CMA FINAL LAW MSME

9.1 Definition of MSME

The table below shows the past trend of this chapter in last 11 exams
June 17 Dec June Dec June Dec Dec Dec June Dec June
17 18 18 19 19 21 22 23 23 24
NA NA NA NA NA NA NA NA 8 4

Concept 1. Overview
CMA Study Mat Heading Number: NA

1. Major role MSMEs support large industries as ancillary units.

of MSME in
Large
Industries
2. Primary The primary responsibility of the promotion and development of MSMEs is of the State
Responsibilit Governments.
y
However, the Central Government supplements the efforts of State Governments
through various initiatives.

3. Primary role To assist the States in their efforts

of MSME  to encourage entrepreneurship,
Ministry  employment, and
 livelihood opportunities and
 enhance the competitiveness of MSMEs
 in the changed economic scenario.

4. 2 MSME Khadi and Village Industries (KVI) are two national heritages of India
sector as
national
heritage

5. MSMED Act The Micro, Small and Medium Enterprises Development (MSMED) Act was notified in
2006
 to address policy issues affecting MSMEs as well as

 the coverage and investment ceiling of the sector.

6. Features of  The Act seeks to facilitate the development of these enterprises as also enhance
MSMED Act their competitiveness.

 It provides the first-ever legal framework for recognition of the concept of

“enterprise” which comprises both manufacturing and service entities.

 The Act also provides for a statutory consultative mechanism with a wide range of
advisory functions.

 Establishment of specific funds for the promotion, enhancing competitiveness of

these enterprises, notification of schemes/programmes for this purpose,
progressive credit policies and practices, preference in Government procurements
to products and services of the micro and small enterprises, more effective

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CMA FINAL LAW MSME

mechanisms for mitigating the problems of delayed payments to micro and small
enterprises and assurance of a scheme for easing the closure of business by these
enterprises are some of the other features of the Act.

7. Second MSME sector is the Second largest employer in India, after agriculture. It contributes to
Largest 45% of industrial production, 40% of exports, and constitutes of 37% of GDP and 31%
Employer services.

Concept 2. Definition of MSME w.e.f. 1st July 2020

CMA Study Mat Heading Number: 10.1.1.2

8. Composite Investment in Plant & Machinery/equipment and Annual Turnover

Criteria

Concept 3. Calculation of Investment and Turnover

CMA Study Mat Heading Number: 10.1.1.3

9. Investment Calculation of investment in plant and machinery or equipment will be linked to ITR of
the previous year, otherwise through self-declaration.

Here asset of tangible nature shall be a part of plant and machinery, other than land
and furniture and fittings.

10. Turnover While calculation of turnover, exports shall be excluded, and information shall be
linked to Income Tax and GST returns.

11. Continuation In course of doing business, if a MSME unit goes to next category or is out of preview, it
of Non-tax shall continue to avail non-tax benefit which it was originally entitled to for the next 3
benefits years of coming to the next category.

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CMA FINAL LAW MSME

9.2 Rights available to MSME, Measures for Promotion of MSME under

MSMED Act, 2006
Concept 1. Powers of CG
CMA Study Mat Heading Number: NA

1. Powers of Section 9 of the Act empowers to CG issue notification, guideline, formulate schemes
CG for promotion and development of MSME units with regard to following issues:
i) Enhancing competitiveness
ii) Development of employee skill
iii) Management issues
iv) Technical upgradation
v) Marketing assistance
vi) Infrastructure facility
vii) Cluster development
viii)Strengthening backward and forward linkage
ix) Section 10 further ensures that smooth credit facility shall be available to MSMEs.
x) Extension of non –tax benefit

Concept 2. Separate Ministry

CMA Study Mat Heading Number: 9.2.1

2. Ministry of The Ministry of Micro, Small and Medium Enterprises, a branch of the Government of
Micro, Small India, is the highest executive body for the formulation of policies and administration
and Medium of rules, regulations and laws relating to micro, small and medium enterprises in India.
Enterprises

3. Primary The primary responsibility of promotion and development of MSMEs is of the State
responsibilit Governments.
y
However, the Government of India, supplements the efforts of the State Governments
through various initiatives. The role of the Ministry and Central Govt. nodal agencies
are to assist the States in their efforts to encourage entrepreneurship, employment
and livelihood opportunities.

