Prevention of Money Laundering Act, 2002
Companies and Corporate Liability: Section 70
Much money laundering is done through companies: they receive the proceeds, disguise them as business income, and hold the assets bought with them. The PMLA reaches the company itself, since a company is a person under Section 2(1)(s), and through Section 70 it reaches the individuals behind it: those in charge of and responsible for the business, and any director, manager, secretary or officer whose consent, connivance or neglect led to the contravention. This note explains the provision, its defences, and how it sits with the general law on corporate and vicarious liability.
Who in the company answers under Section 70, the defences, the leading cases, and corporate against individual liability
1. The Provision
§ Section 70, in substance (1) Where a person committing a contravention of any provision of the Act, or of any rule, direction or order made under it, is a company, every person who, at the time, was in charge of and responsible to the company for the conduct of its business, as well as the company, shall be deemed guilty and liable to be proceeded against and punished. Proviso. Nothing renders such a person liable if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent it. (2) Where a contravention by a company is proved to have taken place with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, secretary or other officer, that person is also deemed guilty. Explanation 1. 'Company' means a body corporate and includes a firm or other association of individuals; a 'director' of a firm means a partner. Explanation 2 (2019). A company may be prosecuted notwithstanding whether the prosecution or conviction of any legal juridical person is contingent on the prosecution or conviction of any individual. |
2. The Categories of Liability
Person | Basis | What must be shown |
|---|---|---|
The company | A 'person' under s. 2(1)(s); s. 3 and s. 70 | The contravention by the company |
Person in charge | s. 70(1): deemed guilty | That he was in charge of and responsible for the business at the time; he may then prove lack of knowledge or due diligence |
Director, manager, secretary, officer | s. 70(2) | The prosecution must prove consent, connivance, or neglect attributable to him |
Partner of a firm | Explanation 1 | Treated as a director of the firm |
Other employees | s. 3 directly | Their own knowing involvement; no liability merely by position |
3. Consent, Connivance and Neglect
i. Consent: active agreement to the conduct.
ii. Connivance: knowing and deliberately turning a blind eye.
iii. Neglect: failure to do what a person in that role should have done, which enabled the contravention.
iv. The burden under s. 70(2) lies on the prosecution; the title of director alone is not enough.
4. Defences
§ The proviso to Section 70(1) • Lack of knowledge. The person proves the contravention took place without his knowledge, for example a non-executive director with no role in the relevant transactions. • Due diligence. He proves he exercised all due diligence to prevent it: compliance systems, reliance on proper advice, prompt action on red flags. • Burden. The burden of these defences lies on the person, once the prosecution shows he was in charge of and responsible for the business. |
5. Vicarious Liability in the General Law
Case | Principle |
|---|---|
S.M.S. Pharmaceuticals v. Neeta Bhalla, (2005) 8 SCC 89 | The complaint must specifically aver how the person was in charge of and responsible for the business; a bare title is insufficient |
Aneeta Hada v. Godfather Travels, (2012) 5 SCC 661 | Under s. 141 of the NI Act, directors cannot be prosecuted vicariously without arraigning the company; PMLA's Explanation 2 now decouples the company's prosecution from individuals' |
Sunil Bharti Mittal v. CBI, (2015) 4 SCC 609 | There is no vicarious criminal liability without a statutory provision; the company's acts may be attributed to individuals only on their own role or where statute so provides |
Standard Chartered Bank v. Directorate of Enforcement, (2005) 4 SCC 530 | A company can be prosecuted even for an offence carrying mandatory imprisonment; it is punished with fine |
Iridium India Telecom v. Motorola, (2011) 1 SCC 74 | The criminal intent of those in control of a company is attributed to it |
6. Corporate Liability and Individual Liability
i. The company is liable in its own right, is punished with fine, and its property is attachable and confiscable.
ii. Individuals are liable for their own acts under Section 3, or under Section 70 by virtue of their role and the failure of their defence.
iii. Both may be prosecuted in the same case; after Explanation 2, the company's prosecution does not depend on the individual's.
7. Frequently Asked Questions
Can a company be prosecuted under the PMLA?
Yes. A company is a person under Section 2(1)(s), and Section 70 provides for its liability; Explanation 2 allows its prosecution independently of any individual's.
Is every director liable when a company launders money?
No. Under Section 70(1), a person in charge of and responsible for the business is deemed guilty but may prove lack of knowledge or due diligence; under Section 70(2), other officers are liable only if consent, connivance or neglect is proved.
Does Section 70 apply to partnership firms?
Yes. A firm is a company, and a partner a director, for Section 70.