‘Willful Defaulter’

As per Reserve Bank India, has defined the term “willful defaulter” paving the way for banks to acquire assets of defaulting companies through the Securitisation Ordinance and reduce their non-performing assets faster.

“The Securitisation Ordinance gives the right to banks to acquire assets of willful defaulters. There was a demand that the law should not be harsh for non-willful defaulters, who should be distinguished from willful defaulters. The term willful defaulter has been defined by RBI now,” Indian Banks Association (IBA) chairman Dalbir Singh said at a Bankers-Borrowers meet at PHDCCI here today.

According to RBI, a willful defaulter is one who has not used bank funds for the purpose for which it was taken and who has not repaid loans despite having adequate liquidity.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance were termed “draconian” by a section of the industry, which had sought clarification on the definition of willful defaulters.

RBI had constituted two working groups to come up with the detailed guidelines of securitisation of assets and for asset reconstruction companies.

Singh, also chairman of the Central Bank of India, sought to allay fears of non-willful defaulters saying, “Bankers will never ever misutilise the ordinance.”

However, the IBA chief warned corporate and asked them to be disciplined in repaying bank loans in time as the government was committed to making income recognition norms in line with international standards.

The international standards classify an asset as NPA if the company “fails to pay interest within 90 days as against the Indian norm of 180 days”.

1. Introduction

Pursuant to the instructions of the Central Vigilance Commission for collection of information on willful defaults of Rs.25 lakhs and above by RBI and dissemination to the reporting banks and FIs, a scheme was framed by RBI with effect from 1st April 1999 under which the banks and notified All India Financial Institutions were required to submit to RBI the details of the wilful defaulters. Willful default broadly covered the following:

a) Deliberate non-payment of the dues despite adequate cash flow and good net worth;

b) Siphoning off of funds to the detriment of the defaulting unit;

c) Assets financed either not been purchased or been sold and the proceeds have been misutilised;

d) Misrepresentation / falsification of records;

e) Disposal / removal of securities without bank’s knowledge;

f) Fraudulent transactions by the borrower.

Accordingly, banks and FIs started reporting all cases of willful defaults, which occurred or were detected after 31st March 1999 on a quarterly basis. It covered all non-performing borrowal accounts with outstanding (funded facilities and such non-funded facilities which are converted into funded facilities) aggregating Rs.25 lakhs and above identified as willful default by a Committee of higher functionaries headed by the Executive Director and consisting of two GMs/DGMs. Banks/FIs were advised that they should examine all cases of willful defaults of Rs 1.00 crore and above for filing of suits and also consider criminal action wherever instances of cheating/fraud by the defaulting borrowers were detected. In case of consortium/multiple lending, banks and FIs were advised that they report willful defaults to other participating/financing banks also. Cases of willful defaults at overseas branches were required to be reported if such disclosure is permitted under the laws of the host country.

2. Guidelines issued on wilful defaulters

Further, considering the concerns expressed over the persistence of willful default in the financial system in the 8th Report of the Parliament’s Standing Committee on Finance on Financial Institutions, the Reserve Bank of India, in consultation with the Government of India, constituted in May 2001 a Working Group on Wilful Defaulters (WGWD) under the Chairmanship of Shri S. S. Kohli, the then Chairman of the Indian Banks’ Association, for examining some of the recommendations of the Committee. The Group submitted its report in November 2001. The recommendations of the WGWD were further examined by an In House Working Group constituted by the Reserve Bank. Accordingly, the Scheme was further revised by RBI on May 30, 2002.

The above scheme was in addition to the Scheme of Disclosure of Information on Defaulting Borrowers of banks and FIs introduced in April 1994, vide RBI Circular DBOD.No.BC/CIS/47/20.16.002/94 dated 23 April 1994.

2.1 Definitions of willful default

The term “willful default” has been redefined in supersession of the earlier definition as under:

A “wilful default” would be deemed to have occurred if any of the following events is noted :-

(a) The unit has defaulted in meeting its payment / repayment obligations to the lender even when it has the capacity to honor the said obligations.

(b) The unit has defaulted in meeting its payment / repayment obligations to the lender and has not utilized the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes.

(c) The unit has defaulted in meeting its payment / repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilized for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.

(d) The unit has defaulted in meeting its payment / repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given by him or it for the purpose of securing a term loan without the knowledge of the bank/lender.

2.2 Diversion and siphoning of funds

The terms “diversion of funds” and “siphoning of funds” should construe to mean the following:-

2.2.1 Diversion of funds, referred to at para 2.1(b) above, would be construed to include any one of the underrated occurrences:

(a) Utilization of short-term working capital funds for long-term purposes not in conformity with the terms of sanction;

(b) Deploying borrowed funds for purposes / activities or creation of assets other than those for which the loan was sanctioned;

(c) Transferring funds to the subsidiaries / Group companies or other corporate by whatever modalities;

(d) Routing of funds through any bank other than the lender, bank or members of consortium without prior permission of the lender;

(e) Investment in other companies by way of acquiring equities / debt instruments without the approval of lenders;

(f) Shortfall in deployment of funds via-à-is, the amounts disbursed / drawn and the difference not being accounted for.

2.2.2 Siphoning of funds, referred to at para 2.1 (c) above, should be construed to occur if any funds borrowed from banks / FIs are utilized for purposes un-related to the operations of the borrower, to the detriment of the financial health of the entity or of the lender. The decision as to whether a particular instance amounts to the siphoning of funds would have to be a judgement of the lenders based on objective facts and circumstances of the case.

The identification of the willful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transactions/incidents. The default to be categorized as wilful must be intentional, deliberate and calculated.

2.3 cutoff limits

While the penal measures indicated at para 2.5 below would normally be attracted by all the borrowers identified as wilful defaulters or the promoters involved in diversion / siphoning of funds, keeping in view the present limit of Rs. 25 lakh fixed by the Central Vigilance Commission for reporting of cases of wilful default by the banks/FIs to RBI, any wilful defaulter with an outstanding balance of Rs. 25 lakh or more, would attract the penal measures stipulated in para 2.5 below. This limit of Rs. 25 lakh may also be applied for the purpose of taking cognizance of the instances of ‘siphoning’ / ‘diversion’ of funds.

2.4 End-use of Funds

In cases of project financing, the banks / FIs seek to ensure end use of funds by, inter alia, obtaining certification from the Chartered Accountants for the purpose. In case of short-term corporate / clean loans, such an approach ought to be supplemented by ‘due diligence’ on the part of the lenders themselves, and to the extent possible, such loans should be limited to only those borrowers whose integrity and reliability are above board. The banks and FIs, therefore, should not depend entirely on the certificates issued by the Chartered Accountants but strengthen their internal controls and the credit risk management system to enhance the quality of their loan portfolio.

Needless to say, ensuring end-use of funds by the banks and the FIs should form a part of their loan policy document for which appropriate measures should be put in place. The following are some of the illustrative measures that could be taken by the lenders for monitoring and ensuring end-use of funds:

(a) Meaningful scrutiny of quarterly progress reports / operating statements / balance sheets of the borrowers;

(b) Regular inspection of borrowers’ assets charged to the lenders as security;

(c) Periodical scrutiny of borrowers’ books of accounts and the no-lien accounts maintained with other banks;

(d) Periodical visits to the assisted units;

(e) System of periodical stock audit, in case of working capital finance;

(f) Periodical comprehensive management audit of the ‘Credit’ function of the lenders, so as to identify the systemic-weaknesses in the credit-administration.

(It may be kept in mind that this list of measures is only illustrative and by no means exhaustive.)

