Supreme Court On Professional Liability Under PMLA: Deputy Director v. Murali Krishna Chakrala

INTRODUCTION

The Supreme Court’s affirmation in Deputy Director v. Murali Krishna Chakrala (SLP (Criminal) Diary No. 8123/2024) marks a decisive moment in the jurisprudence of professional liability under the Prevention of Money Laundering Act, 2002 (PMLA). By upholding the Madras High Court’s discharge of a chartered accountant who had merely issued routine tax certificates (Form 15CB), the Court has drawn a clear boundary between professional compliance and criminal complicity.

This ruling is not just about one auditor but about the sanctity of professional roles, the limits of liability, and the dangers of criminalizing routine certifications. The judgment restores balance by recognizing that professionals cannot be treated as conspirators merely because their signatures appear on statutory forms.

FACTS OF THE CASE

Forged import documents were presented to Indian Bank, Thousand Lights Branch, Chennai, triggering suspicion and subsequent investigation. The Enforcement Directorate (ED) unearthed a network of fictitious accounts under the name B.K. Electro Tool Products, through which approximately ₹59.47 crore was remitted abroad. During investigation, the ED found five numbers of Form 15CB certificates issued by Murali Krishna Chakrala, a practicing-chartered accountant. These certificates were uploaded to the Income Tax Department portal and presented to the State Bank of Travancore for remittances worth ₹3.45 crore. Chakrala admitted issuing the certificates at the request of his client, Kiyam Mohammed (Accused No. 7), for a nominal fee of ₹1,000 per certificate. He also assisted the ED in identifying Mohammed, who was later found to be a key conspirator. Despite this cooperation, Chakrala was arrayed as Accused No. 6 in the supplementary complaint under PMLA. His discharge petition was dismissed by the trial court, prompting him to approach the High Court.

HOLDING OF THE MADRAS HIGH COURT

The Madras High Court, in its 2022 judgment, discharged Chakrala from prosecution. The Court’s reasoning was sharp and pragmatic. It held that a chartered accountant issuing Form 15CB is required only to certify the nature of remittance, not to investigate the genuineness of import documents. Drawing an analogy with panel lawyers who opine on title deeds without verifying their authenticity, the Court emphasized that professionals cannot be criminally liable for documents beyond their statutory scope. Since Chakrala had no knowledge of the fraudulent scheme, received only a nominal fee, and even aided the ED in tracing the masterminds, the Court concluded that he was better positioned as a prosecution witness rather than an accused. Accordingly, the trial court’s order was set aside and he was discharged, though the possibility of examining him as a witness was left open.

RATIO AND ANALYSIS

The Supreme Court, while affirming the High Court’s decision, crystallized the principle that routine professional certifications cannot, by themselves, attract criminal liability under PMLA unless accompanied by evidence of conscious participation in money laundering. This ratio is significant because it delineates the boundary between professional negligence and criminal conspiracy, prevents the over-criminalization of compliance functions, and reinforces the requirement of mens rea under PMLA, ensuring that liability attaches only to those who knowingly aid in laundering proceeds of crime. The judgment deserves close analysis, not only for its doctrinal clarity but also for its systemic implications. Professionals such as chartered accountants, lawyers, and company secretaries often operate at the interface between clients and regulatory frameworks, and their role is inherently facilitative. If every certification or opinion could expose them to criminal liability, professional practice would become untenable. The Supreme Court’s affirmation restores confidence in the profession by recognizing that facilitation is not complicity.

The ED’s case against Chakrala faltered because it lacked evidence of intent. He neither benefited from the remittances nor concealed identities. His fee was nominal, his conduct transparent, and his cooperation genuine. The Court rightly insisted that criminal liability under PMLA requires conscious involvement in laundering proceeds of crime. This insistence on mens rea is crucial to prevent misuse of PMLA as a dragnet statute. The High Court’s analogy between CAs and panel lawyers is particularly elegant: both professionals rely on documents presented by clients, and neither has the means or the statutory duty to verify authenticity beyond the face of the papers. To criminalize them for reliance would be to criminalize trust itself. The ruling also sends a larger message to enforcement agencies. The ED’s tendency to rope in peripheral actors dilutes focus and burdens the justice system. By affirming limited liability, the Supreme Court signals that enforcement must be targeted at masterminds and beneficiaries, not at professionals performing routine duties. Ironically, had Chakrala refused to issue Form 15CB, he might have been accused of obstructing legitimate business; by issuing it, he was accused of aiding laundering. This paradox underscores the need for clear statutory guidance on the role of professionals in compliance. The judgment fills this gap by clarifying that certification is not complicity.

The Supreme Court’s dismissal of the ED’s Special Leave Petition, though not a binding precedent, signals approval of the High Court’s reasoning and discourages similar prosecutions. The apex court’s stance aligns with its earlier ruling in CBI v. K. Narayana Rao (2012), where it shielded lawyers from liability for professional opinions. Extending this principle, the Court affirmed that CAs discharging tax law duties cannot be roped into PMLA proceedings without proof of active involvement.

The ruling clarifies that while CAs must apply “reasonable professional skepticism” (per ICAI’s SA 240), they are not obligated to conduct independent verifications beyond statutory requirements. Section 3 of PMLA requires “knowingly” assisting in laundering, and passive certification without mens rea is protected. Banks and clients cannot shift investigative responsibility onto CAs; the primary onus remains on the remitter.

The ruling may influence pending cases, including those linked to high-profile fugitives, and counters the ED’s practice of naming ancillary professionals to pressure principal offenders. While the ED argued that Form 15CB is often misused in trade-based laundering (such as over-invoicing), the courts responded that regulatory gaps, if any, must be addressed through policy not by criminalizing routine compliance. For practitioners of white-collar crime law, the judgment is reassuring. It restores doctrinal coherence to PMLA, which has often been criticized for its sweeping ambit, and protects the integrity of professional practice. Professionals must be vigilant, but they cannot be expected to play detective. The law must respect this boundary.

CONCLUSION

The Supreme Court’s affirmation in Deputy Director v. Murali Krishna Chakrala is a landmark in the jurisprudence of professional liability under PMLA. By recognizing the limited role of chartered accountants in routine certifications, the Court has prevented the dangerous slide into over-criminalization.

The ruling clarifies that certification is not complicity, mens rea is indispensable for liability under PMLA, and professionals are facilitators, not conspirators. In an era where compliance functions are expanding and enforcement agencies are aggressive this judgment restores balance. It ensures that professionals can perform their statutory duties without fear of being dragged into criminal proceedings for acts that are routine, mechanical, and devoid of intent.

Ultimately, the case is a reminder that the law must distinguish between the hand that signs and the mind that schemes. Chartered accountants, like lawyers, are guardians of compliance not scapegoats for conspiracy.

By: Kshemendra Bharadwaj, Associate, MZM Legal

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.