Delhi HC Seeks Centre Response on Plea Against Making CAs ‘Reporting Entities’ Under PMLA

The Delhi High Court on Monday sought the Central government’s response on a petition challenging the inclusion of chartered accountants (CAs), company secretaries (CS), and cost accountants as “reporting entities” under the Prevention of Money Laundering Act (PMLA).

A division bench comprising Chief Justice Satish Chandra Sharma and Justice Sanjeev Narula granted Additional Solicitor General Chetan Sharma time to gather instructions on the issue. The Court has scheduled the next hearing for October 4.

The case pertains to a plea filed by Rajat Mohan, a CA, who challenge a notification dated May 3, 2023. The notification broadened the definition of the term “person” in Section 2(1)(sa)(vi) of the PMLA, along with the definition of the term “activity.” Mohan argued that this governmental decision would essentially require CAs and similar professionals to oversee their clients with whom they interact in a fiduciary capacity.

He further contended that by encompassing CAs and other professionals within the “reporting entities” definition, onerous obligations were imposed on them. The plea highlighted that failure to comply with these provisions could lead to criminal prosecution.

According to the plea, “The aforementioned sections give unbridled and unlimited, arbitrary, and whimsical power to the authority under the PMLA to pass any directions against ‘reporting entities.’ The operation of the notification read with the aforementioned provisions of PMLA threaten the petitioner’s fundamental rights guaranteed under Article 14, 19(1)(g), 20 (3) and 21 of the Constitution of India along with the Constitutional right under Article 300A of the Constitution of India, and other civil and statutory rights, including the right of privacy, and the protection accorded to professional, privileged and confidential communications.”

The plea also contended that the notification contradicted the purpose of the PMLA, creating a framework for a sweeping and exploratory investigation into the financial transactions of every individual or citizen who engages a chartered accountant’s services, even prior to the initiation of a money laundering proceeding against such individuals.

“The scope and application of PMLA is extremely rigorous and strict and even a bona fide oversight shall put the life, liberty careers of the reporting entities under threat. A sword of Damocles would always remain hanging on the head of the petitioner,” the plea added.