The amount of undisclosed investment in an asset located outside
India shall not be included in the income of the assessee in any
assessment year under the Income Tax Act or Wealth Tax or FEMA, if
the person has made payment of tax under this Act;
 The assessing officer will not be entitled to open or reopen assessment
or reassessment in case of an assessee in respect of undisclosed asset
located outside India is declared or any amount of tax paid under the
scheme of Sec. 59 to 73.
(cont’d)

19.06.2016 18
Black Money Act 2015 Vs Income-Tax Act 1961:
 Option Before Assessing Officer.
 Invoke ITA 1961 or BMA 2015.
 Assessment of Prior years under ITA and BMA
 Period of Reopening under both the Acts
 Simultaneous or Sequential Option with Assessing Officer
(cont’d)

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Appeal before the Commissioner Appeals :
 An appeal can be filed with the Commissioner Appeals against any
order passed by the Assessing Officer against the assessee within 30
days from the date on which the order appealed against is served;
 The appeal filed before the Commissioner (Appeals) shall be disposed
off within one year from the end of the financial year in which the
appeal is preferred;
Appeal before the Appellate Tribunal:
 An appeal can be filed with the Appellate Tribunal against any order
passed by the Commissioner Appeals against the assessee within 60
days from the date on which the order appealed against is served;
 The Appellate Tribunal shall serve a notice of the appeal filed to the
other party and providing it with the opportunity to file cross objections
within 30 days from the date of receipt of notice
(cont’d)

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Appeal before the High Court:
 An appeal can be filed with the High Court against any order passed by
the Appellate Tribunal against the assessee within 120 days from the
date on which the order appealed against is served provided that the
order passed involves a substantial question of law
Appeal before the Supreme Court:
 An appeal can be filed with the Supreme Court against any order
passed by the High Court against the assessee provided that the High
Court Certifies the case fit to be filed for an appeal before the Supreme
Court
(cont’d)

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Penalties under the Act:
 The Assessing Officer may initiate a penalty of 3 times the tax liability
of the assessee as computed from the undisclosed income and assets
(Section 41);
 If a person being an ROR as per the provisions of the Income Tax Act,
1961 who is required to furnish a return of income under section
139(1) and during such previous year-
 held any asset including financial interest in any entity located outside India
as a beneficial owner or;
 was a beneficiary of any asset including financial interest in any entity
located outside India;or
 had any income from a source located outside India;
fails to file a return of income by the end of the assessment year to
which it relates is liable for a penalty of a sum of INR 10 Lakhs (S.42);
 Note: However, the penalty of such section does not applies in case the
assessee holds a bank account the value of which does not exceed INR
5,00,000.
(cont’d)

19.06.2016 22
Penalties under the Act:
 If any person being an ROR as per the Income Tax Act, 1961 and has
filed its return of income however, he has failed to disclose any foreign
income or asset hold during the previous year or has reported
inaccurate particulars in the return of income than such person shall be
liable to pay a penalty of INR 10 lakhs (Section 43);
 If a person is an assessee in default under the Act due to tax arrears
than such person shall be liable to pay a penalty of an amount equal to
the tax amount. Furthermore, such person shall not cease to pay
penalty even if payment for taxes has been made even before the
penalty was imposed on him (Section 44);
 If any person without any reasonable cause fails to:
 Answer any question put to him by the tax authority;or
 Sign any statement as required under the Act by the tax authority;
 Attend or produce books of accounts as required under the Act;
Than such person is liable to pay a minimum penalty of INR 50,000
which may extend upto INR 2 lakhs (Section 45)
(cont’d)

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Offences and Prosecutions under the Act:
 When Return is not filed (Sec. 49): If any person being an ROR who is required
to file its return of income as per the provisions of the Income Tax Act, who
during the previous year have held any foreign asset or have any source of
income, shall be punishable with a rigorous imprisonment of a minimum term of
six months which may extend up to seven years and fine;
 When Return is filed (Sec. 50): If any person being an ROR files its return of
income as per the provision of the Income Tax Act, however provides with
inaccurate particulars or does not disclose the details of any foreign assets held
by him or income from any source shall be punishable with a rigorous
imprisonment of a minimum term of six months which may extend up to seven
years and fine;
 If any person willfully attempts to evade tax or penalty or any other sum
payable under the Act, he shall be punishable with a rigorous punishment of a
term not less than three months but which may extend up to ten years with fine
(Sec. 51(1));
 If a person wilfully attempts to evade the payment of tax, penalty or interest
under this Act, he shall be punishable with rigorous imprisonment for a term
which shall not be less than three months but which may extend to three years
and shall, in the discretion of the court, also be liable to fine (Sec. 51(2)).
(cont’d)