2.5 Penal measures

In order to prevent the access to the capital markets by the wilful defaulters, a copy of the list of wilful defaulters (non-suit filed accounts) and list of wilful defaulters (suit filed accounts) are forwarded to SEBI by RBI and Credit Information Bureau (India) Ltd. (CIBIL) respectively.

The following measures should be initiated by the banks and FIs against the wilful defaulters identified as per the definition indicated in paragraph 2.1 above:

a) No additional facilities should be granted by any bank / FI to the listed wilful defaulters. In addition, the entrepreneurs / promoters of companies where banks / FIs have identified siphoning / diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance from the scheduled commercial banks, Development Financial Institutions, Government owned NBFCs, investment institutions etc. For floating new ventures for a period of 5 years from the date the name of the wilful defaulter is published in the list of wilful defaulters by the RBI.

b) The legal process, wherever warranted, against the borrowers / guarantors and foreclosure of recovery of dues should be initiated expeditiously. The lenders may initiate criminal proceedings against wilful defaulters, wherever necessary.

c) Wherever possible, the banks and FIs should adopt a proactive approach for a change of management of the willfully defaulting borrower unit.

d) A covenant in the loan agreements, with the companies in which the banks / notified FIs have significant stake, should be incorporated by the banks / FIs to the effect that the borrowing company should not induct a person who is a promoter or a director on the Board of a company which has been identified as a wilful defaulter as per the definition at paragraph 2.1 above and that in the case, such a person is found to be on the Board of the borrower company, it would take expeditious and effective steps for removal of the person from its Board.

It would be imperative on the part of the banks and FIs to put in place a transparent mechanism for the entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It should also be ensured that a solitary or isolated instance is not made the basis for imposing the penal action.

2.6 Guarantees furnished by group companies

While dealing with wilful default of a single borrowing company in a Group, the banks / FIs should consider the track record of the individual company, with reference to its repayment performance to its lenders. However, in cases where a letter of comfort and / or the guarantees furnished by the companies within the Group on behalf of the willfully defaulting units are not honored when invoked by the banks / FIs, such Group companies should also be reckoned as wilful defaulters.

2.7 Role of auditors

In case any falsification of accounts on the part of the borrowers is observed by the banks / FIs, and if it is observed that the auditors were negligent or deficient in conducting the audit, they should lodge a formal complaint against the auditors of the borrowers with the Institute of Chartered Accountants of India (ICAI) to enable the ICAI to examine and fix accountability of the auditors.

With a view to monitoring the end-use of funds, if the lenders desire a specific certification from the borrowers’ auditors regarding diversion / siphoning of funds by the borrower, the lender should award a separate mandate to the auditors for the purpose. To facilitate such certification by the auditors the banks and FIs will also need to ensure that appropriate covenant in the loan agreements is incorporated to enable award of such a mandate by the lenders to the borrowers / auditors.

2.8 Role of Internal Audit / Inspection

The aspect of diversion of funds by the borrowers should be adequately looked into while conducting internal audit/inspection of their offices/branches and periodical reviews on cases of wilful defaults should be submitted to the Audit Committee of the bank.

2.9 Reporting to RBI / Credit Information Companies

Banks/FIs should submit the list of suit-filed accounts of wilful defaulters of Rs.25 lakh and above as at end-March, June, September and December every year to a credit information company which has obtained a certificate of registration from RBI in terms of Section 5 of the Credit Information Companies (Regulation) Act, 2005 and of which it is a member. Reserve Bank of India has, in exercise of the powers conferred by the Act and the Rules and Regulations framed there under, granted Certificate of Registration to (i) Experian Credit Information Company of India Private Limited, (ii) Equifax Credit Information Services Private Limited, (iii) High Mark Credit Information Services Private Limited and (iv) Credit Information Bureau (India) Limited (CIBIL) to commence/carry on the business of credit information. Banks/FIs should, however, submit the quarterly list of wilful defaulters where suits have not been filed only two RBI in the format given in Annex 1. Credit Information Companies have also been advised to disseminate the information pertaining to suit filed accounts of Wilful Defaulters on their respective websites.

Explanation

In this connection, it is clarified that banks need not report cases where

(i) Outstanding amount falls below Rs.25 lakh and

(ii) In respect of cases where banks have agreed to a compromise settlement and the borrower has fully paid the compromised amount.

3. Grievances Redressal Mechanism

Banks/FIs should take the following measures in identifying and reporting instances of wilful default:

(i) With a view to imparting more objectivity in identifying cases of wilful default, decisions to classify the borrower as wilful defaulter should be entrusted to a Committee of the higher functionaries headed by the Executive Director and consisting of two GMs/DGMs as decided by the Board of the concerned bank/FI.

(ii) The decision taken on classification of wilful defaulters should be well documented and supported by requisite evidence. The decision should clearly spell out the reasons for which the borrower has been declared as wilful defaulter vi’s-à-vi’s RBI guidelines.

(iii) The borrower should thereafter be suitably advised about the proposal to classify him as wilful defaulter along with the reasons therefor. The concerned borrower should be provided reasonable time (say 15 days) for making representations against such decision, if he so desires, to a Grievance Redressal Committee headed by the Chairman and Managing Director and consisting of two other senior officials.

(iv) Further, the above Grievance Redressal Committee should also give a hearing to the borrower if he represents that he has been wrongly classified as wilful defaulter.

(v) A final declaration as ‘wilful defaulter’ should be made after a view is taken by the Committee on the representation and the borrower should be suitably advised.

4. Criminal Action against Wilful Defaulters

4.1 J.P.C. Recommendations

Reserve Bank examined, the issues relating to restraining wilful defaults in consultation with the Standing Technical Advisory Committee on Financial Regulation in the context of the following recommendations of the JPC and in particular, on the need for initiating criminal action against concerned borrowers, viz.

a. It is essential that offenses of breach of trust or cheating construed to have been committed in the case of loans should be clearly defined under the existing statutes governing the banks, providing for criminal action in all cases where the borrowers divert the funds with malafide intentions.

b. It is essential that banks closely monitor the end-use of funds and obtain certificates from the borrowers certifying that the funds have been used for the purpose for which these were obtained.

c. Wrong certification should attract criminal action against the borrower.

4.2 Monitoring of End Use

Banks / FIs should closely monitor the end-use of funds and obtain certificates from borrowers certifying that the funds are utilized for the purpose for which they were obtained. In case of wrong certification of the borrowers, banks / FIs may consider appropriate legal proceedings, including criminal action wherever necessary, against the borrowers.

4.3 Criminal Action by Banks / FIs

It is essential to recognize that there is scope even under the existing legislations to initiate criminal action against wilful defaulters depending upon the facts and circumstances of the case under the provisions of Sections 403 and 415 of the Indian Penal Code (IPC) 1860. Banks / FIs are, therefore, advised to seriously and promptly consider initiating criminal action against wilful defaulters or wrong certification by borrowers, wherever considered necessary, based on the facts and circumstances of each case under the above provisions of the IPC to comply with our instructions and the recommendations of JPC.

It should also be ensured that the penal provisions are used effectively and determinedly, but after careful consideration and due caution. Towards this end, banks / FIs are advised to put in place a transparent mechanism, with the approval of their Board, for initiating criminal proceedings based on the facts of the individual case.

