Prevention of Money Laundering Act
The term money laundering means illegally obtained money transferred from foreign banks or illegitimate businesses. Money laundering beyond a certain level is a crime in India. When a person tries to generate profit from an individual or a group in a large amount the crime occurs. Few popular activities through which the processes of money laundering occur are illegal arms sales, smuggling. Other organized crimes like drug trafficking and prostitution rings, Embezzlement, insider trading, bribery, and computer fraud schemes are also part of the money laundering. This kind of money is called ‘dirty money’ and the process of converting dirty money into legal money is called money laundering.
The objective behind introducing this act was:-
- To stop channelising illegal money into different activities.
- Seizure of the property derived from money-laundering.
- Money laundering vis-à-vis and the conveyance of funds. However, earning money or acquiring any property by committing a crime does not amount to money laundering, but it may amount to conveying funds. Acquiring any property by committing a crime which is a Scheduled offense, and holding or possessing such money or property comes under money laundering.
Insolvency and Bankruptcy Code of India
Need of the Law:
- To merge and amend the laws relating to insolvency resolution of corporate persons, partnership firms, and individuals.
- To work in time to maximize the assets value of an insolvent person.
- To motivate enterprise ship, credit availability and balance interests of all stakeholders.
- To construct the Insolvency and Bankruptcy Board of India and related matters the Insolvency and Bankruptcy Code 2016 was introduced.
When matters are related to insolvency and liquidation of corporate debtors, the minimum amount of default is 1 lakh. But the minimum amount of default could be higher if the Central Government thinks fit, but it could not be more than 1 cr rupees. Though, this code does not apply to corporate persons who are regulated under financial service providers like Banks, financial institutions, and insurance companies.
When assets are not sufficient to meet the liabilities that is called insolvency. Insolvency will lead to bankruptcy for non corporates and liquidation of corporates if unprocessed. The term insolvency is used for both individuals and organizations. Bankruptcy is termed for individuals and for corporate it is called corporate insolvency. The insolvency and bankruptcy code was passed by both the Houses of Parliament and notified in 2016. While insolvency is a situation that arises due to the inability to pay off the debts due to insufficient assets, bankruptcy is a situation wherein an application is made to an authority declaring insolvency and seeking to be declared as bankrupt. A bankrupt would be a conclusive insolvent whereas all insolvencies will not lead to bankruptcies. It has 2 options – resolution and recovery or liquidation. Bankruptcy is a legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with the petition filed by the debtor or by the creditors. All the debtor’s assets are measured and evaluated and the assets may be used to repay a portion of outstanding debt.
This code is applicable for insolvency, liquidation, voluntary liquidation, or bankruptcy of
- Any company incorporated under companies act 2013 or under previous acts
- Any other company governed by any special act
- Any LLP under LLP act 2008
- Any other body incorporated under the law as regulated by the government.
The administrative mechanism is governed by 5 pillars namely:
- Insolvency and bankruptcy board of India
- Insolvency professional agent
- Insolvency professionals
- Information utilities
- Adjudicating authority.
Under the code, the most important section is liquidation which is described under sections 33 to 54 as the process of liquidation. Voluntary liquidation governed by section 59 says the voluntary liquidation process is the step by step distribution of assets under section 53 which is different from section 326 and 327 of the Companies Act 2013 and fast track insolvency resolution process under section 55.
1. Who can initiate the process?
Prevention of money laundering
Authorities Entrusted for Investigation:
The Government of India is responsible for investigating the offenses of money laundering under the PMLA and the Department of Revenue in the Ministry of Finance Enforcement Directorate.
Financial Intelligence Unit – India (FIU-IND) – The Department of Revenue, Ministry of Finance report directly to the Economic Intelligence Council (EIC) which is headed by the Finance Minister. The central national agency is responsible for receiving, processing, analysing, and disseminating the information relating to suspect financial transactions.
- National and international intelligence are built up and collaborated.