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Offences and Prosecutions under the Act:
 The following cases will be deemed to be a case where a person has
willfully evaded taxes, penalty or interest chargeable under the Act
(Sec. 51(3)) -
 Any person having possession or control any books of accounts
containing a false statement or entry; or
 Makes or causes to make any false statement or entry ; or
 Willfully omits or causes to be omitted any relevant entry or
statement; or
 Causes any circumstances which will have the effect of enabling
any person to evade tax, penalty or interest
 If any person makes false statement in verification under this Act, or
abets / induce any person to make a statement or declaration under
this Act than, he shall be punishable with a rigorous imprisonment of a
minimum term of six months which may extend up to to seven years
and fine
(cont’d)

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One-time Compliance Procedure under the Act (Sec. 59):
 Not an amnesty scheme as there is no immunity from penalty
 One time compliance scheme window (with a time limit up to 30.09.2015)
for disclosing any UFA and acquired from income chargeable to tax under
ITA for any assessment year prior to AY 2016-17
 Merely an opportunity for persons to come clean and become compliant
before the stringent provisions of the new Act come into force
 Any person can make declaration (format and the due date as notified) in
respect of UFAs and pay tax on it @ 30% plus penalty (equal to tax) i.e.
total 60%
 Taxes and penalty is to be paid on or before filing of declaration or before
31.12.2015
 No additional interest u/s.234A, 234B and 234C of the ITA will be levied
 No exemption, deduction or set-off of any carried forward losses
 Amount of UFA so declared shall not be included in the total income of any
assessment year in ITA
 No reopening of assessment due to disclosure under this scheme -
Declaration will not affect finality of completed assessment
(cont’d)

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One-time Compliance Procedure not open for any person:
 who has been issued an order of detention under the Conservation of
Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (subject
to certain conditions)
 who is subject to prosecution for any offence punishable under Chapter IX
or Chapter XVII of the Indian Penal Code, the Narcotic Drugs and
Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act,
1967, the Prevention of Corruption Act, 1988
 notified under section 3 of the Special Court (Trial of Offences Relating to
Transactions in Securities) Act, 1992
 against whom notice of assessment has been issued under Income Tax Act
1961
 against whom time limit for furnishing of notice of assessment has not
expired due to search, survey under the Income Tax Act 1961
 against whom information has been received in respect of UFA from
competent authority under a formal pact (cases like account holders of
HSBC Geneva which has not been disclosed, whether or not having any
balance)
(cont’d)

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Offences under Black Money Act and relevance under PMLA Act:
 Section 88 of Black Money Act has amended the Schedule in Part
C under PMLA Act to include the following offence under the
PMLA Act:
“The offence of wilful attempt to evade any tax, penalty or
interest referred to in section 51 of the Black Money
(Undisclosed Foreign Income and Assets) and Imposition of
Tax Act, 2015.”
 Thus, any wilful attempt to evade tax, penalty or interest due
under the Black Money Act is a Scheduled Offence under the
PMLA Act.
 It enables authorities to attach and confiscate unaccounted
assets held abroad, launch prosecutions and seize and confiscate
equivalent value situated in India. The definition of 'proceeds of
crime' under the PMLA has been amended to enable attachment
and confiscation of equivalent asset in India
Assets) and Imposition of Tax Act, 2015and PMLA

19.06.2016 28
Objective of the NDPS Act:
 To prohibit or control or to regulate the operation relating to
narcotic drugs and psychotropic substances.
 It provide licensee system for whole central & state Govt.
 It prescribes the procedure for preventing illicit traffic & abuse
of narcotic drugs & psychotropic substances.
 It also provides penalties for illicit traffic of these drugs
 To prohibit & regulate the production of narcotic drugs,
psychotropic substances and other controlled chemicals which
are used in the production of ND & PS
 Illicit traffic: Cultivation, manufacture, dealing and distribution
including storage & transshipment without approval is an
offence.
Narcotics Drugs and Psychotropic Substances
(NDPS) Act, 1985- Overview

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Important Definitions:
 Narcotic Drugs: It mean Coca leaves, opium, hemp,
poppy straw, & including all manufactured drugs.
 Psychotropic Substances:
 Any substances natural or synthesis or any salt.
 Preparation of such substances which are included
in a list of Psychotropic substances in the schedule
to the NDPS Act. eg.N-N Dimethyltryptamine, N-N
Diethyltryptamine, LSD, Alprazolam, Nitrazepam
and other Benzodiazepam derivative.
(NDPS) Act, 1985- Overview (cont’d)

