Supreme Court Shields Practicing Chartered Accountants from PMLA Overreach in Form 15CB Cases

Introduction

In a landmark ruling that reinforces professional boundaries for Chartered Accountants (CAs), the Supreme Court of India has upheld a Madras High Court decision protecting a practicing CA from allegations of abetting money laundering under the Prevention of Money Laundering Act, 2002 (PMLA). The case centered on the issuance of Form 15CB—a certificate required under the Income-Tax Act, 1961, for outward remittances exceeding specified limits. The apex court clarified that merely fulfilling this statutory tax obligation does not constitute abetment of money laundering, even if the underlying transaction later proves illicit. This judgment, stemming from The Deputy Director v. Murali Krishna Chakrala (SLP (Criminal) Diary No. 8123/2024), dismisses the Enforcement Directorate's (ED) Special Leave Petition and sets a precedent limiting prosecutorial overreach against tax professionals.

The ruling addresses growing concerns among CAs, who often face collateral scrutiny in high-stakes financial probes. By drawing analogies to bank panel lawyers, the courts emphasized that professionals cannot be expected to act as investigators. This article explores the case facts, judicial reasoning, and broader implications for the accountancy profession.

Case Background

The dispute originated from remittances made by a company for importing goods. As per Section 195 of the Income-Tax Act and Rule 37BB, banks require Form 15CB from a CA before processing foreign outward remittances above ₹5 lakh (excluding certain cases). This form certifies the tax implications, such as withholding tax rates under Double Taxation Avoidance Agreements (DTAA) or domestic law.

In this instance, CA Murali Krishna Chakrala issued Form 15CB based on documents provided by the client company. Subsequently, the ED alleged that the company had illegally transferred funds abroad, inflating import invoices to siphon money. The agency accused the CA of abetting the offence under Section 3 of PMLA, claiming his certification facilitated the laundering.

The CA approached the Madras High Court seeking to quash the Enforcement Case Information Report (ECIR). In Murali Krishna Chakrala v. The Deputy Director, Directorate of Enforcement, Chennai ([2023] 457 ITR 579), the High Court granted relief, quashing the proceedings against him.

Madras High Court's Key Observations

Justice N. Anand Venkatesh's bench delivered a reasoned order, delineating the limited role of CAs in tax certifications. The court observed:

“A Chartered Accountant is not required to verify the genuineness of documents submitted by clients. His role is akin to that of a panel lawyer of a bank, who provides a legal opinion on title deeds without investigating their authenticity. Such professionals cannot be prosecuted along with the principal offender.”

This analogy was pivotal. Just as a bank lawyer opines on property titles based on submitted deeds without conducting independent title searches or site visits, a CA relies on client-provided invoices, contracts, and declarations for Form 15CB. The form primarily involves:

• Confirming the remittance details.
• Applying appropriate tax withholding rates.
• Ensuring compliance with FEMA/RBI guidelines on permissible remittances.

The High Court noted that Form 15CB is a tax compliance certificate, not a guarantee of the transaction's legitimacy. Requiring CAs to probe beyond statutory duties would transform them into quasi-investigators, burdening the profession and deterring routine services.

The bench further held that no prima facie case of abetment existed under PMLA. Section 3 requires "knowingly" assisting in laundering proceeds of crime. Mere issuance of a certificate, without evidence of the CA's awareness or involvement in the fraud, does not meet this threshold. Prosecuting the CA would amount to "vicarious liability," which PMLA does not envisage for ancillary professionals.

Supreme Court's Affirmation

The ED challenged the Madras High Court's order via SLP in the Supreme Court. A bench comprising Justices (details not publicly specified in the diary entry, but the dismissal implies agreement with lower court reasoning) dismissed the SLP, upholding the quashing of proceedings.

By refusing to interfere, the Supreme Court affirmed that CAs cannot be criminally liable merely for performing duties under the Income-Tax Act. This aligns with prior jurisprudence emphasizing professional immunity in statutory roles. For instance, in CBI v. K. Narayana Rao (2012), the apex court protected advocates from prosecution for opinions given in good faith.

The dismissal reinforces Section 195's objective: facilitating legitimate remittances while ensuring tax compliance. Imposing PMLA liability on CAs would chill cross-border trade, as professionals might refuse certifications fearing ED raids.

Broader Implications for Chartered Accountants

This ruling is a boon for the 3.5 lakh+ members of the Institute of Chartered Accountants of India (ICAI). In recent years, ED and CBI have increasingly roped in CAs in PMLA cases involving shell companies or bogus invoices. Data from ICAI submissions indicate over 50 CAs faced arrests or summons in 2022-23 alone for audit or certification roles.

Key takeaways:

1. Limited Due Diligence: CAs must exercise "reasonable care" (e.g., red flags like mismatched invoices), but not forensic audits. ICAI's Standards on Auditing (SA 240 on fraud) already mandate reporting suspected illegality, but not preemptive investigation.
2. PMLA Threshold: Abetment requires mens rea (guilty intent). Passive certification, absent collusion, is insulated.
3. Precedent Value: Though an SLP dismissal, it binds lower courts and ED in similar matters. It may influence ongoing cases like those against CAs in the Nirav Modi or Vijay Mallya probes.

However, critics argue the judgment could embolden lax practices. The ED contended that Form 15CB often enables laundering via over-invoicing. The courts countered that primary liability lies with the remitter; professionals are not gatekeepers under FEMA.

ICAI President welcomed the verdict, stating it "restores faith in professional duties." He urged members to document client interactions for self-protection.

Conclusion

The Supreme Court's decision in Murali Krishna Chakrala marks a definitive boundary: tax compliance does not equate to crime facilitation. By protecting CAs from PMLA's expansive net, it upholds the rule of law and professional autonomy. As India aims for $5 trillion economy with surging remittances (RBI data: $100 billion+ annually), such clarity is vital. Future guidelines from ICAI or CBDT could further standardize Form 15CB processes, balancing compliance with practicality.

This case underscores that while vigilance against laundering is essential, targeting facilitators without evidence undermines legitimate professions. For CAs, it's a shield; for regulators, a reminder to focus on principals.