- Investigation of money laundering and related crimes globally.
- The scheduled offenses are separately investigated by respective agencies under respective acts, for example, the local police, CBI, customs departments, SEBI, or any other investigative agency.
A focal role is played by banks and financial institutions in the world of financial crime. They are properly trained on the method to identify and handle money laundering. Almost every bank employee receives training in anti-money laundering, and all financial institutions and banks are legally required to report any suspicious activity. With the help of technology such as special compliance platforms, companies are now able to easily research their customers and ensure that they are not doing business with criminals.
People who can initiate corporate insolvency process under the code:-
Any corporate debtor who committed a default, a financial creditor, an operational creditor, or the corporate debtors can start off the corporate insolvency resolution process.
People not eligible to make an application under the code:-
a corporate debtor or a financial creditor
(a) who is going through a corporate insolvency resolution process; or
(b) who has completed corporate insolvency resolution process twelve months prior to the date of application; or
(c) one who violated any of the terms of resolution plan which was approved twelve months before the date of an application; or
(d) who has a liquidation order.
2. Application on the basis of Monetary limitation
Prevention of Money Laundering
This act applies the as per the current Prevention of Money Laundering Act (PMLA) rules, which states that reporting is in all cash transactions which values more than Rs 1 million more than Rs 5000000 in case of all cross-border wire transfer and Rs 5 million or more in case of purchase and sale of immovable property.
Insolvency and bankruptcy code
This act applies when the minimum amount of the default in the matter relating to insolvency and liquidation is one lakh rupees ( though the figures of maximum limit could change as per notification by Central Government but could not be more than 1 cr rupees).
3. Agencies involved
Prevention of Money Laundering
The Directorate of Enforcement in the Department of Revenue, Ministry of Finance is responsible for investigating the cases of offense of money laundering under the Prevention of Money Laundering Act, 2002. Financial Intelligence Unit – India (FIU-IND) under the Department of Revenue, Ministry of Finance is the central national agency responsible for receiving, processing, analyzing, and disseminating information relating to suspect financial transactions to enforcement agencies and foreign FIUs.
The regulatory mechanism consists of five pillars namely
- Insolvency and Bankruptcy Board of India
- Insolvency Professional Agencies
- Insolvency Professionals
- Information Utilities
- Adjudicating Authority
Insolvency and Bankruptcy Board of India provides for the establishment of a Regulator who will oversee all the entities and perform legislative executive and quasi judicial functions with respect to the Insolvency professionals, Insolvency Professional Agencies, and Information Utilities. The Insolvency and Bankruptcy Board of India was established on October 1, 2016. The head office of the Board is located in New Delhi.
The board is a body corporate having perpetual succession and a common seal with power, subject to the provision of this code to acquire, hold and dispose of property both movable and immovable and to contract and shall be the said name sue or be sued.
Composition of the Board
- A chairperson
- Three members amongst the officers of the central government not below the rank of joint secretary or equivalent one each to represent the Ministry of Finance, Ministry of Corporate Affairs and Ministry of Law, ex officio
- One member to be nominated by the Reserve Bank of India, ex officio
- Five other members to be nominated by the Central Government of whom at least three shall be whole time members.
Insolvency Professional Agencies
The Code provides for the establishment of insolvency professionals agencies to enroll and regulate insolvency professionals as its members in accordance with the insolvency and bankruptcy code 2016 and regulations as mentioned in it.
The code provides for insolvency professionals as intermediates who play a key role in the efficient working of the bankruptcy process. The role of the Insolvency Professional encompasses a wide range of functions which include adhering to the procedure of the law, as well as accounting and financing related functions. He has the power and responsibility to monitor and manage the operations and assets of the enterprise. In the insolvency resolution process, the Insolvency Professional verifies the claims of the creditors, constitutes a creditors committee, runs the debtor’s business during the moratorium period, and helps the creditors in reacting to a consensus for a revival plan. In liquidation, the insolvency professional acts as a liquidation and bankruptcy trustee.