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ILLICIT TRAFFIC : [As defined NDPS Ordinance
1988]
 Cultivation of coca plant & gathering any portion of
coca plant
 Cultivating opium poppy or any cannabis plant
 Engaging in the manufacturing, possession, sale,
purchase, transporting, warehousing concealment,
use of consumption, inter-state import, inter state
export from India transshipment, of narcotic drug
and psychotropic substances.
 Dealing in narcotic drug and psychotropic
substances,

19.06.2016 31
ILLICIT TRAFFIC (cont’d):
 Handling or letting any premises for use for any of
the purpose referred to above
 Financing any activity by himself or through any
other person in the further or in
 Support of doing any of the above said acts
 Abetting or conspiring in the furtherance or in
support of doing an of the above said acts except to
the extent permitted under the narcotic drug and
psychotropic substances acts 1985 or any rule or
order made or any condition of any licence, permit or
authorization issued, hereunder

19.06.2016 32
Other Aspects:
 Demand Projection by Ministry of Social Justice
 Permission of cultivation by Committee of Narcotics
 Processing of Alkaloids by Govt. factories
 Import – Export through MOF
 Transportation approval by police

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Prohibition, Control & Regulation (Sec. 8):
 No person shall :
 Cultivate any coca plant or gather any portion of
coca plant; or
 Cultivate the opium poppy or any cannabis plant;
or
 Produce, manufacture, possess, sale, purchase,
transport, warehouse, use, consume, interstate
export, interstate import, Import into India, export
from India or trans-shipment any narcotic drugs or
psychotropic substances.

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Machinery with the Govt.: Measures for preventing and
combating abuse of Narcotic drugs and illicit traffic:
 Co-ordination of action by various officers of state
government and other authorities under this Act.
 Obligations under the International conventions.
 Assistance to the concerned authorities in foreign
countries and concerned international organization
regarding prevention and suppression of illicit traffic.
 Identification, treatment, education, aftercare,
rehabilitation, and social re-interaction of addicts.
 Such other matter for effective implementation of this
act and preventing and combating the abuse of narcotic
drug and psychotropic substances, and illicit traffic.

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 Graded Penalty according to abuse of commercial quantity & small
quantity
 Product-wise small & large quantities are different
 Offences – Clause 1:
 The contravention of provision in respect of poppy, poppy straw,
opium, coca plant, coca leaves, prepared opium, manufactured
drugs and psychotropic substances.
 Illegal import or export or external dealing and transshipment of
narcotic drugs and psychotropic substances.
 Allowing use of premises or Vehicle commission of an offence
under the act.
 Embezzlement of opium by license cultivator Contravention in
respect of cannabis plant [other than ganja]
 Penalties:- Imprisonment not less than 10 years with a fine of
rupees 1 lakh .This may be extend to imprisonment up to 20 years
and fine upto2lakhs

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Offences – Clause 2:
 Contravention in respect of cannabis plant related to ganja. The
punishment is rigorous imprisonment up to 5 years and fine up
to Rs.50,000
 Failure to keep a record or account or failure to submit the
returned as required by law or keeping false record and making
false statement is an offense.
 Failure to produce licenses when demanded by authority is an
offense.
 Willful breach of any provision of act or condition of license for
which no separate penalty is prescribe.
 Penalty:-Rigorous imprisonment up to 5 years or fine or both

19.06.2016 37
 Illegal possession for personal consumption of cocaine,
morphine diacetyl morphine or any Narcotic drugs and
Psychotropic substances
 Penalty:- Rigorous imprisonment for a term which may be
extend to one year or fine which may be extend to Rs. 20,000
or both. In case the Narcotic drugs and psychotropic substances
consumed is other than those specified in or under clause 4(a)
with imprisonment for term which may extend to six months or
fine which may extend to Rs.10,000/- or both

19.06.2016 38
 Financing illicit traffic and harboring offender or directly and
indirectly financing any of the activity specified in sub-class 1 to
4
 Penalty:- Rigorous imprisonment for a term which shall not be
less than 10 years but which may be extend up to 20 years and
fine which shall not be less than Rs.1 lakh which may be
exceeding Rs.2 lakhs.