5. Repeating names of Directors

5.1 Need for Ensuring Accuracy

RBI / Credit Information Companies disseminate information on non-suit filed and suit filed accounts respectively, as reported to them by the banks / FIs and responsibility for reporting correct information and also accuracy of facts and figures rests with the concerned banks and financial institutions. Therefore, banks and financial institutions should take immediate steps to up-date their records and ensure that the names of the current directors are reported. In addition to reporting the names of current directors, it is necessary to furnish information about directors who were associated with the company at the time the account was classified as a defaulter, to put the other banks and financial institutions on guard. Banks and FIs may also ensure the facts about directors, wherever possible, by cross-checking with Registrar of Companies.

5.2 Position regards Independent and Nominee directors

Professional Directors who associate with companies for their expert knowledge act as independent directors. Such independent directors apart from receiving director’s remuneration do not have any material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in the judgment of the Board may affect their independent judgment. As a guiding principle of disclosure, no material fact should be suppressed while disclosing the names of a company that is a defaulter and the names of all directors should be published. However, while doing so, a suitable distinguishing remark should be made clarifying that the concerned person was an independent director. Similarly the names of directors who are nominees of government or financial institutions should also be reported, but a suitable remark ‘nominee director’ should be incorporated.

Therefore, against the names of Independent Directors and Nominee Directors, they should indicate the abbreviations “IND” and “Nom” respectively in brackets to distinguish them from other directors.

5.3 Government Undertakings

In the case of Government undertakings, it should be ensured that the names of directors are not to be reported. Instead, a legend “Government of ——– undertaking” should be added.

5.4 Inclusion of Director Identification Number (DIN)

In order to ensure that directors are correctly identified and in no case, persons whose names appear to be similar to the names of directors appearing in the list of wilful defaulters, are wrongfully denied credit facilities on such grounds, banks/FIs have been advised to include the Director Identification Number (DIN) as one of the fields in the data submitted by them to Reserve Bank of India / Credit Information Companies.

legal audit

RBI /2012-13/524 DBS.FrMC.BC.No.7/23.04.001/2012-13 {June 07, 2013}

The Chairmen & Chief Executive Officers of all
Scheduled Commercial Banks (excluding RRBs)
and All India Select Financial Institutions

Dear Sir/Madam,

Legal Audit of title documents in respect of large value loan accounts

Please refer to para 3.1 of our circular DBS.CO. Fr MC. BC.No. 11/ 23.0.001/ 2010-11 dated June 30, 2011 requiring banks to put in place a system wherein the concurrent auditors were required to look into and report, inter alia, on the genuineness of the title documents especially for large value loans.

2. On a review, it has been decided that the banks should also subject the title deeds and other documents in respect of all credit exposures of 5 crore and above to periodic legal audit and re-verification of title deeds with the relevant authorities as part of regular audit exercise till the loan stands fully repaid.

3. The banks may furnish a review note to its Board/ Audit Committee of the Board at quarterly intervals on an ongoing basis giving therein the information in respect of such legal audits which should cover aspects, inter alia, like number of loan accounts due for legal audit for the quarter, how many accounts covered, list of deficiencies observed by the auditors, steps taken to rectify the deficiencies, number of accounts in which the rectification could not take place, course of action to safeguard the interest of bank in such cases, action taken on issues pending from earlier quarters.

Yours faithfully

(R. K. Sharma)
General Manager
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WHY LEGAL AUDIT IS NECESSARY

Similarly, Legal Audit can be compared to preventive laws initiated with abundant and discreet prudence and caution to dispense with any litigations arising in future, and consequently may culminate in burning one’s fingers, like getting sued, fined or prosecuted or penalty imposed in avoidable litigations due to deficiencies / lacunae existing in the written documents / agreements / undertakings / statutes / bye laws executed by the individuals, partnerships, Companies, Corporate Undertakings, Banks and Governmental Undertakings and so on, in transgress of the laws and regulations of the Organisation / Company / Governmental Enterprises, for example deviation from the laid down Memorandum and Articles of Association of the Private Limited Company and or the laws of the lands, based on various enactments and acts in force.

IMPLICATIONS / SIGNIFICANCE OF LEGAL AUDIT VIS-À-VIS OTHER AUDITS LIKE TAX, AUDIT, FINANCIAL AUDIT, COMPANY AUDIT

The distinctive and distinguishing difference between Legal Audit and other Audits like Tax, Audit, Financial Audit, Company Audit etc. Are that all these Audits, other than Legal Audit are invariably conducted after the completion / closure of the financial years for which period the audit is to be undertaken; i.e. It is post audit – whereas the Legal Audit commences right from the Day One of the commencement of the Project on hand or from the very inception of the Project in the offing to be implemented., so to say it is pre-audit.

THE SIGNIFICANCE AND IMPLICATION of Legal Audit is to identify the potential, present and prospective legal problems by the legal audit team, even in the initial stages of the commencement of the Project / Undertaking / Joint Business ventures, Collaboration arrangements, agreements signed mutually between the parties interse –which is entrusted with the Legal Audit of the Company or Corporate Company as the case may be, for an introspection and thorough review / re-casting the Company’s plans, operations and strategies to reduce if not to eliminate the potential and vulnerable legal risks / dangers the Company is prone to, with comprehensive coverage of the entire procedures, rules, regulations, and covenants, undertakings, agreements signed with proposed and existing buyers / creditors suppliers etc. Including the staff employed by the Company.

Each and every paper right from the licenses / permits issued to the Company including the protracted correspondence exchanged pertaining to pending legal actions / litigations will be screened and analyzed and the legal lacunae will be diagnosed to find out effective key solutions viable and feasible to safeguard the individuals / companies / undertakings from incurring financial losses / paying penalties / fines etc. Within the four corners of law.

HOW AND THE MANNER IN WHICH THE LEGAL AUDIT IS CARRIED OUT?

The Legal Audit Team comprises talented and proficient experts with specialization in the different branches of law familiar with the various Acts of the land – and interacts interface and engages in discussions / consultations with the Company’s top Management Team and after studying the documents / papers readily made available to them for initial scrutiny find out the Company’s Corporate goals, mission and objectives in the different parameters of operational activities and the projected growth of the Company in the right perspective for successful implementation of its goals / objectives in accordance with the internal Rules and Regulations of the Company itself – as well as in strict adherence to the laws of the land based on enactments and acts in force.

The Legal Audit is thus an ongoing exercise to be performed at periodical intervals with special relevance to the prevailing tax laws, labor laws, statutory liabilities, Governmental levies / duties, commitments undertaken by the Company as per the Government Contracts, Franchisee Compliance and so on.

IMPORTANCE AND INDISPENSIBILTY OF LEGAL AUDIT

In these days when the plethora of litigations has gone on endlessly before different various Courts / Tribunals / and other Consumer Redressal Forums, LEGAL AUDIT is a must for Individuals, Partnership Firms, Companies, Corporates, Banks / other Financial Corporations, Borrowers / Guarantors etc. If at all they are interested to minimize the legal risk / reduce exorbitant legal expenses likely to ensue on account of pending litigations in Courts, just because of the deficiencies / lacunae / anomalies in the written papers / documentations / agreements / bye laws / covenants executed by them. Not only they can save sizeable legal expenses, but also get rid of the tensions, anxieties and apprehensions / worries likely to be faced by them in the event of ceaseless litigations – which the Legal Audit will help to eliminate if not at least to reduce the same.

For instance, in the case of Human Resources Legal Audit, Legal Audit provides a unique opportunity in all its transparency to find out whether the human resources – organization and its professionals are capable and are having the adequate resources to support the organization’s stipulated strategies in the proper perspective and also in understanding whether the professionals entrusted with the management of human resources are really discharging their duties and responsibilities within the ambit of policies and programmes laid down in the procedures / modus operandi of the Human Resources Company, for promoting optimum development in Human Resources in national interest.