4. Process (application/ process of occurrence of crime respectively)
Prevention of Money Laundering
Following three steps involved in the process of Money Laundering
(a) Placement:- The Money Launderer, The person who is
holding the money obtained from illegal activities, involves the illegal funds into the financial systems. This is usually done by breaking up a large amount of cash into less conspicuous
smaller sums which are deposited directly into a Bank Account or purchase of a series of instruments such as Cheques, Bank Drafts, etc., which are then collected and deposited into one or more accounts at another location.
(b) Layering:- The second stage of Money Laundering is layering. In this stage, the Money Launderer typically engages in a series of continuous conversions or movements of funds,
within the financial or banking system by way of numerous accounts, so as to hide their true origin and to distance them from their criminal source. The Money Launderer may use various channels for the movement of funds, as a series of Bank
Accounts, sometimes spread across the globe, especially in those jurisdictions which do not co–operate in anti Money Laundering investigations.
(c) Integration:-after completion of these two procedures successfully the money launderer creates criminal profits through
Money Laundering, he then moves to this third stage by reaching the funds in legitimate economy, after getting inseparably mixed with the legitimate money earned through
legal sources of income. The Money Launderer might then choose to invest the funds into real estate, business ventures & luxury assets, etc.
Step by step resolution process by a company
If a default occurred,
1. a financial creditor by himself or jointly with other financial creditors or any other person on behalf
to the Adjudicating Authority for starting off the corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority.
2. an operational creditor can deliver a demand notice of an unpaid operational debtor to a copy of the invoice, demanding payment of the amount which is involved in the default to the corporate debtor.
3. a corporate applicant can file an application to the Adjudicating Authority for starting off the corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority.
The default here include financial debt owed by applicant’s financial creditor as well as the financial creditor of the corporate debtor.
The financial creditor should make the application in manner and fees as mentioned by the Authority.
The financial creditor along with the application needs to file
- a record of recorded default with an affidavit or information utility or any such similar record or evidence of default.
- name of resolution professional who will act as interim resolution professional.
- any other information needed by the Board.
The Adjudicating Authority finds the existence of a default from information utility or the evidence furnished by the creditor within 14 days of receipt of such application
If it is found that the Adjudicating Authority finds out the default occurred and the application is complete and disciplinary proceedings are not pending against any resolution, professionals will accept the application by order only. If the application is accepted the Adjudicating Authority will inform the financial creditor and corporate debtor.
If there is no occurrence of a default or the application is incomplete and there are pending disciplinary proceedings against any resolution, professionals will reject the application by order by the Adjudicating Authority. Within 7 days from the date of receiving such application, a notice will be given to the applicant to rectify the mistakes in the application if any default is found and the Adjudicating Authority decides to reject it and should inform the financial creditor within 7days of such rejection.
An operational creditor can give a demand notice of an unpaid operational debtor to a copy of the invoice by demanding payment of the amount which is involved in the default to the corporate debtor.
The Corporate debtor will bring the notice to the operational creditor about the existing dispute, a record of pending suit, or an arbitration proceeding if there is any which was filed before such notice or invoice in relation of such dispute was receipt Within 10 days of receiving of such demand notice or copy invoice or the corporate debtor can repay the unpaid amount along with an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor or an attested copy of the record which has been encashed by the operational creditor from a cheque issued by the corporate debtor.
The aggrieved person can file an application to the Adjudicating Authority along with the prescribed fees by the if the corporate debtor does not respond in any of the way mentioned and 10 days expired from the date of delivery of notice or invoice, demanding payment and the operational creditor did not receive a payment from the debtor or any notice about the dispute as mentioned.
The creditor along with the application needs to furnish
- a copy of the demanding payment invoice or demand notice delivered by the creditor,
- an affidavit that will mention that no notice was given by the corporate debtor relating to the unpaid dispute.