19.06.2016 39
Offences under NDPS Act covered in Paragraph 2 of Part A of the
Schedule under PMLA Act as under:
Section Description of Offence
15 Contravention in relation to poppy straw
16 Contravention in relation to coca plant & leaves
17 Contravention in relation to prepared opium
18 Contravention in relation to opium poppy & opium
19 Embezzlement of opium by cultivator
20 Contravention in relation to cannabis plant & cannabis
21 Contravention in relation to manufactured drugs &
preparations
22 Contravention in relation to psychotropic substances
23 Illegal import into India, Export from India to
transshipment of narcotic drugs and psychotropic
substances
(NDPS) Act, 1985 and PMLA

19.06.2016 40
Offences under NDPS Act covered in Paragraph 2 of Part A of the
Schedule under PMLA Act as under:
Section Description of Offence
24 External dealings in narcotic drugs and psychotropic
substances in contravention to section 12 of NDPS Act
25A Contravention of orders made under Section 9A of the
NDPS Act
27A Financing illicit traffic and harbouring offenders
29 Abetment and criminal conspiracy
 Property under NDPS Act is already confisticated;
 Operation of NDPS Act vs PMLA Act?
 Section 26 of General Clauses Act.
(NDPS) Act, 1985 and PMLA

19.06.2016 41
Objective of the Benami Act:
 An act to prohibit benami transactions and the right to
recover property held benami and for matters connected
therewith or incidental thereto
Important Definitions:
 Benami Transaction: Section 2(a)… means any transaction
in which property (2(c)) is transferred to one person for a
consideration paid or provided by another person.
 Property: Section 2(c)…. means property of any kind,
whether movable or immovable, tangible or intangible and
includes any rights or interest in such property
The Benami Transactions (Prohibition) Act, 1988
- Overview

19.06.2016 42
 Prohibition of benami transaction (Section 3):
1. No person shall enter into any benami transaction.
2. Nothing in sub-section (1) shall apply to the purchase
of property by any person in the name of his wife or
unmarried daughter and it shall be presumed, unless
the contrary is proved, that the said property had
been purchased for the benefit of the wife or the
unmarried daughter.
3. Whoever enters into any benami transaction shall be
punishable with imprisonment up to 3 years or with
fine or both
- Overview (cont’d)

19.06.2016 43
 Prohibition of the right to recover property held benami
(Section 4): No suit, claim or action to enforce any right in
respect of any property held benami against the person in
whose name the property is held or against any other
person shall lie by or on behalf of a person claiming to be
real owner of such property.
 Property held benami liable to acquisition (Section 5)
1. All properties held benami shall be subject to
acquisition by such authority, in such manner and after
following such procedure as may be prescribed.
2. For the removal of doubt, it is hereby declared that no
amount shall be payable for the acquisition of any
property under sub-section (1).

19.06.2016 44
 Act not to apply in certain cases (Section 6): Nothing in
this act shall affect the provisions of Section 53 of the
Transfer of Property Act, 1882 (Fraudulent Transfer) or
any law relating to transfer for an illegal purpose.
 Plea of benami transaction whether heritable by heirs of
real owner: An ostensible owner does not hold any
interest or title over the property in a benami transaction.
The title lies with the real owner. Upon his death,
necessarily the property remains as an estate of real
owner and becomes liable for inheritance according to law
of succession governing the parties. …the heirs of
benamidar do have a legal right to set up a plea of
benami and to claim the property from the ostensible
owner (T. Jayamma v/s. Devamma, AIR 2004 Kant. 96).

19.06.2016 45
 The Benami Transactions (Prohibition) Amendment Bill,
2015 was introduced in Lok Sabha on May 13, 2015
 The Bill seeks to: (i) amend the definition of benami
transactions, (ii) establish adjudicating authorities and an
Appellate Tribunal to deal with benami transactions, and
(iii) specify the penalty for entering into benami
transactions.
 The Bill amends definition of benami transaction to add
other transactions which qualify as benami, such as
property transactions where: (i) the transaction is made in
a fictitious name, (ii) the owner is not aware of denies
knowledge of the ownership of the property, or (iii) the
person providing the consideration for the property is not
traceable.
The Benami Transactions (Prohibition) Amendment
Bill, 2015 - Overview

19.06.2016 46
 The Bill also specifies certain cases will be exempt from
the definition of a benami transaction. These include
cases when a property is held by: (i) a member of a Hindu
undivided family, and is being held for his or another
family member’s benefit, and has been provided for or
paid off from sources of income of that family; (ii) a
person in a fiduciary capacity; (iii) a person in the name of
his spouse or child, and the property has been paid for
from the person’s income; and
 The Bill defines benamidar as the person in whose name
the benami property is held or transferred, and a
beneficial owner as the person for whose benefit the
property is being held by the benamidar
Bill, 2015 – Overview (cont’d)

19.06.2016 47
 Under the Act, an Authority to acquire benami properties was to be
established by the Rules. The Bill seeks to establish four authorities to
conduct inquiries or investigations regarding benami transactions: (i)
Initiating Officer, (ii) Approving Authority, (iii) Administrator and (iv)
Adjudicating Authority.
 If an Initiating Officer believes that a person is a benamidar, he may
issue a notice to that person and may hold the property for 90 days
from the date of issue of the notice, subject to permission from the
Approving Authority. At the end of the notice period, the Initiating
Officer may pass an order to continue the holding of the property.
 If an order is passed to continue holding the property, the Initiating
Officer will refer the case to the Adjudicating Authority. The
Adjudicating Authority will examine all documents and evidence
relating to the matter and then pass an order on whether or not to
hold the property as benami.
 Based on an order to confiscate the benami property, the Administrator
will receive and manage the property in a manner and subject to
conditions as prescribed.