In fact, the check list / formal agenda of Legal Audit covers comprehensively the entire documentation / operational arenas / financing policies, mission / objectives / assets / liabilities / patents / trademarks / copyrights owned by the Company including press release by the Company – on which depends the culmination of successful implementation of the Companies’ policies, programs and objectives within the purview of the laws of the land.

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Adv. Amol A Shirgurkar

AAShirgurkar&Associates 

Career for law graduates in India 2014

Ambrose Bierce in his Devil’s dictionary describes a lawyer as someone who is skilled in the ‘circumvention of the law’. The notion of a lawyer who is adept at finding ‘loopholes’ in the system is a popular one in our country too but we cannot deny that to one up the law one must know the law. From writers to politicians to freedom fighters, lawyers have donned many hats. Mahatma Gandhi, Dr Rajendra Prasad, Franz Kafka and Abraham Lincoln – all these were lawyers.

Law is one of the popular career choices in our country for a long time. Those whose families have been into the profession for generations in India usually opt to study law too. However, to become a lawyer it is not mandatory to have a family background in law neither is it necessary that you belong to an affluent family. Anyone can choose to study law as long as one has the passion for it.

Traditionally, students could specialise in either civil or criminal laws. However, this concept has changed and now students can opt to specialise in any of the various options offered like patent laws, corporate laws, etc. A degree in law not only lets you practice as a lawyer in the courts in the company but also opens up career options in sectors like corporate management, legal services and administrative services.

Step-by-Step

Students interested in making a career in law can either do a three-year law course after graduation in any discipline or a 5 years’ course after 12th class. In fact, the 3 years’ course is now giving way to the 5 years’ one which is seen as a better option. In most cases, colleges run the 3 years’ course only for those whose main discipline in graduation is something other than law, or working professionals who want to do a LLB as an additional qualification. The five-year course is meant for those who want to take up law as a career – be it as a litigator, or any other kind of legal professional.

The LLB course is regulated by the Bar Council of India which sets rules and regulations regarding legal practice in the country. Any specialisation is done at masters, M Phil or PhD stage. A higher degree helps candidates get jobs in academics.

Start Early

A candidate can start preparing for law entrance exam conducted at national level for 5 years’ BA LLB at various National Law Schools soon after completing the senior secondary exam. The national law entrance exam, CLAT (Combined Law Admission Test) basically tests the student’s general english, legal aptitude, general awareness, logical skills, etc.

Some universities which offer the three years’ LLB conduct entrance exam which have a syllabus on the same lines.

Is It the Right Career for Me?

Law is a career which requires loads of patience and logical skills. It takes loads of hard work and dedication to become a successful lawyer. First generation lawyers particularly face numerous problems in their profession as is true of every other profession. It becomes easier if one trains under a Senior Counsel in the beginning of their career. This is not to say that newbies cannot make it own their own. Anything is possible with determination and of course, hard work. Great communication skills and a faculty for critical analysis and articulation are pre-requisites for lawyers. Therefore, one should analyze these points before opting for law as a career.

What would it Cost Me?

Three years’ LLB course usually involves lesser expenses in the range of Rs 20,000 to Rs 30,000 for three years.  The 5 years’ BA LLB comparatively costs little more in the lieu of about Rs 3,00,000 for five years. Hostel expenses are exclusive of the tuition fees.

Funding and Scholarship

Not many law schools offer financial help on the basis of entrance exam. The student must talk to the authorities and find out the specific policies on scholarship from respective universities. Students can also opt to take a bank loan or apply for various scholarships that are offered from time to time.

Job Prospects

There are a plethora of opportunities for a law graduate. One can either practice as an advocate in a court of law or work with corporate firms. By clearing exams conducted by Public Service Commissions, a law graduate can become a judge. After gaining experience, a law graduate can hope to become Solicitor General, a Public Prosecutor or offer services to government departments and ministries. One can also work as a legal adviser for various organisations. Teaching in colleges, working with NGOs and working as a reporter for newspapers and television channels are other attractive options.

Pay Packet

Whereas a lawyer who wishes to start practicing in  a court can get a stipend of Rs 5000 to Rs 40,000 depending upon the advocate he is associated with, a law graduate working with Legal Process Outsourcing receives can earn attractive salary in the range of Rs 20,000 and Rs 50,000. It is a very high paying profession, but depends largely on the calibre, popularity and success of the candidate. The college you graduate from is another factor.

Demand and Supply

An acute shortage of qualified lawyers has been a major problem in India. The Bar Council of India has often expressed its concern that young lawyers do not join the Bar. There are nearly ten lakh lawyers in India but according to law experts only 20 per cent of them can be considered fit enough to practice law in courts. Several law schools like NLSU, NALSAR were established to increase the level of legal education and produce skilled lawyers to meet the requirement.

However, India is a country with one of the highest litigation rates among its population and Sir Ivor Jennings termed the Indian Constitution “a lawyer’s paradise.” Talented lawyers will never have to worry about their income.

Market Watch

Talks are on to expand the scope for legal practice in India and open the gates for law firms from outside India. Law graduates can expect better job opportunities when foreign law firms start their operations in India. IPOs have started to recruit young law graduates for their processes dealing in US laws or UK laws. Legal education has been liberalised and for that reason professionals from various other disciplines too are interested to do short-term courses in law which ultimately will help to raise the standard of legal awareness.

Government Service

      Persons possessing requisite qualifications are recruited for Indian legal service against various posts– Legal advisors in Department of Legal Affairs and Legislative Counsel in Legislative Department. These officers can reach the level of Secretary to the Government of India with the passage of time according to their suitability.Likewise,  Legislative Counsels are also appointed in official languages Wing of the Legislative Department for Hindi and Regional languages(Assamese, Bengali, Gujarati, Kannada ,Telugu, Malayalam, Marathi, Oriya, Punjabi, Tamil, Telugu and Urdu). At the state  level, too, officers with legal qualifications and professional qualifications are also appointed against similar posts. However, designations may vary from state to state. Besides, Law officers/ Legal advisors are appointed in almost all the ministries/departments/ undertakings of the Govt. of India and State Governments. All these posts are generally filled up by recruitment through UPSC and State Public Service Commissions on regular/ deputation basis. Basic qualification for all these posts is a degree in law, besides a degree in Arts/Science/Commerce etc. and professional experience as per the requirements of each post. In addition to that members of Law Commission, Govt. Advocates, public prosecutors, solicitors, Attorney General, Advocate general, Notaries and Oath Commissioners as also legal secretaries  in assemblies ,staff in higher/lower judiciary/Quasi-Judicial institutions, Judicial members in CAT, Income tax, Sales tax, Excise and other tribunals are also appointed as per rules as and when the vacancies occur. However, fresh Law Graduates are appointed against non-gazetted posts generally equivalent to the post of Assistant in the Secretariat, such as Legal Assistants, Legal/Judicial Translators etc..
They are also recruited as commissioned officers in the legal branches of the Indian Army, Navy and Air force. They conduct courts of enquiry and court-martial of erring service personnel as per law.

International Focus

Legal education in India is similar to the one in Britain. Whereas several universities in UK offer legal education to Indian students, Indian students quite enjoy working in the UK wherein they receive attractive salary packages. A recent trend has been that students from India study in law colleges in the USA and receive attractive jobs after completion of the course. Harvard Law School, Yale University, Australia National University, etc. are some attractive options for Indian law students these days.