4. The Ministry The Ministry of Small Scale Industries and Agro and Rural Industries was created in
of Small October 1999. In September 2001, the ministry was split into the Ministry of Small
Scale Scale Industries and the Ministry of Agro and Rural Industries.
Industries
and Agro In May 2007 they were merged into a single ministry and became MSME Ministry.
and Rural
Industries

Concept 3. Salient provisions of the Micro, Small and Medium Enterprises Development Act, 2006
CMA Study Mat Heading Number: 9.2.2

5. Major  This Act is to provide for facilitating the promotion and development and
objective of enhancing the competitiveness of micro, small and medium enterprises and for
the Act matters connected therewith or incidental thereto.

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CMA FINAL LAW MSME

6. Few (a) “Advisory Committee” means the committee constituted by the Central
important Government under sub-section (2) of section 7;
definitions
(b) “appointed day” means the day following immediately after the expiry of the
period of fifteen days from the day of acceptance or the day of deemed acceptance of
any goods or any services by a buyer from a supplier.

(c) “the day of acceptance” means,-

(i) the day of the actual delivery of goods or the rendering of services; or
(ii) where any objection is made in writing by the buyer regarding acceptance of goods
or services within fifteen days from the day of the delivery of goods or the rendering of
services, the day on which such objection is removed by the supplier;

(d) “the day of deemed acceptance” means, where no objection is made in writing by
the buyer regarding acceptance of goods or services within 15 days from the day of the
delivery of goods or the rendering of services, the day of the actual delivery of goods or
the rendering of services;

(e) “Board” means the National Board for Micro, Small and Medium Enterprises
established under section 3;

(f) “buyer” means whoever buys any goods or receives any services from a supplier for
consideration;

(g) “enterprise” means an industrial undertaking or a business concern or any other

establishment, by whatever name called, engaged in the manufacture or production of
goods, in any manner, pertaining to any industry specified in the First Schedule to the
Industries (Development and Regulation) Act, 1951 or engaged in 65 of 1951. providing
or rendering of any service or services;

(h) “supplier” means a micro or small enterprise, which has filed a memorandum with
the authority referred to in sub-section (1) of section 8 and includes,-
(i) the National Small Industries Corporation, being a company, registered under the
Companies Act, 1956 (1 of 1956);
(ii) the Small Industries Development Corporation of a State or a Union territory, by
whatever name called, being a company registered under the Companies Act, 1956 (1
of 1956);
(iii) any company, co-operative society, trust or a body, by whatever name called,
registered or constituted under any law for the time being in force and engaged in
selling goods produced by micro or small enterprises and rendering services which are
provided by such enterprises;

Concept 4. National Board for Micro, Small and Medium Enterprises

CMA Study Mat Heading Number: 9.2.3

7. Established The Central Government has established, a Board known as the National Board for
by Micro, Small and Medium Enterprises with head office at Delhi.

8. Composition The Board shall consist of the following members, namely:-

of Board (a) the Minister in charge of the Ministry or Department of the Central Government
having administrative control of the micro, small and medium enterprises who shall be
the ex-officio Chairperson of the Board;
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CMA FINAL LAW MSME

(b) the Minister of State or a Deputy Minister, if any, in the Ministry having
administrative control of the micro, small and medium enterprises who shall be ex
officio Vice-Chairperson of the Board;

(c) six Ministers of the State Governments having administrative control of the
departments of small scale industries or, as the case may be, micro, small and medium
enterprises, to be appointed by the Central Government to represent such regions of
the country as may be notified by the Central Government in this behalf, ex officio;

(d) three Members of Parliament of whom two shall be elected by the House of the
People and one by the Council of States;

(e) the Administrator of a Union territory to be appointed by the Central Government,

ex officio;