19.06.2016 48
 The Bill also seeks to establish an Appellate Tribunal to hear appeals
against any orders passed by the Adjudicating Authority. Appeals
against orders of the Appellate Tribunal will lie to the high court.
 Under the Act, the penalty for entering into benami transactions is
imprisonment up to three years, or a fine, or both. The Bill seeks to
change this penalty to rigorous imprisonment of one year up to seven
years, and a fine which may extend to 25% of the fair market value of
the benami property.
 The Bill also specifies the penalty for providing false information to be
rigorous imprisonment of six months up to five years, and a fine which
may extend to 10% of the fair market value of the benami property.
 Certain sessions courts would be designated as Special Courts for
trying any offences which are punishable under the Bill.

19.06.2016 49
Offences under Benami Act and relevance under PMLA Act:
 Offence under Benami Act is not specified as a Schedule Offence
under Schedule to PMLA Act.
 Property where real / beneficial owner does not hold property in
his / her own name then in such as a case, can PMLA authority
seize such property?
 Is it a proceeds of crime?
 Can Property be seized subject to prosecution of the ostensible
owner in case of acquisition under good faith
and PMLA

FEMA Overview
 Foreign Exchange Management Act – Overview
 Fundamentals of FEMA
 FEMA Transactions
 Abbreviations :Authorised Dealer(AD),
Capital Account transaction (CAP),
Current Account Transaction(CAT),
Foreign Exchange(FE),
Government of India (GOI) ,
Notification no.(Notf.),
Person Resident Outside India(PROI),
Person Resident in India (PRII),
Reserve Bank of India (RBI),
Non repatriable basis (NRB)
Repatriable basis(RB)
Subject to (SBT)

Overview of Foreign Exchange
Management Act
 Applies to whole of India and all branches, offices and agencies outside India, which
are owned or controlled by person resident in India – Extra territorial jurisdiction
 Broadly, the objectives of FEMA are: (i) To facilitate external trade and payments;
and (ii) To promote the orderly development and maintenance of foreign exchange
market. The Act has assigned an important role to the RBI in the administration of
FEMA.
 FEMA has total 49 sections in which sections 1 to 9 are substantive and the rest are
procedural /administrative to carry out function such as Appellate, Investigation,
search and authorization to various statutory bodies to make rules ,regulations,
amendments
 Section 46 of the Act grants power to Central Government to makes rules and
section 47 of the Act grants power to RBI to make regulations to implements its
provisions and the rules made there under.
 Every Rule and Regulation made under this Act shall be laid before each house of
parliament Section 48.
 Section 49 deals with Repeal and savings

Management Act
Section Description
1 Application and commencement of FEMA w.e.f. 1/6/2000
2 Definitions
3 to 9 Substantive provisions, Dealing in FE, No drawal of FE, CAT, CAP, Export &
Import, Repatriation, Possession of FE etc.
10 to 12 Authorized person
Delegation of power by RBI ,ADs & Documents
13 to 15 Contraventions and penalties
16 to 38 Adjudication, Appeal and Directorate of enforcement
39 to 49 Miscellaneous provisions, Power of RBI, Power of Government of India,
Procedure for issue of Notification etc. Sunset clause for FERA upto 31st
May 2002, Repeal and Savings

Management Act
Section Description
3 Dealing in foreign exchange by any Person in India. Receipt by
PRII without Remittance, Payment in India by PRII with a right
O/I
4 Holding of foreign exchange, Security and Immovable property
by PRII.
5 Current account transactions, List and Restrictions
6 Capital account transactions-Powers of RBI and the list.
7 Export of goods and services- Declaration, Information,
Direction to receive FE.
8 Realisation and repatriation of foreign exchange
9 Exemption from realization and repatriation in certain cases
And possession of FE