Positives/Negatives

Lawyers like other professionals such as doctors and chartered accountants require experience to polish their skills and become valuable for their clients. Therefore, it is time which helps a lawyer become effective. Candidates determined to succeed in the profession have to be patient in the initial phase of their career. However, there is no limit to success and money as well as power for a lawyer. Lawyers are not only respected but also help people in their battle for justice.

Fields of Specialisation

• Civil/Criminal Law
• Constitutional Law
• Administrative Law
• Human Rights Law
• Family Law
• Taxation
• Corporate Law
• Business Law
• International Law
• Labour Law
• Real Estate Law
• Intellectual property /Patent Law

List of Central Universities/ Premier Institutions imparting legal education upto Postgraduate/Research level

1.   Aligarh Muslim University
2.   Allahabad University
3.   Banaras Hindu University
4.   University of Delhi
5.   Jamia Millia Islamia
6.   National Law University, Delhi
7.   National Law School of India University, Bangalore
8.   National University of Advanced Legal Studies, Kochi
9.   National Law University, Orissa, Cuttack
10. National Law Institute University, Bhopal
11. National University of Juridical Sciences, Kolkata
12. Dr. Ram Manohar Lohia National Law University, Lucknow
13. National Law University, Jodhpur
14. Hidyatullah National Law University, Raipur
15. National University for Study and Research in Law, Ranchi
16. Chanakya National Law University, Patna
17. Gujarat National Law University, Gandhinagar
18. Nalsar University of Law, Hyderabad
19. Amity Law School & Institute of Advanced Legal Studies, Noida
20. Andhra Pradesh University of Law, Visakhapatnam
21. Dr.Ambedkar Law University, Chennai

AGRI BUSINESS & FINANCE

AGRI BUSINESS & FINANCE

Asmita Enterprise is a merchant exporter’s of various varieties of Vegetable & Fruits products from Maharashtra, India.  Our products can be tailored to suit on customized requirements. So if clients have a specific requirement, we can develop our products based on those requirements too. We provide the best quality and service to our customers. 

 

Maharashtra announces New Industrial Policy 2013-18

 

Maharashtra’s New Industrial Policy 2013-18, announced in Mumbai on Thursday, aims  to boost the SMEs by giving them several sops in terms of subsidies and tax concessions.  An investment of Rs.5 lakh crore, jobs for two million people,  and an aim to increase the states GDP to 28% are other few highlights of the said policy, which will be implemented from April 1.
The policy, which focuses on the promotion of micro, small, medium scale (MSME) enterprises in the state, offers 100% rebate VAT to to MSMEs especially in tribal areas and Naxalite-infested districts and  90% in under developed districts such as Chandrapur in Vidarbha and Nandurbar in North Maharashtra. Further, industrial projects proposed to be set up in Vidarbha and Marathwada regions will receive waiver in the payment of stamp and registration duty and also in the electricity duty. The government will provide 75 per cent or up to Rs 2 lakh reimbursement of expenses incurred by MSMEs for carrying out electricity and water audits. The government has also proposed rebate Rs 1 per unit or 20 per cent annually in the electricity tariff charged to MSME.
The Maharashtra government has classified all 357 taluks in the state in five categories on the basis of industrial development—A, B, C, D and D+. The new policy includes 100% stamp duty exemption while purchasing land in C, D and D+ zones in the state and an  additional  5% subsidy  to  MSMEs on capital investment C and D zones for development purposes.
The Maharashtra government has also found a way to use land acquired for special economic zones (SEZs) that did not materialize. The new policy gives an exit route for SEZ developers by allowing them to use such land to primarily develop industrial townships, but also keep a portion for residential and commercial projects. Developers will likely be allowed to use 60% of such land for industrial projects and the rest for residential or commercial buildings, the state government official

‘Green finance scheme’ for industries

TNN | Jan 25, 2014, 02.57AM IST

With a focus on promoting green industries as per the government’s new policy, the 12th Kerala Budget has set aside Rs 639.40 crore for various industries, which also includes one-time central grant of Rs 23.44 crore.

To encourage environment-friendly industries, the government will launch a Rs 100-crore ‘green finance scheme’ for which Rs 10 crore has been allotted initially. The Budget also includes plans to develop an international furniture hub to ensure global standards and international participation in the furniture production units operating in the suburbs of Ernakulam. Rs 6.50 crore has been set aside towards this. Thrust will be on developing traditional industries, handicrafts and industrial parks with investment promotion activities.

To promote innovative entrepreneurship of youth, the budget has set aside a total Rs 5 crore, at a rate of Rs 5 lakh for each project. For job opportunities and placements for the youth, the budget has set aside Rs 5 crore. In order to attract young entrepreneurs to the handloom sector and promote innovative enterprises, Rs 1.5 crore has been set aside. A margin money of Rs 50 lakh will be offered to new units to start their functioning. In addition, to attract more units into handloom production and distribution and support their production incentive, a special package will be allowed. The Budget has allocated Rs 10 crore towards these programmes. Rs 7 crore will be used to offer handloom rebate. For the revival of Hantex, Rs 1 crore has been set aside, and to modernize spinning mills, the Budget has allocated Rs 8.98 crore. In order to ensure more working days for cashew workers, the Cashew development Corporation and Capex will get Rs 28 crore and Rs 18 crore, respectively. For the overall development of the coir industry, Rs 116.93 crore has been set aside.

Further, to set up a caustic soda plant at Travancore Cochin Chemicals Ltd, Rs 10 crore has been allotted in the Budget as initial support. To develop basic infrastructure for Kinfra projects, Rs 148.79 crore has been offered in this fiscal. They include new projects like Mattannur Industrial Park, Ernakulum Green Field Electronic Park, Palakkad Non-Conventional Energy Park, Eco Industrial Park and Global Ayurveda Village, and the development of basic amenities and land banks for industries in Kochi, Kozhikode and Kannur.

 

Master Circular on Exports of Goods and Services

{RBI/2013-14/14 /Master Circular No.14/2013-14    (Updated as on November 30, 2013) July 1, 2013}

All Category – I Authorised Dealer Banks

Export of Goods and Services from India is allowed in terms of clause (a) of sub-section (1) and sub-section (3) of Section 7 of the Foreign Exchange Management Act 1999 (42 of 1999), read with Notification No. G.S.R. 381(E) dated May 3, 2000 viz. Foreign Exchange Management (Current Account) Rules, 2000, as amended from time to time.

2. This Master Circular consolidates the existing instructions on the subject of “Export of Goods and Services from India” at one place. The list of underlying circulars/notifications consolidated in this Master Circular is furnished in Appendix.

3. This Master Circular is being issued with a sunset clause of one year. This circular will stand withdrawn on July 01, 2014 and be replaced by an updated Master Circular on the subject.

C.15 Reduction in Invoice Value on Account of Prepayment of Usance Bills

Occasionally, exporters may approach AD Category – I banks for reduction in invoice value on account of cash discount to overseas buyers for prepayment of the usance bills. AD Category – I banks may allow cash discount to the extent of amount of proportionate interest on the unexpired period of usance, calculated at the rate of interest stipulated in the export contract or at the prime rate/LIBOR of the currency of invoice where rate of interest is not stipulated in the contract.

C.16 Reduction in Invoice Value in other cases

(i) If, after a bill has been negotiated or sent for collection, its amount is to be reduced for any reason, AD Category – I banks may approve such reduction, if satisfied about genuineness of the request, provided:

1. The reduction does not exceed 25 per cent of invoice value:
2. It does not relate to export of commodities subject to floor price stipulations
3. The exporter is not on the exporters’ caution list of the Reserve Bank, and
4. The exporter is advised to surrender proportionate export incentives availed of, if any.