(f) the Secretary to the Government of India in charge of the Ministry or Department of
The Central Government having administrative control of the micro, small and medium
enterprises, ex officio;

(g) four Secretaries to the Government of lndia, to represent the Ministries of the
Central Government dealing with commerce and industry, finance, food processing
industries, labour and planning to be appointed by the Central Government, ex officio;

(h) the Chairman of the Board of Directors of the National Bank, ex-officio;

(i) the Chairman and managing director of the Board of Directors of the Small
Industries Bank, ex-officio;

(j) the Chairman, Indian Banks Association, ex officio;

(k) one officer of the Reserve Bank, not below the rank of an Executive Director, to be
appointed by the Central Government to represent the Reserve Bank;

(l) twenty persons to represent the associations of micro, small and medium
enterprises, including not less than 3 persons representing associations of women’s
enterprises and not less than three persons representing associations of micro
enterprises, to be appointed by the Central Government;

(m) three persons of eminence, one each from the fields of economics, industry and
science and technology, not less than one of whom shall be a woman, to be appointed
by the Central Government;

(n) two representatives of Central Trade Union Organisations, to be appointed by the

Central Government; and

(o) one officer not below the rank of Joint Secretary to the Government of India in the
Ministry or Department of the Central Government having administrative control of
the micro, small and medium enterprises to be appointed by the Central Government,
who shall be the Member-Secretary of the Board, ex officio.

9. Term of The term of office of the members of the Board, other than ex officio members of the
office Board, the manner of filling vacancies, and the procedure to be followed in the
discharge of their functions by the members of the Board, shall be such as may be
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CMA FINAL LAW MSME

prescribed:

Provided that the term of office of an ex officio member of the Board shall continue so
long as he holds the office by virtue of which he is such a member.

10. Meetings of The Board shall meet at least once in every 3 months in a year.
Board
11. Power to The Board may associate with itself, any person or persons whose assistance or advice.
take
assistance

12. Functions of Functions of the Board The Board shall, subject to the general directions of the Central
Board Government, perform all or any of the following functions, namely:--

(a) examine the factors affecting the promotion and development of micro, small and
medium enterprises and review the policies and programmes of the Central
Government in regard to facilitating the promotion and development and enhancing
the competitiveness of such enterprises and the impact thereof on such enterprises;

(b) make recommendations on matters referred above or on any other matter

referred to it by the Central Government which, in the opinion of that Government, is
necessary or expedient for facilitating the promotion and development and enhancing
the competitiveness of the micro, small and medium enterprises; and

(c) advise the Central Government on the use of the Fund.

Concept 5. Memorandum of micro, small and medium enterprise

CMA Study Mat Heading Number: 9.2.4

13. Memorandum Any person who intends to establish,--

at the time of
establishment (a) a micro or small enterprise, may, at his discretion; or
(b) a medium enterprise engaged in providing or rendering of services may, at his
discretion; or
(c) a medium enterprise engaged in the manufacture or production of goods
pertaining to any industry, shall file the memorandum of micro, small or, as the case
may be, of medium enterprise with such authority as may be specified by the State
Government.

14. Memorandum However, any person who, before the commencement of this Act, established—
by old
enterprises (i) a small scale industry and obtained a registration certificate, may, at his discretion;
and
(ii) an industry engaged in the manufacture or production of goods pertaining to any
industry having investment in plant and machinery of more than `1 crore but not
exceeding `10 crore filed an Industrial Entrepreneur’s Memorandum, shall within 180
days from the commencement of this Act, file the memorandum, in accordance with
the provisions of this Act.

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CMA FINAL LAW MSME

Concept 6. Reference to Micro and small Enterprises Facilitation Council

CMA Study Mat Heading Number: 9.2.5

15. Dispute Step 1:

Redressal (1) Any party to a dispute may, with regard to any amount due under section 17, make
a reference to the Micro and Small Enterprises Facilitation Council.