- a certified copy from financial institutions which will mention the accounting of the operational creditor displaying that no payment of the unpaid amount of operational debt was done by the corporate debtor.
- information utility copy (any) confirming there is no payment of unpaid operational debt/ any other proof relating to the payment of an unpaid amount by the debtor.
The corporate insolvency resolution process needs to be completed within 180 days which is calculated from the insolvency commencement date. But the resolution professional can file an application to extend the period of fast-track insolvency resolution process beyond 180 days to the Adjudicating Authority only if a resolution is passed in a meeting of the committee of creditors and sixty six percent of the voting share is in favour of such instructions.
If The Adjudicating Authority after receiving such an application is satisfied that the fast track resolution process cannot be completed within 180 days it can extend the time period more than 180 days by order but that period can not be extended beyond 90 days and such extension can not be granted more than once.
A corporate debtor
- with assets and income below a level by as the Central Government will notify or
- class of creditors or amount of debt as the Central Government will notify or
- other categories of corporate persons as mentioned by the Central Govt.
Creditors can also file for a fast track insolvency resolution process which needs to be completed within 90 days which is calculated from the insolvency commencement date. But the resolution professional can file an application to extend the period of fast-track insolvency resolution process beyond 90 days to the Adjudicating Authority only if a resolution is passed in a meeting of the committee of creditors and seventy five percent of the voting share is in favour of such instructions.
If The Adjudicating Authority after receiving such an application is satisfied that the fast track resolution process cannot be completed within 90 days it can extend the time period more than 90 days by order but that period can not be extended beyond 45 days and such extension can not be granted more than once.
Prevention of Money Laundering
As per Section 4 of PMLA Imprisonment of not less than three years, but which may extend to 7 years/10 years, and shall also be liable to fine. In cases where the offenses are under Narcotic Drugs and Psychotropic Substances Act, 1985 are punishable with rigorous imprisonment up to 10 years. The fine under PMLA is without any limit and the same may be commensurate to the nature and extent of the offense committed and the money laundering.
As Section 19 of PMLA, the appropriate authority under the Act has the power to arrest any person when the authority on the basis of the material in his possession has reason to believe that such person has been guilty of any offense punishable under PMLA. After the arrest, the person arrested has to be informed about the grounds for his arrest. It is also required that the person so arrested shall, within 24 hours, be produced before the Judicial Magistrate or a Metropolitan Magistrate, as the case may be, having jurisdiction.
Penalties under the IBC code have differents heads with respect to different persons by an officer of the corporate debtor or the corporate debtor
Crimes as mentioned under different sections of the code more or less varies from minimum 3 years of imprisonment to maximum 5 years and/or fine varies from 1 lakh to 1 cr in some cases it is 3 lakhs or both related to crimes committed.
Crimes as mentioned under different sections of the code more or less varies from 6 months to below or fine of 5 lakhs or both it could be more as per the code.
Any person on whom the resolution plan is binding
Imprisonment of 3 years to 5 years or 1 year to 5 years as the case may be or/ and fine of 1 lakh to 1 cr or both on the basis of crime.
Creditors or operational creditor
Imprisonment of 1 year to 5 years or/ and fine of 1 lakh to 1 cr or both on the basis of crime.
- The imprisonment varies from 6 months to 1 year. Somewhere it is 3 years/ 2 years also and/ or fine of 5 lakhs or both on the basis of crime and the relevant section applied.
Both the acts deal with totally different aspects by both the acts concentrate on the betterment of India and its citizens. Both the acts also prevent and reduce the crime rate in India. Understanding both the process and crime before doing any activity related to money or insolvency is a long and complex process and to avoid penalty, punishment, and time loss or wrong files a creditor/ debtor or any other individual needs to seek proper legal consultation. A consulting firm can provide one experienced insolvency advocate, Advocates, CA, CS, CMA, Resolution Professional or the interim resolution professional, and other legal help under one roof.