Scheduled Offences

Why this chapter matters

Chapter 4 carries 3 marks out of 50 — 6% of the paper, the lightest chapter.

Learning Objective- After studying this chapter, you should know about: scheduled offenses described under the SEBI Act and the Companies Act.

Note the narrow objective — the whole Schedule is set out, but the learning objective points at two entries in particular.

4.1 The concept of offence

The term offence is better known as "a crime or an illegal action".

In order to proceed against a person under the PMLA, a scheduled offence, as defined under section 2(1)(y) and mentioned in Parts A, B and C of the Schedule of the PMLA 2002 should have been committed and the proceeds of crime should have been generated.

A critical element, for an offence to be termed as a money laundering offence is the commission of a scheduled offence, as it serves as the foundation for generating proceeds of crime.

The workbook's first sample question asks for that critical element — the commission of a scheduled offence.

The offence of money laundering arises from criminal activity committed by a person in relation to scheduled offences. Scheduled offences (as defined in section 2(1)(y) of the PML Act) are those offences that are mentioned in Parts A, B and C of the Schedule to the PML Act and refer to any type of property or assets derived from proceeds of crime or used in the commission of crime in relation with the scheduled offences.

Two things must exist together — a scheduled offence, and proceeds of crime generated by it. Without the first there can be no second, and without the second section 3 of the PMLA has nothing to attach to.

Recall the definition from Chapter 2: "scheduled offence" means— (i) the offences specified under Part A of the Schedule; or (ii) the offences specified under Part B of the Schedule if the total value involved in such offences is one crore rupees or more; or (iii) the offences specified under Part C of the Schedule.

Only Part B carries a monetary threshold in that definition.

4.2 The three Parts

Part A — no monetary threshold

Part A of the PMLA delineates an exhaustive list of scheduled offences drawn from various criminal legislations in India, including but not limited to the:

• Bharatiya Nyaya Sanhita (BNS) 2023 (erstwhile Indian Penal Code 1860).
• Narcotic Drugs and Psychotropic Substances Act 1985.
• Unlawful Activities (Prevention) Act 1967.
• Arms Act 1959.
• Prevention of Corruption Act 1988, and others, for which no monetary threshold has been provided.
• Antiquities and Art Treasures Act.
• Copyright Act.
• Trademark Act.
• Wildlife Protection Act.
• Information Technology Act.

The workbook's second sample question asks where BNS offences sit — Part A.

No monetary threshold — a Part A offence of any value supports a laundering charge.

Part B — offences with a threshold

In addition to offences mentioned in Part A, Part B also encompasses offences under Indian tax laws, such as the Customs Act 1962, for which a monetary threshold of 3 million rupees or 10 million rupees has been prescribed as may be applicable.

Three million rupees is thirty lakh; ten million is one crore — and the definition in section 2(1)(y) uses one crore rupees or more.

Part B as listed contains a single entry: OFFENCE UNDER THE CUSTOMS ACT, 1962 — Section 132 — False declaration, false documents, etc.

Part C — cross-border implications

Part C of the PMLA specifies that any offence mentioned under Part A, particularly offences with cross-border implications, falls within the purview of the Act for which no monetary threshold has been provided.

An offence which is the offence of cross border implications and is specified in, — (1) Part A; or (3) the offences against property under Chapter XVII of the Indian Penal Code. (4) The offence of the wilful attempt to evade any tax, penalty or interest referred to in section 51 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

So Part C draws in three things — Part A offences with a cross-border character, offences against property under Chapter XVII of the Indian Penal Code, and the Black Money evasion offence.

Recall the definition of an offence of cross border implications from Chapter 2 — conduct abroad that would be a Part A, B or C offence in India whose proceeds come to India, or an Indian offence whose proceeds have been transferred abroad or any attempt has been made to transfer them.

Part A in detail — the twenty-nine paragraphs

Paragraph 1 — the Indian Penal Code and the Bharatiya Nyaya Sanhita

Offences Under the Indian Penal Code (45 of 1860) and under Bharatiya Nyaya Sanhita (BNS) 2023 (45 of 2023).