Step 2:
(2) On receipt of a reference the Council shall either itself conduct conciliation in the
matter or seek the assistance of any institution or centre providing alternate dispute
resolution services by making a reference to such an institution or centre, for
conducting conciliation

Step 3:
(3) Where the conciliation initiated as above) is not successful and stands terminated
without any settlement between the parties, the Council shall either itself take up the
dispute for arbitration.

Step 4:
(4) the Micro and Small Enterprises Facilitation Council or the centre providing
alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or
Conciliator under this section in a dispute between the supplier located within its
jurisdiction and a buyer located anywhere in India.

16. Time to Every reference made under this section shall be decided within a period of 90 days
resolve the from the date of making such a reference.
matter

Concept 7. Advisory Committee

CMA Study Mat Heading Number: 9.2.6

17. Established The Central Government

by
18. Composition (a) the Secretary to the Government of India in the Ministry or Department of the
Central Government having administrative control of the small and medium
enterprises who shall be the Chairperson, ex-officio;

(b) not more than five officers of the Central Government possessing necessary
expertise in matters relating to micro, small and medium enterprises, members, ex-
officio;

(c) not more than three representatives of the State Governments, members, ex
officio; and

(d) one representative each of the associations of micro, small and medium
enterprises, members, ex officio.

(e) The Member-Secretary of the Board shall also be the ex officio Member-Secretary
of the Advisory Committee.

19. Role of The Central Government shall, prior to classifying any class or classes of enterprises,
Advisory obtain the recommendations of the Advisory Committee.
Committee
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CMA FINAL LAW MSME

The Advisory Committee shall examine the matters referred to it by the Board in
connection with any subject and furnish its recommendations to the Board.

Concept 8. Measures for promotion, development and enhancement of competitiveness of micro,

small and medium enterprises
CMA Study Mat Heading Number: 9.2.7

20. List of (i) facilitating the promotion and development and enhancing the competitiveness of
measures micro, small and medium enterprises;
adopted by
CG (ii) development of skill in the employees, management and entrepreneurs,

(iii) provisioning for technological upgradation;

(iii) marketing assistance or infrastructure facilities and cluster development of such

enterprises with a view to strengthening backward and forward linkages,

(iv) devise policies and practices in respect of credit to the micro, small and medium
enterprises;

(v) Procurement· preference policy.

(vi) Grants by Central Government its administration and etc.

Concept 9. Dedicated funds for the sector

CMA Study Mat Heading Number: 9.2.8

21. Creation of There shall be constituted, by notification, one or more Funds to be called by such
Fund name as may be specified in the notification and there shall be credited thereto any
grants made by the Central Government under section The Central Government may,
credit to the Fund or Funds by way of grants for the purposes of this Act, such sums
of money as that Government may consider necessary to provide.

22. Administration The Central Government shall administer Funds in such manner as may be
of Fund prescribed.
23. Utilisation of The Fund or Funds shall be utilised exclusively for the MSME sector.
Fund
24. Release of The Central Government shall be responsible for the coordination and ensuring
Funds timely utilisation and release of sums in accordance with such criteria as may be
prescribed.

Concept 10. Delayed payments to micro and small enterprises

CMA Study Mat Heading Number: 9.2.9
June 2024 Marks 4
State the time limits for payment to be made by buyers to MSMEs and the consequences of delayed
payment to them.

25. What is the 45 days from the date of acceptance or the day of deemed acceptance.
deadline of
payments

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CMA FINAL LAW MSME

26. What after The buyer shall be liable to pay compound interest with monthly rests to the supplier
Delay on that amount from the appointed day or, ‘as the case may be; from the date
immediately following the date agreed upon, at three times of the bank rate notified
by the Reserve Bank.

27. Reporting Where any buyer is required to get his annual accounts audited under any law, such
Requirement buyer shall furnish the following additional information in his annual statement of
of Late accounts, namely:-
Payments
(1) the principal amount and the interest due thereon (to be shown separately)
remaining unpaid to any supplier as at the end of each accounting year;
(2) Interest not to be allowed as deduction from income.

