Temporary ceasing of operations
Also written Temporary cessation of operations
Under Rule 9(17) of the PML Rules, the temporary suspension of all transactions in an existing client's account for failing to submit PAN, its e-document or Form No. 60 by the notified date.
In plain language
Most AML rules are about new clients. This one is about old ones.
An account opened years ago may have been opened before PAN was insisted on. Rule 9(17) of the PML Rules gives such clients a deadline: submit the Permanent Account Number, or its equivalent e-document, or Form No. 60, by the date the Central Government notifies. Miss it, and the account does not close — it temporarily ceases to be operational until the document arrives.
The rule is deliberately a middle path. It does not let an unidentified account keep trading, and it does not destroy a client's relationship over a paperwork gap. And it cannot be applied by surprise.
How it works
The obligation — Rule 9(17)(i). A client already having an account based relationship shall submit his PAN or the equivalent e-document or Form No. 60 on such date as may be notified by the Central Government, failing which the account shall temporarily cease to be operational till the document is submitted.
The safeguard. Before temporarily ceasing operations, the reporting entity shall give the client an accessible notice and a reasonable opportunity to be heard.
The definition. "Temporary ceasing of operations" means the temporary suspension of all transactions or activities in relation to that account by the reporting entity, till such time the client complies.
The refusal case — Rule 9(17)(ii). If the client gives in writing that he does not want to submit PAN, the e-document or Form No. 60, the account shall be closed and all obligations due in relation to it appropriately settled after establishing the identity of the client, in the manner the regulator determines.
The relaxation. Rule 9(14)(ia)(B) requires the regulator's guidelines to include appropriate relaxation for continued operation of accounts for clients who are unable to provide PAN or Form No. 60.
The related SEBI rule. Where an intermediary does not have records of the identity of existing clients, it shall obtain them forthwith, failing which it shall close the account after giving due notice.
A worked example
Illustrative; the notified date is a placeholder.
Vasundhara DP Services Ltd finds 212 legacy demat accounts with no PAN, e-PAN or Form No. 60 on file, ahead of the date notified by the Central Government.
Before the date. It sends each holder an accessible notice explaining what is needed and by when, and offers a hearing. By the notified date:
| Outcome | Accounts |
|---|---|
| PAN or e-PAN submitted | 171 |
| Form No. 60 submitted | 19 |
| Written refusal to submit | 3 |
| No response | 19 |
| Total | 212 |
Check: 171 + 19 + 3 + 19 = 212.
After the date.
- The 190 compliant accounts carry on normally.
- The 19 silent accounts temporarily cease to be operational — all transactions and activities are suspended. When Mr Joseph, one of them, submits his PAN three weeks later, his account resumes.
- The 3 written refusals are closed, and the holdings and dues settled only after each client's identity is established in the manner the regulator determines.
The contrast worth keeping. One of the 171 compliant accounts is also the subject of an STR filed that month. That account must not be restricted at all — SEBI prohibits restrictions on operations in accounts where an STR has been made.
Why NISM asks about it
Rule 9(17), with its Explanation defining the term, is in Chapter 3 (PML Rules, 2005), and Rule 9(14)(ia)(B) is on the page before it. The SEBI rule on closing accounts of existing clients whose identity records cannot be obtained is in Chapter 6, section 6.2.8. Expect a question on what happens when an existing client does not submit PAN or Form No. 60 (temporary cessation, not closure), the pre-condition of notice and hearing, and the written-refusal route to closure.
Common exam traps
- Temporary cessation is not closure. Closure follows only a written refusal.
- Notice and a reasonable opportunity to be heard come first. Suspension without them breaches the Rule.
- Form No. 60 is an alternative to PAN for this purpose, as is the equivalent e-document.
- It suspends all transactions or activities — not only purchases.
- The date is notified by the Central Government, not chosen by the intermediary.
- Do not mix it up with STR accounts. An account under an STR is not restricted; an account without PAN or Form No. 60 after the notified date is.
Check yourself
1.An existing client fails to submit PAN or Form No. 60 by the notified date. What follows?
- a)The account temporarily ceases to be operational, but only after the client is given an accessible notice and a reasonable opportunity to be heard
- b)The account is closed immediately
- c)Nothing — the requirement applies only to new clients
- d)The account continues but no new transactions may be added
Show the answer
Answer: (a) The account temporarily ceases to be operational, but only after the client is given an accessible notice and a reasonable opportunity to be heard
A client already having an account based relationship with a reporting entity, shall submit his Permanent Account Number or the equivalent e-documents thereof or Form No.60, on such date as may be notified by the Central Government, failing which the account shall temporarily cease to be operational till the time the Permanent Account Number or the equivalent e-documents thereof or Form No. 60 is submitted by the client.
With a procedural protection: before temporarily ceasing operations for an account, the reporting entity shall give the client an accessible notice and a reasonable opportunity to be heard.
What suspension means: "temporary ceasing of operations" in relation to an account means the temporary suspension of all transactions or activities in relation to that account by the reporting entity till such time the client complies with the provisions of this clause.
All transactions or activities — so option D understates it. And it is temporary, ending on compliance, so option B overstates it.
Option C is contradicted by the opening words — the sub-rule applies expressly to a client already having an account based relationship.
A written refusal has a harder consequence: if a client having an existing account based relationship with a reporting entity gives in writing to the reporting entity that he does not want to submit his Permanent Account Number or the equivalent e-documents thereof or Form No.60, as the case may be, the client's account with the reporting entity shall be closed and all obligations due in relation to the account shall be appropriately settled after establishing the identity of the client in the manner as may be determined by the regulator.
Note that identity must still be established before settlement — closure is not an escape from KYC.
PAN or Form No. 60 is a core requirement for individuals. Sub-rule (4) requires an Aadhaar number or proof of possession or an officially valid document, and the Permanent Account Number or the equivalent e-document thereof or Form No. 60 as defined in Income-tax Rules, 1962.
And the guidelines must accommodate genuine inability: they shall include relaxation for continued operation of accounts for clients who are unable to provide Permanent Account Number or Form No. 60 — as with those unable to undergo biometric or Aadhaar authentication owing to injury, illness or infirmity on account of old age or otherwise.
Where this is taught
Free preparation for NISM Series XXIVRelated terms
- PAN exemptionThe relaxation that lets small mutual fund investors invest without a PAN — up to a composite Rs 50,000 a year in micro-SIPs and lump sums — by quoting a PAN Exempt KYC Reference Number from a KRA.
- Client Due DiligenceScreening and verifying a client using reliable, independent sources — identity, beneficial owner, purpose of the relationship — and then continuing to scrutinise it for as long as it lasts.
- Tipping offTelling a client that a suspicious transaction report about them has been or will be filed — illegal, and the reason the broker reports to the Financial Intelligence Unit in silence.
- Suspicious Transaction ReportA report a SEBI intermediary must file with FIU-IND within 7 days of concluding that a transaction or connected series of transactions is suspicious — and must never disclose to the client.
- Know Your CustomerThe identity and address check every investor must clear before a bank, broker or depository participant will open an account — mandatory under the Prevention of Money Laundering Act, 2002.