Important Definitions under FEMA
 S. 2(e) “capital account transaction" means a transaction which alters the
assets or liabilities, including contingent liabilities, outside India of persons
resident in India or assets or liabilities in India of persons resident outside
India, and includes transactions referred to in sub- section (3) of section 6
 S. 2(j) “current account transaction" means a transaction other than a
capital account transaction and without prejudice to the generality of the
foregoing such transaction includes,-
 (i) payments due in connection with foreign trade, other current business,
services, and short- term banking and credit facilities in the ordinary
course of business,
 (ii) payments due as interest on loans and as net income from
investments,
 (iii) remittances for living expenses of parents, spouse and children
residing abroad, and
 (iv) expenses in connection with foreign travel, education and medical care
of parents, spouse and children

 S. 2(v) " person resident in India" means-
 (i) a person residing in India for more than one hundred and eighty- two
days during the course of the preceding financial year but does not
include-
 (A) a person who has gone out of India or who stays outside India, in
either case-
 (a) for or on taking up employment outside India, or
 (b) for carrying on outside India a business or vocation outside India, or
 (c)for any other purpose, in such circumstances as would indicate his
intention to stay outside India for an uncertain period;
 (B) a person who has come to or stays in India, in either case,
otherwise than-
 (a) for or on taking up employment in India, or
 (b) for carrying on in India a business or vocation in India, or
 (c) for any other purpose, in such circumstances as would indicate his
intention to stay in India for an uncertain period;

 S. 2(v) " person resident in India" means – (con’t)
 (ii) any person or body corporate registered or incorporated in India,
 (iii) an office, branch or agency in India owned or controlled by a
person resident outside India,
 (iv) an office, branch or agency outside India owned or controlled by a
person resident in India
 S. 2(w) " person resident outside India" means a person who is not
resident in India

 “ Person of Indian origin" (as per FEMA Notf. 5) means a citizen of any
country other than Bangladesh or Pakistan, if
a) he at any time held Indian passport; or
b) he or either of his parents or any of his grand- parents was a citizen of
India by virtue of the Constitution of India or the Citizenship Act, 1955
(57 of 1955); or
c) the person is a spouse of an Indian citizen or a person referred to in
sub-clause (a) or (b)

Fundamentals of FEMA
 Foreign Exchange belongs to Govt. of India except permitted.(Sec 5
about Current Account Transaction and Sec 6 about Capital Account
Transactions)
 Dealing in Foreign Exchange by PRII as well as by PROI is
regulated(Section 3 of The FEMA )
 Dealing between PRII and PROI in Rupees is also
regulated(Borrowing and Lending in Rupees, deposit in Rupees,
Gifts in India by PROI except to relatives etc)
 Permissible Capital Account or Current Account Transaction -Drawal
of Foreign Exchange are specific to purposes for which they are
granted.

 SEC. 3: Dealing in foreign exchange, etc.
 Save as otherwise provided in this Act, rules or regulations made there under, or with the
general or special permission of the Reserve Bank, no person shall-
 (a) deal in or transfer any foreign exchange or foreign security to any person not being an
authorized person;
 (b) make any payment to or for the credit of any person resident outside India in any manner;
 (c) receive otherwise through an authorized person, any payment by order or on behalf of any
person resident outside India in any manner.
Explanation.- For the purpose of this clause, where any person in, or resident in, India
receives any payment by order or on behalf of any person resident outside India through any
other person (including an authorized person) without a corresponding inward remittance from
any place outside India, then, such person shall be deemed to have received such payment
otherwise than through an authorized person;
 (d) enter into any financial transaction in India as consideration for or in association with
acquisition or creation or transfer of a right to acquire, any asset outside India by any person.
Explanation.- For the purpose of this clause," financial transaction" means making any
payment to, or for the credit of any person, or receiving any payment for, by order or on behalf
of any person, or drawing, issuing or negotiating any bill of exchange r promissory note, or
transferring any security or acknowledging any debt.

SEC. 4: Holding of foreign exchange, etc.
 Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own,
possess or transfer any foreign exchange, foreign security or any immovable property situated
outside India.
SEC. 5: Current account transactions
 Any person may sell or draw foreign exchange to or from an authorized person if such sale or
drawal is a current account transaction:
Provided that the Central Government may, in public interest and in consultation with the
Reserve Bank, impose such reasonable restrictions for current account transactions as may be
prescribed.
SEC. 6: Capital account transactions
 (1) Subject to the provisions of sub- section (2), any person may sell or draw foreign exchange
to or from an authorized person for a capital account transaction.
 (2) The Reserve Bank may, in consultation with the Central Government, specify-.
(a) any class or classes of capital account transactions which are permissible;
(b) the limit up to which foreign exchange shall be admissible for such transactions:
Provided that the Reserve Bank shall not impose any restriction on the drawal of foreign
exchange for payments due on account of amortization of loans or for depreciation of direct
investments in the ordinary courts of business.