(ii) In the case of exporters who have been in the export business for more than three years, reduction in invoice value may be allowed, without any percentage ceiling, subject to the above conditions as also subject to their track record being satisfactory, i.e., the export outstandings do not exceed 5 per cent of the average annual export realization during the preceding three financial years.

(iii) For the purpose of reckoning the percentage of export bills outstanding to the average export realizations during the preceding three financial years, outstanding of exports made to countries facing externalization problems may be ignored provided the payments have been made by the buyers in the local currency.

INDIAN SME & MEASURE TAKEN BY GOVERNMENT OF INDIA

Theoretical Background
Developing countries like India, Small Medium Enterprises (SME) plays a key role in transition and developing countries. Small Medium Enterprises (SME) constitute a major source of employment and generate significant domestic and export earnings. As such, SME development emerges as a key tool in poverty reduction efforts. Considering that they lack resources compared to large enterprises.
Definition:
Small Medium Enterprises (SME)
Manufacturing Enterprises The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or role. The Manufacturing Enterprise is defined in terms of investment in Plant & Machinery.
Service Enterprises: The enterprises engaged in offering or rendering of services and are limited in terms of investment in equipment.
Manufacturing Sector
Enterprises Investment in plant & machinery
Micro Enterprises Does not exceed twenty five lakh rupees
Small Enterprises More than twenty five hundred thousand rupees but does not exceed five crore rupees
Medium Enterprises More than five crore rupees but does not exceed ten crore rupees
Service Sector
Enterprises Investment in equipments
Micro Enterprises Does not exceed ten lakh rupees:
Small Enterprises More than ten lakh rupees but does not exceed two crore rupees
Medium Enterprises More than two crore rupees but does not exceed five core rupees

Problem faced by branding of SME Products and Services.
Company brand plays an important role in identifying our products and services in the marketplace, it’s also differentiate your products with other products and services. But the brand is normally associated with big business origination but it is also important for SME
It would be very difficult to establish SME brand’s and services in domestic as well as International market. Advising expenses are a bit expensive it’s not being affordable to Small Medium Enterprises {SME} due to lack of funds.
Branding is a subject of marketing and not advertising as wrongly believed. Theories of modern day marketing look into market segmentation, targeting, positioning and then employs techniques in developing the USP (Unique Selling Proposition) which then further extended to mass and specific audience with the science of branding.
Social Networks is an excellent platform to inform, educate and engage with people, it also serves as an entrepreneur’s online storefront. If it’s not managed wisely, mistakes can quickly go viral and become a small business’s nightmare. Understanding your audience, posting strategically and practicing online etiquette can go a long way toward growing your business. An SME can market their products and services through Information technology are as below
• Networking Sites like Facebook, Watz up etc. Free advise your products & services
• Established your Company or Origination community page’s, share your products and services.
• Develop on your own web page-free web pages on the net at min amount
• Blog- Information about your products, specification, price etc.
• Business networking sites like Linked in, an SME can add or developed a discussion group or forms.
• B2B or B2C sites are one of the best options to develop a sound business opportunity
The parish faced a funding problem:
Finance Minister has proposed to provide Rs. 5,000 Crore to SIDBI for refinancing incremental lending by banks to SMEs out of the shortfall of banks on priority sector lending targets. In view of the problems being faced by handloom weavers, inability to repay debts to handloom weaver cooperative societies which have become financially unviable, FM has proposed to provide Rs. 3,000 Crore to NABARD. The initiative is expected to benefit 15,000 cooperative societies and nearly 3 Lakh handloom weavers. These efforts could not bring a lot cheer to the sector as many concerns still remain.
Though additional Rs. 1000 Crore to SIDBI may help address priority sector lending concerns, but it does not stand anywhere near sufficient. This is because borrowing costs still remain high for the sector. Farming did see some relief in terms of lower interest rates on loans. SME is the foremost employment generating sector and owns a significant contribution to Indian GDP. Currently, unavailability of funds plagues the growth of many SMEs and at the same time loans rates faced by them are as high as 16% and above, which affects investment decisions.
• SME Collateral free loan
• SME easy loan against property
• SME open term loan
• SME Credit Card
• SME warehousing Receipts Financing

Small and Medium Enterprises (SMEs) are often confronted with problems that is uncommon for larger companies and multi-national corporations. The problems inherent in these approaches include the following
The lack of financial resources has far-reaching effects
As an SME/SMI, a financial resource is often restricted. This often forces companies to select a solution, which appear to be cheap initially. However, the hidden costs will begin to emerge during implementation. This sometimes causes the project to be abandoned or sometime sent the company into further financial crisis.
Lack of Experience of Using Consultants
A good consultant often saves time and effort, and help to prevent pitfalls during the IT projects. However, most SMEs lack of experience in working with consultants. The lack of knowledge in the field of IT makes them difficult in identifying a good consultant for the projects. They often feel that the consultant cost is too high and they can handle it with their own stuff. If the caller has no staff that are experienced and versed in the IT project, avoiding external help often costs more to the company eventually.
MEASURES TAKEN BY GOVERNMENT OF INDIA (MSME)
• National Manufacturing Competitiveness Programme (NMCP) Schemes Under XI Plan
• Micro & Small Enterprises Cluster Development Programme (MSE-CDP)
• Credit Linked Capital Subsidy Scheme for Technology Upgradation
• Credit Guarantee Scheme
• ISO 9000/ISO 14001 Certification Reimbursement Scheme
• Scheme of Micro Finance Programme
• Scheme of National Award

PROGRAMMES & SCHEMES OF THE MINISTRY OF MSME IMPLEMENTED DIRECTLY BY MINISTRY
• Scheme of Surveys, Studies and Policy Research
• Guidelines of Scheme for Assistance to Training Institutions ( English/ Hindi)
• Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
• Rajiv Gandhi Udyami Mitra Yojana (RGUMY)
Implemented through NSIC
• Marketing Assistance Scheme
• Performance and Credit Rating Scheme
Implemented through KVIC
• Guidelines of the Market Development Assistance (MDA) on Production Scheme
• Khadi Karigar Janashree Bima Yojana for Khadi Artisans
• Interest Subsidy Eligibility Certification (ISEC)
• Scheme for Enhancing Productivity and Competitiveness of Khadi Industry and Artisans
Workshed Scheme for Khadi Artisans
• Implemented through Coir Board
• Rejuvenation, Modernization and Technology Upgradation of the Coir Industry

Support for Participation in Exhibitions
MSME MDA – The scheme offers funding up to 75% in respect of to and fro air fare for participation by MSME Entrepreneurs in overseas fairs/trade delegations. The scheme also provides for funding for producing packaging material (up to 25% of costs) Sector specific studies (upto Rs. 2 Lakhs) and for contesting anti-dumping cases (50% upto Rs. 1 Lakh) – for individual MSMEs & Associations.

» Participation in the International Exhibitions/ Fairs – For registered Small & Micro manufacturing enterprises with DI/DIC.
» Financial Assistance for using Global Standards (GS1) in Barcoding – Recognized the importance of Barcoding and avail financial assistance through the Office of DC (MSME).
» Purchase and Price Preference Policy – This is administered through the Single Point Registration Scheme of NSIC. Under this, 358 items are reserved for exclusive purchase from MSME by Central Government. Other facilities include tender documents free of cost, exemption from earnest money and security deposit and 15% price preference in Central Government purchases – for individual MSMEs

References
1. http://dcmsme.gov.in/
2. http://msme.gov.in/msme_schemes.htm

what is HAWAL…ANGADIA….AVAL….AVALLO…..!