The table gives both the old IPC section and the new BNS section.

Note how many of these are property and deception offences — cheating, forgery, false marks, counterfeiting, receiving stolen property. Those are the ones most likely to generate proceeds that reach a securities market intermediary.

And notice the last two. Counterfeiting currency notes or bank notes and using as genuine, forged or counterfeit currency notes or bank notes connect directly to Rule 3(C), which requires a record of all cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine.

Paragraphs 2 to 10 — the other criminal statutes

Paragraph 2 — The Narcotic Drugs and Psychotropic Substances Act, 1985, covering contraventions relating to poppy straw, coca plant and coca leaves, prepared opium, opium poppy and opium, embezzlement of opium by cultivator, cannabis plant and cannabis, manufactured drugs and preparations, psychotropic substances, illegal import into India, export from India or transhipment, external dealings, contravention of orders made under section 9A, financing illicit traffic and harbouring offenders (section 27A), and abetment and criminal conspiracy (section 29).

Recall from Chapter 2 that paragraph 2 of Part A is the aggravated category — where the proceeds relate to it, the maximum sentence under section 4 rises to ten years.

Paragraph 3 — The Explosive Substances Act, 1908: causing explosion likely to endanger life or property, attempt to cause explosion, or for making or keeping explosives with intent to endanger life or property, and making or possessing explosives under suspicious circumstances.

Paragraph 4 — The Unlawful Activities (Prevention) Act, 1967, a long list including penalty for being member of an unlawful association, penalty for dealing with funds of an unlawful association, punishment for unlawful activities, punishment for terrorist act, punishment for making demands of radioactive substances, nuclear devices, etc., punishment for raising fund for terrorist act, punishment for conspiracy, punishment for organising of terrorist camps, punishment for recruiting of any person or persons for terrorist act, punishment for harbouring, punishment for being member of terrorist gang or organization, punishment for holding proceeds of terrorism, and offences relating to membership of, support given to and raising fund for a terrorist organization.

Paragraph 5 — The Arms Act, 1959, sections 25 to 30, covering manufacture, sale, transfer, conversion, repair, possession and use of arms and ammunition in contravention of the Act, possession of prohibited arms or prohibited ammunition, contraventions relating to notified arms in disturbed areas, use and possession of fire arms or imitation fire arms, knowingly purchasing arms from unlicensed person, and contravention of any condition of a licence.

Paragraph 6 — The Wild Life (Protection) Act, 1972, section 51 read with sections 9, 17A, 39, 44, 48 and 49B — hunting of wild animals, picking or uprooting specified plants, wild animals, etc., to be Government property, dealings in trophy and animal articles without licence, purchase of animal, etc., by licensee, and dealings in trophies, animal articles etc., derived from scheduled animals.

Paragraph 7 — The Immoral Traffic (Prevention) Act, 1956: procuring, inducing or taking person for the sake of prostitution, detaining a person in premises where prostitution is carried on, seducing or soliciting for purpose of prostitution, and seduction of a person in custody.

Paragraph 8 — The Prevention of Corruption Act, 1988: public servant taking gratification other than legal remuneration in respect of an official act (section 7), taking gratification, in order, by corrupt or illegal means, to influence public servant (8), taking gratification, for exercise of personal influence with public servant (9), abetment by public servant (10), and criminal misconduct by a public servant (13).

Paragraph 9 — The Explosives Act, 1884: punishment for certain offences (9-B) and offences by Companies (9-C).

Paragraph 10 — The Antiquities and Arts Treasures Act, 1972: contravention of export trade in antiquities and art treasure (section 25 read with section 3) and offences by Companies (28).

Paragraph 11 — the SEBI Act, 1992

The Securities and Exchange Board of India Act, 1992 (15 of 1992).

This is the entry the learning objective points at. Market manipulation, insider trading and substantial acquisition offences under the SEBI Act are Part A scheduled offences — so proceeds from them are proceeds of crime, and dealing with those proceeds is money laundering.