SEC. 6: Capital account transactions (con’t)
 (3) Without prejudice to the generality of the provisions of sub- section (2), the Reserve Bank
may, by regulations, prohibit, restrict or regulate the following-
(a) transfer or issue of any foreign security by a person resident in India;
(b) transfer or issue of any security by a person resident outside India;
(c) transfer or issue of any security or foreign security by any branch, office or agency in India
of a person resident outside India;
(d) any borrowing or lending in foreign exchange in whatever form or by whatever name
called;
(e) any borrowing or lending in rupees in whatever form or by whatever name called between
a person resident in India and a person resident outside India;
(f) deposits between persons resident in India and persons resident outside India;
(g) export, import or holding of currency or currency notes;
(h)transfer of immovable property outside India, other than a lease not exceeding five years,
by a person resident in India;
(i) acquisition or transfer of immovable property in India, other than a lease not exceeding five
years, by a person resident outside India;
(j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred-
(i) by a person resident in India and owed to a person resident outside India; or
(ii) by a person resident outside India.

SEC. 6: Capital account transactions (con’t)
 (4) A person resident in India may hold, own, transfer or invest in foreign currency,
foreign security or any immovable property situated outside India if such currency,
security or property was acquired, held or owned by such person when he was
resident outside India or inherited from a person who was resident outside India.
 (5) A person resident outside India may hold, own, transfer or invest in Indian
currency, security or any immovable property situated in India if such currency,
security or property was acquired, held or owned by such person when he was
resident in India or inherited from a person who was resident in India.
 (6) Without prejudice to the provisions of this section, the Reserve Bank may, by
regulation, prohibit, restrict, or regulate establishment in India of a branch, office or
other place of business by a person resident outside India, for carrying on any
activity relating to such branch, office or other place of business.

19.06.2016
P. P. Shah & Associates 63
FEMA Transactions
PRIIs PROIs
Current Account
Transactions
Capital Account
Transactions
Section 3 of FEMA
applicable to both
PRIIs & PROIs
Capital Account
Transactions
Exceptions:
LRS Scheme
Schedules I, II &
III of FEMA
(Current Account
Transactions)
Rules, 2000
Schedule I of
FEMA Notf. 1
Schedule II of
FEMA Notf. 1
Exceptions:
FEMA Notf. 13Except 4 items of Sch.
III, all items are
subsumed with LRS

FEMA Transactions
Government RBI
Current Account
Transactions Industrial Policy
Capital Account
Transactions
Rules a. Sectoral guidelines
b. Public Sector
c. Hazardous
d. Small Scale
ADMA Circulars
Master Circulars
A.D. Banks
Notifications

FEMA Transactions
 Structure the transaction as compliant with conditions of
Automatic route
 Permissible transactions of every person either PRII or
that of PROI are specific as to General or Specific
Approval.
eg. Schedule 1 to 8 of Notf20,Fema 24 and Purpose of
Notf 20/21/FDI. Purpose of drawal-Specific to use.
 Ability to structure any transaction as Current account
transaction
 Interpretation of the provision, intention and philosophy
is preferable over the literal meaning.
 A Circular law- Dynamics

FEMA Transactions
PROI
Foreign Citizen NRIs Other entities
Deposit- Notf.5 –Banking Accounts
of PROI plus few cases in Notf. 10
[Can open for limited
purpose as
mentioned in Notf.5 &
10
√
[Notf.5 ]
√
[Notf.10 ]
Branch /Liaison - Notf. 22 NA NA Prior approval through AD
√
[except citizen of 8
countries]
Project office NA NA Auto Route with
conditions except 7
citizens
Immovable property in India-
Notf.21
X √ √
[ For branch, office or
other place of business for
carrying on in India any
activity, excluding a liaison
office]

FEMA Transactions
PROI
Partnership business in
India- Notf.24
X
(Prior approval on
Repatriation basis)
√
(Auto Route on non repatriation basis
,Repatriation -Prior approval (Prior approval on
repatriation basis)
Borrowings in rupees Restricted only to rupee borrowings
-From relative SBT End use restrictions.(Reg 8B)
-Special provision for housing loan by AD in
rupee to non resident and loan against security
of shares and immovable property (Reg.8 and 7)
-body corporate registered or incorporated in
India may grant rupee loan to its employees who
is a non-resident Indian or a Person of Indian
Origin(Regulation 8A)
-Loan for acquiring share of Indian co. under
ESOP (Reg.7)
-loan granted to a non-resident by an authorised
dealer, in accordance with Regulation 7 , may be
repaid by any relative of the borrower in India by
crediting the borrower's loan account through
the bank account of such relative.(Reg7A)

