Chartered Accountants cannot be held guilty under PMLA merely on the ground of issuance of certificate in favour of accused

Last updated: 09 December 2022

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The Madras High Court has ruled that Chartered Accountants (CAs) cannot be prosecuted under the Prevention of Money Laundering Act (PMLA) simply for issuing certificates. The court clarified that a CA's duty is to examine the nature of documents provided by clients, not their genuineness. Therefore, issuing a certificate, even if later used in money laundering, does not automatically make the CA guilty.

Court :
Madras High Court

Brief :
The Hon'ble Madras High Court ("the High Court") in the case of Murali Krishna Chakrala Vs. The Deputy Director, Directorate of Enforcement (Criminal Revision Case No.1354 of 2022 and Crl. M.P.No. 14792 of 2022)dated November 23, 2022, held that Chartered Accountants ("CA") is required to only examine the nature of the documents and not genuinity of those documents, therefore, mere issuing certificate cannot be a valid ground to prosecute a CA under the Prevention of Money Laundering Act, 2002 ("the PMLA Act").

Citation :
Criminal Revision Case No.1354 of 2022 and Crl. M.P.No. 14792 of 2022

The Hon'ble Madras High Court ("the High Court") in the case of Murali Krishna Chakrala Vs. The Deputy Director, Directorate of Enforcement (Criminal Revision Case No.1354 of 2022 and Crl. M.P.No. 14792 of 2022)dated November 23, 2022, held that Chartered Accountants ("CA") is required to only examine the nature of the documents and not genuinity of those documents, therefore, mere issuing certificate cannot be a valid ground to prosecute a CA under the Prevention of Money Laundering Act, 2002 ("the PMLA Act").

Facts

Murali Krishna Chakrala ("the Petitioner") is a practicing CA, who has issued 5 certificates in FORM-15CB under Rule 37-BB of the Income Tax Rules, 1962 ("the IT Rules") in favour of M/s. B.K Electro Tools Products and others, which was subsequently traced as vehicle used for money laundering.

After completion of the investigation, the Enforcement Directorate ("ED") filed a supplementary complaint in Spl.C.C.No.7 of 2021 by which the Petitioner was arrayed.

Alleging that the Petitioner has travelled beyond the professional scope, ethics and value by issuing FORM 15-CB which were used as a supporting document to make foreign outward remittance.

FORM-15CB issued by a CA, certifies the details of the payment, TDS rate, TDS deduction and other details of nature and purpose of remittance.

The Petitioner approached the High Court in Crl. O.P No. 9047 of 2022 for quashing the prosecution in Spl.C.C.No.7 of 2021 on the ground that FORM 15-CB is not required by law for making overseas payments in relation to imports. However, the said petition was dismissed on April 21,2022

The Petitioner filed a Discharge Petition in Crl.M.P.No. 2684 of 2022 in Spl.C.C.No.7 of 2021 which was dismissed on August 26, 2022. Aggrieved by which the Petitioner filed the present Revision Petition before the High Court.

Issue

Whether a CA can be prosecuted under the PMLA Act on the ground that he has issued certificates under IT Rules, 1962 without seeking credibility of the documents relied upon for issuing certificates?

Held

The High Court held that:

The Petitioner was not involved in the money laundering. Further, he has only received fees for certificate services from his client.
A CA is required to only examine the nature of the remittance and nothing more. He is not required to go into the genuineness of the documents furnished by his client.
The High Court allowed the Revision Petition and discharged the Petitioner from the prosecution.

FAQ :

No, a Chartered Accountant cannot be prosecuted under the PMLA solely on the grounds of issuing a certificate. The Madras High Court has clarified that their role is to examine the nature of documents, not their genuineness.

A Chartered Accountant is required to examine the nature of the remittance and the details related to it, such as TDS rate and deduction. They are not obligated to verify the genuineness of the documents provided by their client.

The Madras High Court allowed the revision petition and discharged the Chartered Accountant from prosecution, stating that issuing a certificate does not automatically imply guilt under the PMLA.

Not necessarily. The High Court held that if the CA only examined the nature of the remittance and did not verify the genuineness of the documents, they cannot be held guilty under the PMLA merely for issuing the certificate.