THE MEANING OF ALL THIS TERMS “HAWAL”( in ARABIC),”ANGADIA”(in HINDI),” AVAL” (in French),”AVALLO”(in ITALIAN) is transfer or informal value transfer system.

Hawala has its origins in classical Islamic law and is mentioned in texts of Islamic jurisprudence as early as the 8th century.

How it works :

Transfer of money via network of hawala brokers. It is the transfer of money without actually moving it. In fact, a successful definition of the hawala system that is used is ‘money transfer without money movement’.

The unique feature of the system is that no promissory instruments are exchanged between the hawala brokers; the transaction takes place entirely on the honour system. As the system does not depend on the legal enforceability of claims, it can operate even in the absence of a legal and juridical environment. Trust and extensive use of connections, such as family relations and regional affiliations, are the components that distinguish it from other remittance systems.

Hawala is attractive to customers because it provides a fast and convenient transfer of funds, usually with a far lower commission than that charged by banks. Its advantages are most pronounced when the receiving country applies unprofitable exchange rate regulations (as has been the case for many typical receiving countries such as Pakistan or Egypt) or when the banking system in the receiving country is less complex (e.g. due to differences in legal environment in places such as Afghanistan, Yemen, Somalia). Moreover, in some parts of the world it is the only option for legitimate funds transfers, and has even been used by aid organizations in areas where it is the best-functioning institution.

Hawala is been called as Terrorist Financing

Hawala has been discouraged in some U.S.A and other countries, it is legal in all US and world jurisdictions. Government officials assert it can be used to facilitate money laundering, avoid taxation, and move wealth anonymously.

9/11 terrorist attact USA.. a bluck of fund transfer..American government suspected that some hawala brokers may have helped terrorist organizations to transfer money to fund their activities.. but reality the fund transfer is transfer through inter-bank wire transfer to a SunTrust Bank in Florida.

Bush administration (USA) froze the assets of Al-Barakat, a Somali remittance hawala company used primarily by a large amount of Somalian immigrants. Many of its agents in several countries were initially arrested, though later freed after no concrete evidence against them was found.

Latest News Of 3rd  july 2013 in Mumbai Maharashtra(INDAI)

National Investigating Agency (NIA), which conducted the raid in collaboration with the Income Tax (I-T) department, was apparently misled by an informer to believe that the trucks were laden with counterfeit currency meant to fund terror activities. Based on the information, the NIA, meant to combat terror, intercepted the trucks near Mumbai Central station, but realised it was a mishit, I-T sources said.

A businessman clued up with the angadia trade told MiD DAY, “Hawala courier business is 70 years old. While majority of the transactions are legal, a handful of angadias are involved in hawala operations. Of the entire consignment that has been recovered in the raid, only a few items would be unaccounted.”

 

India Money-Laundering New Act

Every year, billions of dollars are derived from drug trade and are then reinvested throughout the world by otherwise legitimate businessmen, accountants and bankers[2] and it is the increasing awareness of the huge profits generated from this criminal activity that has created the impetus for governments to legislate against such activities.

 

Money laundering is becoming very protuberant with the passage of time. The estimated amount of money laundered globally in one year is 2 to 5% of the global GDP (or USD 800 billion to USD 2 trillion).[3] In December, 2012, HSBC Holdings Plc. had to agree to pay a record USD 1.92 billion in fines to US authorities for getting itself involved in money-laundering issues.[4]

 

As far as India is concerned, in 2011-12, as many as 35 stock brokers were probed by the Securities and Exchange Board of India (“SEBI”) for possible lapses in controls related to money laundering and this led to actions being taken by stock exchanges and depositories against more than 300 market entities for violations and discrepancies related to Anti-Money Laundering (“AML”). [5] Recently, the Enforcement Directorate has been investigating an alleged Rs. 870 crore money laundering fraud by Reebok India.[6]

 

The current status of money laundering in India can also be evaluated by looking at the Basel AML Index prepared by the Basel Institute on Governance, Switzerland. The Basel AML Index scores countries on the basis of AML laws, financial regulations, political disclosure etc. in that country. The Overall Score, which ranges from 0 (low risk) to 10 (high risk), indicates a country’s risk level in money laundering. Out of 140 countries, India has been ranked 93rd (high risk zone with a score of 6.05) as compared to Norway having a score of 2.36.[7] This clearly shows that India, in the present-day scenario, is very vulnerable to money laundering activities and is a high risk zone.

 

Checking Money Laundering in India

 

Even though money laundering is a mammoth issue, constant efforts have continuously been taken by Indian agencies and regulators to eliminate it. The Financial Intelligence Unit- India (“FIU-India”) which is the nodal agency in India for managing the AML ecosystem, has significantly helped in coordinating and strengthening efforts to reduce money laundering and related crimes in India, while the Prevention of Money Laundering Act, 2002(“the Principal Act”) has been the core framework for combating it.

 

In June 2010, after a stringent evaluation by them, India was finally admitted as the 34th country member of the Financial Action Task Force (“FATF”). This membership has helped Indian enforcement agencies to exchange information and financial institutions to gain much better access to markets of other member countries by portraying that Indian financial institutions are very comparative in terms of risk management standards. The membership to FATF has also helped Indian financial services industry to recognize those areas which need scrutiny and as a result of this, financial institutions increasingly started evaluating the inherent AML risks in their products and services and taking steps to mitigate the same.

 

However, as a consequence of becoming a member of FATF, India has had to commit itself to bring amendments to its legislations and institutional framework to confirm to FATF standards in order to better check money laundering. Also, as stated above, the Basel AML Index also indicates that there is a need to amend the current money laundering related legislation in India. For this reason, the Prevention of Money Laundering (Amendment) Bill, 2011 had to be introduced by the Minister of Finance, Mr. Pranab Mukherjee in the Lok Sabha on December 27, 2011.

 

The New Law and the Proposed Changes

 

The bill seeks to amend the Principal Act to update the provisions for combating money laundering and terror financing. These amendments are in line with the standards set by FATF. Before being passed by the Lok Sabha, the bill was scrutinized by the Standing Committee on Finance (2011-12), headed by Shri Yashwant Sinha, which prepared a report suggesting various changes for better implementation of the new law. Most of the recommendations suggested by them became part of the Prevention of Money-Laundering (Amendment) Bill, 2012 (“2012 Bill”). The 2012 Bill finally got passed by the Lok Sabha on November 29, 2012 and by the Rajya Sabha on December 17, 2012.

 

Also, vide Notification No. SO 343 (E) [F.NO.P.12011/3/2009-S.O. (E.S. CELL)], dated February 8, 2013, the Central Government had appointed February 15, 2013 as the date on which the provisions of the 2012 Bill shall come into force.[8]

 

With these amendments, it is believed that the Principal Act would largely conform to the global standards. The following are the key amendments to the Act:

 

· Expanded the definition of offence of money laundering to include activities like concealment, acquisition, possession and use of proceeds of crime.

· Removed the upper limit of fine of Rs. 5 Lakhs.

· Expanded the scope and duration of Attachment of property to 180 days

· Introduced the concept of Reporting Entity

· Increased the powers of the Director to call for records and conduct inquiries

· Provided that special courts can release property in case of decision by a foreign court

· Clarified that prosecution extends not only to individuals but to Companies as well

· Deleted the monetary threshold that applied to the offence of money-laundering

 

The Proposed Changes:

 

1. The definition of Offence of money-laundering has been expanded [Section 3]

 

The Principal Act stated that whoever indulges in any activity connected with proceeds of crime and projects it as untainted property shall be guilty.