Which is exactly why Chapter 1 listed insider trading among the sources of launderable money: embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to "legitimize" the ill-gotten gains through money laundering.

Paragraphs 12 to 28 — the remaining statutes

Paragraph 12 — The Customs Act, 1962: section 135, evasion of duty or prohibitions.

Note that section 135 is in Part A, while Part B contains section 132, false declaration, false documents, etc.

Paragraph 13 — The Bonded Labour System (Abolition) Act, 1976: punishment for enforcement of bonded labour, punishment for extracting bonded labour under the bonded labour system, and abetment to be an offence.

Paragraph 14 — The Child Labour (Prohibition and Regulation) Act, 1986: section 14, punishment for employment of any child to work in contravention of the provisions of section 3.

Paragraph 15 — The Transplantation of Human Organs Act, 1994: punishment for removal of human organ without authority, punishment for commercial dealings in human organs, and punishment for contravention of any other provision of this Act.

Paragraph 16 — The Juvenile Justice (Care and Protection of Children) Act, 2000: punishment of cruelty to juvenile or child, employment of juvenile or child for begging, penalty for giving intoxicating liquor or narcotic drug or psychotropic substance to juvenile or child, and exploitation of juvenile or child employee.

Paragraph 17 — The Emigration Act, 1983: section 24, offences and penalties.

Paragraph 18 — The Passport Act, 1967: section 12, offences and penalties.

Paragraph 19 — The Foreigners Act, 1946: penalty for contravention of provisions of the Act, penalty for using forged passport, and penalty for abetment.

Paragraph 20 — The Copyright Act, 1957: offence of infringement of copyright or other rights conferred by this Act (63), enhanced penalty on second and subsequent convictions (63A), knowing use of infringing copy of computer programme (63B), and penalty for contravention of section 52A (68A).

Paragraph 21 — The Trade Marks Act, 1999: penalty for applying false trademarks, trade description, etc. (103), penalty for selling goods or providing services to which false trademark or false trade description is applied (104), enhanced penalty on second or subsequent conviction (105), penalty for falsely representing a trade mark as registered (107), and punishment of abetment in India of acts done out of India (120).

Paragraph 22 — The Information Technology Act, 2000: penalty for breach of confidentiality and privacy (72) and act to apply for offence or contravention committed outside India (75).

Paragraph 23 — The Biological Diversity Act, 2002: section 55 read with section 6, penalties for contravention of section 6, etc.

Paragraph 24 — The Protection of Plant Varieties and Farmers' Rights Act, 2001: sections 70 to 73 read with section 68 — false denomination, selling varieties with a false denomination, falsely representing a variety as registered, and subsequent offences.

Paragraph 25 — The Environment Protection Act, 1986: penalty for discharging environmental pollutants and penalty for handling hazardous substance.

Paragraph 26 — The Water (Prevention and Control of Pollution) Act, 1974: penalty for pollution of stream or well and penalty for contravention of provisions of section 24.

Paragraph 27 — The Air (Prevention and Control of Pollution) Act, 1981: section 37, failure to comply with the provisions for operating industrial plant.

Paragraph 28 — The Suppression of Unlawful Acts Against Safety of Maritime Navigation and Fixed Platforms on Continental Shelf Act, 2002: section 3, offences against ship, fixed platform, cargo of a ship, maritime navigational facilities, etc.

Paragraph 29 — the Companies Act, 2013

Offence under the Companies Act, 2013.

The second entry the learning objective names. Section 447 is the Companies Act's general fraud provision, and a single line closes Part A.

Reading the Schedule as a whole

The range is deliberate. Part A runs from murder and terrorism through drugs, arms and corruption to copyright, trade marks, environmental pollution and corporate fraud. What unites them is that each can generate money.

And two entries matter most in the securities market — paragraph 11, bringing in prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control under the SEBI Act, and paragraph 29, bringing in punishment for fraud under section 447 of the Companies Act, 2013.

Both are exactly the kind of offence an intermediary may see the proceeds of.