Concept 11. MSME facilitation centres by State Government

CMA Study Mat Heading Number: 9.2.10

28. Establishment The State Government shall establish one or more Micro and Small Enterprises
Facilitation Councils.

29. Composition The Micro and Small Enterprise Facilitation Council shall consist of not less than three
but not more than five members to be appointed from amongst the following
categories, namely:-
(a) Director of Industries, or any other officer not below the rank of such Director.
(b) One or more office-bearers or representatives of associations of micro or small
industry or enterprises in the State; and
(c) One or more representatives of banks and financial institutions lending to micro or
small enterprises; or
(d) one or more persons having special knowledge in the field of industry, finance,
law, trade or commerce.

Concept 12. Designated officers in Central/state Governments

CMA Study Mat Heading Number: 9.2.11

30. Officers The Central Government or the State Government may appoint such officers with such
appointment designations and such other employees as it thinks fit for the purposes of this Act and
by CG/SG may entrust to them such of the powers and functions under this Act as it may deem
fit.

31. Rules by CG The Central Government may, by notification, make rules to carry out the provisions of
SG this Act. The State Government may, by notification, make rules to carry out the
provisions of this Act.

Concept 13. Various schemes by Central Govt

CMA Study Mat Heading Number: 9.2.12
June 2023 Marks 8
Describe in brief the Digital MSME scheme and Emergency Credit Line Guarantee Scheme for MSME
Sector.

32. Major i) flow of credit from financial institutions/banks;

objectives of ii) technology upgradation and modernization;

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CMA FINAL LAW MSME

all iii) infrastructural facilities;

Government iv) modern testing facilities and quality certification;
Schemes v) access to modern management practices;
vi) entrepreneurship development and skill upgradation ;
vii) support for product development, design intervention and packaging;
viii)welfare of artisans and workers;
ix) assistance for better access to domestic and export markets etc.

33. Major (i) The Government schemes provide a sense of security to the entrepreneurs
Advantages (ii) Some schemes provide financial security to businesses and individuals
of these (iii) Certain schemes provide technological support and guidance to individuals
schemes (iv) Overall, Government schemes help individuals and entrepreneurs improve their
livelihood

34. Single The champions control room under the ministry and development institute/ DICs shall
window facilitate single point registration.
registration
process

35. Framework  Respective banks, which has extended loan to MSME may revive the re-payment
for revival schedule of loan based on certain criteria.
and
rehabilitation  Banks shall form Committee which will look into each such MSME and suggest
of MSME corrective action.

36. Delay in  The MSME – Samadhan (Delayed Payment Monitoring System) is a portal created
payment to by the Office of DC(MSME), Ministry of Micro, Small and Medium Enterprises
MSME (MSME) where Micro and Small Enterprises (MSEs) can file their applications
online regarding delayed payments.

 The portal also has a dashboard giving information about the pending amount of
MSEs with individual CPSEs/ Central Ministries, State Governments, etc.

 The CEO of PSEs and the Secretary of the concerned Ministries will be able to
monitor the cases of delayed payment and issue necessary instructions to resolve
such issues.

 The Ministry of MSME has taken the initiative for filing online applications by the
supplier MSME unit against the buyer of goods/services before the concerned
MSEFC of his/her State/UT.

 These will be viewed by the MSEFC Council for their actions. These will also be
visible to Concerned Central Ministries, Departments, CPSEs, State Government,
etc for pro-active actions.

 This scheme and the portal are helpful for MSMEs to register an online complaint
if payment is not received from the buyer or supplier.

 All companies who get supplies of goods or services and the payment is due for 45
days or more from the date of acceptance of goods/services shall submit a half-
yearly to MCA.

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CMA FINAL LAW MSME

37. Procurement  Section 11 of the Act provides that Central Govt./State Govt. shall issue
Preference preference policy notification for preference to be given to MSME in public
Policy procurement.

 The policy provides for reservation of certain items to be from MSME only,
price preference, preference to women entrepreneurs, on programmes to
MSMEs, special renter development etc

38. Establishment The CG has under the powers used in section 12 have established a fund called MSME
of Fund Fund to be utilised exclusively for means specified in Act.