 

Therefore, the Principal Act does not criminalize concealment, possession, acquisition and use of the proceeds of crime, a fact which was revealed by FATF during mutual evaluation of India. Also, Article 6 of Palermo Convention (United Nations Convention against Transnational Organized Crime) requires that such activities should also be criminalized in order to better control money laundering. Hence it has been proposed by the 2012 Bill that the definition of the offence of money laundering should be expanded to include the abovementioned activities as well. By this amendment, the actions of placement, layering and integration that are usually assumed to constitute money laundering are included within the scope of the definition.

 

2. The upper limit for fine has been removed [Section 4]

 

The Principal Act provided for a penalty of fine which may extend to five lakh rupees as punishment for money-laundering. This amount appeared to be disproportionately low, given the gravity of the offence of money laundering and therefore, the 2012 bill has removed the upper limit of such fine. After the amendment, the quantum of fine proportionate to the gravity of the offence will be determined by the court on a case to case basis. The limit of Rs.5 lakh is therefore proposed to be deleted altogether.

 

The Standing Committee has also suggested that the courts could consider a percentage of the amount of money laundered as fine for the offence. This would ensure that each offender has to pay a fine according to the gravity of his offence.

 

3. Scope and duration of Attachment of property expanded [Section 5]

 

The Principal Act provided that the person from whom property is attached must have been charged of having committed a scheduled offence. It is proposed that this provision should be deleted as property may come to rest with someone, who has nothing to do with the scheduled offence or even the money-laundering offence. The 2012 Bill proposes to expand the scope of attachment by stating that any proceeds of crime which are even likely to be concealed or transferred can be attached. The 2012 bill further proposed that if any proceeds are to be used for any purpose which will frustrate the confiscation of proceeds of crime, then such property will also be attached.

 

Further, the Principal Act provided for attachment of property for 150 days. The 2012 Bill has proposed to increase the same to 180 days.

 

4. The concept of Reporting Entity and Beneficial Owner introduced [Section 12]

 

The Principal Act provided for banking companies, financial institutions and intermediaries to maintain records of the transactions they sanction. The 2012 Bill proposes that a new concept of “reporting entity” should be introduced which would maintain records of various transactions sanctioned by banking companies and financial institutions etc. It is also proposed that these entities would identify their clients and the client’s beneficial owners [Clause 2 (1) (c) and (d)]. For this purpose, reporting entity has been defined in 2012 bill to include banking companies, financial institutions, intermediaries and persons carrying on designated business or profession [Clause (wa) of Section 2]. Further, persons carrying on designated business or profession have also been defined to include persons carrying on activities for playing games of chance, real estate agents and dealers of precious metal and precious stones etc. [Clause (sa) of Section 2]

 

This clearly shows that the 2012 Bill mandates many other categories of persons to maintain records, unlike the mandate in the Principal Act. This expansion to other categories of persons would ensure reporting of many such transactions which earlier would have gone unnoticed.

 

Also, a very significant step taken towards amending the Principal Act is not only expanding the categories of persons required to maintain records but also the kind of records that have to be maintained i.e. the maintenance of records of beneficial owner. The FATF had released a Mutual Evaluation Report (“MER”) in June 2010, on the basis of findings of which, India was admitted as a member of FATF. One of the deficiencies highlighted by MER during evaluation of India was the lack of identification and verification of beneficial ownership of legal persons. Since the Principal Act did not have any provision, the Government of India had to prepare and submit an action plan to FATF stating that it would take appropriate measures to bring the same within the ambit of law. Post this, 2012 Bill proposed that a reporting entity should identify and maintain records of the “beneficial owner” of their clients. It can therefore be clearly noticed that if beneficial owners are identified and their records are maintained, the chances of money laundering would be strictly reduced.

 

On an analysis of the aforementioned sections, it can be noted that the 2012 Bill in its present form does not impose any obligation on clients, and it casts responsibility only on the reporting entities to ascertain “beneficial ownership‟. The Standing Committee, however, was of the opinion that clients as well should be required to declare beneficial ownership while undertaking transaction with the bank as considering the large volume of transactions, which banks are required to deal with, it may not be practically possible for them to ascertain “the beneficial owners”.

 

Also, the Standing Committee had recommended in their report that if the reporting entities are not able to find the beneficial owner then there should be an obligation upon the reporting entity to not to open the relevant client’s account. It is worth noting that in spite of the standing committee suggesting that, in those cases where beneficial owner cannot be identified, an account should not be opened, the bill does not have any provision with regard to the same. Therefore, currently no action will be taken even if beneficial owner is not identified in any case. This renders the new provision otiose.

 

Further, it is proposed in 2012 Bill that reporting entity has to report even an attempted transaction. These provisions have been proposed by 2012 Bill to cut down suspicious transactions from the very beginning.

 

5. Director’s power to call for records and conduct inquiries [Section 12A]

 

In order to make sure that reporting entities comply with Section 12 requirements, the 2012 Bill proposes that the director will have the power to call for any records from reporting entities and will also have the power to make inquiries for non-compliance of reporting entities to the obligations cast upon them.

 

6. Penalty for non-compliance by reporting entity, its designated director or any of its employees (Section 13)

 

If a reporting entity or its designated director on the Board or any of its employees does not comply with the obligations under the 2012 Bill, a monetary penalty extending upto one lakh rupees for each failure can be imposed upon them.

 

7. Freezing of property [Section 8 and Section 17A]

 

The Principal Act provided for attachment of property after the charge sheet u/s 173 CrPC has been filed in scheduled offence case and seizure of property after FIR u/s 157 CrPC has been filed in scheduled offence case. However, in a number of situations it may not be practicable to file charge sheet or FIR to attach or seize property as this may happen after a prolonged gap and chances of disappearance of proceeds of crime cannot be ruled out. To obviate this problem, the 2012 Bill provides for freezing such property, so that it can be seized or attached and confiscated later.

 

8. Burden of Proof on accused [Section 24]

 

The 2012 Bill states that in the proceedings relating to money laundering, the funds shall be presumed to be involved in the offence, unless proven otherwise by the person charged with the offence.

 

9. Release of the property by special court in case of decision by foreign court [Section 58A]

 

The Principal Act did not have any provision regarding release of property by a special court. Thus, the 2012 Bill proposes to expand the powers of special courts by suggesting that where on conclusion of trial in a criminal court outside India under the corresponding law of any other country, such court finds that the offence of money-laundering has not taken place or the property in India is not involved in money-laundering, the designated Special Court may on an application moved by a concerned person order release of such property. This power is purely discretionary due to the presence of the word “may” suggesting that the local court in India will still have power to decide matters on its merits, even when the person is acquitted by an overseas court. For this purpose, the 2012 Bill proposes to introduce the concept of ‘corresponding law’ to link the provisions of Indian law with the laws of foreign countries [Clause (ia) of Section 2].

 

10. Clarification that prosecution extends to Companies as well [Section 70]

 

The Principal Act did not clearly provide for the prosecution of companies and thus to remove doubts, the 2012 Bill proposes to add an explanation to Section 70 to state that a company can be prosecuted irrespective of whether an individual has been prosecuted or not. Hence, prosecution or conviction of legal juridical person is not contingent on prosecution of any individual.

 

11.  Monetary threshold does not apply to the offence of money-laundering [Schedule I]

 

Part B of the Schedule in the Principal Act included only those crimes that are above Rs. 30 lakh or more whereas Part A did not specify any monetary limit of the offence. The 2012 Bill proposes to bring all the offences under Part A of the Schedule to ensure that the monetary thresholds do not apply to the offence of money laundering.