FEMA Transactions
PROI
Lending in FE
Lending in rupee
Close relative in Foreign
exchange- Notf.3
Indian co- NCD- Notf.4
Notf.5 – against fund held in
account
ECB
Lending by way of
Deposits
Schedule 6 & 7 of notf.5 , Loan
from NRO account,
Commercial paper
Portfolio Investment Notf. 20 – schedule 2,
2A,5,8
[Notf. 20 - schedule 3 and 5 Notf. 20 – schedule 2,
2A ,5,8
Note: Schedule 2 is for FII and its sub accounts only. Foreign Citizen and corporate
can invest in Portfolio through sub account(Schedule 2) , RFPI route (Schedule 2A)
and QFI route (Schedule 8)
FDI Notf. 20 - schedule
1,6,9
Notf. 20 - schedule 1,4, 6,9 Notf. 20 - schedule 1,6

FEMA Transactions
PRII
Individual Other entities
Current Account transaction
FE Account Notification 10,RFC,RFC(domestic), EEFC
Export of goods and service- Notf. 23 √ √
PEM- A.P. Dir cir 32 dt 20/10/03 A.P.
Dir cir 118 20/6/2013 & 51 dt
20/09/13
√ √
Branch /Liaison /Project office outside
India – Notf. 47/2001 ,A.P. Dir 39 dt
20/4/2002,A.P. Dir cir 18 dt 4/12/2006
√ √
Overseas Investment – Notf. 120 √ √

FEMA Transactions
PRII
Borrowing in
Foreign Exchange
Borrowing in
rupee
Notf.3 – From close relative, from bank
outside India for execution of turnkey project
outside India, foreign currency credit from
overseas supplier, Buyer’s credit & ECB
Notf.4 – From NRI , PIO(to entities other than
co’s) (NRB)
Notf.5 – Deposit on non- repatriation basis,
Repatriation basis(Public)
Notf.3 – ECB as per Guidelines as to rate,
end use, eligible lenders
Notf.3 – ECB as per Guidelines
Notf.4 – NCD(Public)(NRB or RB)

FEMA Transactions

 .
PRII
Lending in FE
Lending in rupee
Notf.3- Out of EEFC for trade related
purpose
Notf.4 – to close relative ( Regulation 8B)
-loan granted to a non-resident by an
authorised dealer, in accordance with
Regulation 7, may be repaid by any
relative of the borrower in India by
crediting the borrower's loan account
through the bank account of such
relative.(Reg.7A)
Notf.3 – to its WOS or JV outside India, to its
employee outside India
Notf.4 -body corporate registered or
incorporated in India may grant rupee loan to
its employees who is a non-resident Indian or a
Person of Indian Origin(Regulation 8A)
-Special provision for housing loan by AD in
rupee to non resident and loan against security
of shares and immovable property (Reg.8 and
7)
-Loan for acquiring share of Indian co. under
ESOP (Reg.7)
Immovable
property abroad
Notf.7 Notf. 120 for bonafide overseas Business
activities
LRS Any permitted CAT or CAP SBT restrictions & provision

Compounding of Contravention
 Compounding of contravention under FEMA
allows to settle an offence committed by the
contravener through imposition of a monetary
penalty without going in for litigation, after
contravener acknowledges voluntarily having
committed the contravention.

Powers to Compound under FEMA
 Powers to compound (Section 15) – any
contravention u/s 13 may, on application
made by the person committing such
contravention, be compounded within 180
days from the date of application by –
 Directorate of Enforcement
 Reserve Bank of India

Relevant sections for compounding
 RESERVE BANK :
 Sec.3 – Dealing in Foreign Exchange
 Sec.4 – Holding of foreign currency
 Sec.5 – Current account transactions
 Sec.6 – Capital account transactions
 Sec.7 – Export of goods and services
 Sec.8 – Realisation and repatriation of FE
 Sec.9 – Exemption from realisation & repatriation
 Sec.10.6 – Mis-utilisation of FE
 DIRECTORATE OF ENFORCEMENT :
 Sec.3(a) i.e Hawala transactions.

Non compoundable offences
 If an appeal under Sec. 17 or 19 of FEMA filed;
 The contravention is not quantifiable;
 A contravention has been finally adjudicated and
disposed off by the Adjudication Authority;
 Contraventions related to any transaction without
proper approval or permission form the concerned
Govt. or any Statutory Authority : the requisite
approval not obtained;
 A contravention, prima facie, involves money
laundering, security, etc., & needs investigation.
 PMLA and FEMA

Thank You

Pmla allied laws icai presentation 19.06.2016

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