39. Establishment  CG has established these centres to facilitate MSME units to settle disputes
of MSME between MSME and other party.
Facilitation
Centre  SG can also establish such facilitation council.

 MSMEs have the right to place their grievances to the council.

40. Role of  NSIC, established in 1955, main function of the Corporation is to promote, aid and
National foster the growth of micro and small enterprises in the country, generally on
Small commercial basis.
Industries
Corporation  It provides a variety of support services to micro and small enterprises in different
Limited (NSIC) areas like raw material procurement; product marketing; credit rating; acquisition
of technologies; adoption of modern management practices, etc.

 NSIC implements its various programmes and projects throughout the country
through its

 9 Zonal Offices,
 39 Branch Offices,
 12 Sub Offices,
 5 Technical Services Centres,
 3 Technical Services Extension Centres,
 2 Software Technology Parks,
 23 NSIC-Business Development Extension Offices and
 1 Foreign Office.

41. Digital MSME The Digital MSME is a Government scheme for MSME that was launched for
Scheme promoting Information and Communication Technology (ICT) in the MSME Sector by
adopting ICT tools and applications in the production and business process of MSMEs.

The services that will be available for MSMEs through various service providers
include-
 ERP
 Accounting
 Manufacturing
 Design
 Regulatory compliance including GST

The Digital MSME Scheme is aimed at creating awareness, supporting developments

and e-platforms, thereby creating literacy, training and promoting digital marketing in

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CMA FINAL LAW MSME

MSME sectors.

42. ECLGS or  The ECLGS or the Emergency Credit Line Guarantee Scheme was launched by the
Emergency Government of India as a special scheme, considering the COVID-19 crisis.
Credit Line
Guarantee  The Scheme aims to provide 100% guarantee coverage to banks and NBFCs to
Scheme enable them to extend emergency credit facilities to business enterprises /
MSMEs in view of COVID19 to meet their additional term loan or additional
working capital requirements.

 100% guarantee coverage for the additional funds sanctioned under the
Emergency Credit Line Scheme.

 The interest rate charged is capped at 9.25% for banks and 14% for NBFCs.

 A maximum tenure of 4 years from the date of disbursement is stipulated under

the Scheme.

 The moratorium period on the principal amount is 12 months.

43. Secured  SIDBI is a primary financial institution that promotes, develops and finances
Business Loan Micro, Small and Medium Enterprises (MSME) through various schemes.
For MSME –
SIDBI  One such scheme is Secured Business Loan or SBL which was developed to
provide faster dispensation of credit to MSMEs, especially those in the
manufacturing segment and service sector.

 The maximum quantum of open term loan under the SBL Scheme will be up to
Rs.10 crore for the eligible MSME units.

 With maximum repayment tenure is 10 years, which includes the moratorium

period.

 The Scheme also provides foreign currency assistance for the creation of tangible
assets subject to natural hedges and other terms and conditions.

44. PMEGP  The Prime Minister Employment Generation Programme or PMEGP is a credit-
Scheme linked subsidy scheme introduced by the Government of India.

 The aim of introducing the Scheme is to promote the generation of employment

opportunities through the establishment of micro-enterprises in rural as well as
urban areas.

45. Reservation According to the Industries (Development and Regulation) Act, 1951, the items
policies for manufactured in the SSI (Small scale industry) sector have been given statutory
the reservation in government procurement.
manufacturin
g and The Policy has following objectives
production
sector (i) To assure production of consumer goods is increased in the small scale sector.
(ii) To enhance employment opportunities through setting up small-scale industries in
remote areas.

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CMA FINAL LAW MSME

(iii) Easy licensing and approvals.

Those enterprises which produce the Certificate of MSME Registration while making
applications for licenses, approvals, and registrations on any field for their business
from the respective authorities then, they are given priority and the process has been
more simplified for them.

46. Special Under the International Cooperation Scheme, to provide financial assistance by
consideration reimbursement to the State/Central Government organizations,
on industries/enterprises Associations and registered societies/trusts and organizations
international associated with MSME for commissioning of MSME business delegations to other
trade fairs countries.

47. Training The National Institute for Entrepreneurship and Small Business Development is the
premier organization of the Ministry of Skill Development and Entrepreneurship,
engaged in training, consultancy, research, etc. in order to promote entrepreneurship
and Skill Development.

The major activities of the Institute include Training of Trainers, Management

Development Programmes, Entrepreneurship-cum-Skill Development Programmes,
Entrepreneurship Development Programmes and Cluster Intervention.

The major activities of the Institute include Training of Trainers, Management

Development Programmes, Entrepreneurship-cum-Skill Development Programmes,
Entrepreneurship Development Programmes and Cluster Intervention.

48. Recent The Finance ministry of the Govt. has announced few financial relief package in the
announceme last budget. Some important issues are mentioned below.
nt by Govt. as
relief to (i) Three lakh crore Emergency Working Capital Facility for Businesses, including
MSME sector MSMEs:
(ii) With an objective to provide relief to the business, additional working capital
finance of 20% of the outstanding credit (as on February 29, 2020), in the form of a
Term Loan at a concessional rate of interest.
(iii) `20,000 crores Subordinate Debt for Stressed MSMEs: Provision made for `20,000
crores subordinated debt for 2,00,000 MSMEs which are NPA or are stressed. The
government will support them with `4,000 crores to Credit Guarantee Trust for Micro
and Small Enterprises (CGTMSE).
(iv) Banks are expected to provide the subordinate-debt to promoters of such MSMEs
equal to 15% of his existing stake in the unit subject to a maximum of `75 lakhs;
`50,000 crores equity infusion through MSME Fund of Funds (FoF): Govt will set up an
FoF with a corpus of `10,000 crores that will provide equity funding support for
MSMEs. The FoF shall be operated through a Mother and a few Daughter funds. It is
expected that with leverage of 1:4 at the level of daughter funds, the FoF will be able
to mobilize equity of about `50,000 crores.

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CMA FINAL LAW Cyber Laws

10.1 Information Technology Act, 2000 and Rules framed there under,
Sensitive Personal Data Rules
The table below shows the past trend of this chapter in last 11 exams
June 17 Dec June Dec June Dec Dec Dec June Dec June
17 18 18 19 19 21 22 23 23 24
NA NA NA NA NA NA NA NA 8 7 7

10.1.1. Information Technology Act, 2000

Concept 1. Objects of the IT Act

CMA Study Mat Heading Number: 10.1.1.1

1. Objects of IT (i) legal recognition to electronic transactions by recognizing digital signatures either by
Act general public or Govt. official or agency, including publication of rules, regulations or
any other matter including gazette notification.

(ii) facilitate electronic filing of documents and retention thereof in govt. records
(public cannot insist for use of electronic mode only)

(iii) consequential amendments to other acts

(iv) to set up licensing, monitoring and certifying authority

Concept 2. Dispatch and receipt of records

CMA Study Mat Heading Number: 10.1.1.2

2. Dispatch and (i) sent by originator, his agent, system programmed by the originator which operates
receipt of automatically
records
(ii) dispatch would occur when it enters a resource outside the control of the originator

(iii) unless otherwise agreed by the parties receipt would occur when it enters the
designated computer resource and in case not designated computer resource, when it
is retrieved by the addressee

(iv) unless otherwise agreed by the parties place of dispatch shall be deemed to be
place of business. same in case of receipt.

Concept 3. Controller of Certifying Authorities

CMA Study Mat Heading Number: 10.1.1.3

3. Who The Controller of Certifying Authority (CCA) is to be appointed by Central govt.

appoints
him?
4. Role of CCA To recognize, license, regulate, standardize, supervise the certifying authorities. Central
Govt.
Controller may intercept any information in any computer for security purpose, declare
any system as protected system and therefore prevent general or specific access.

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CMA FINAL LAW Cyber Laws

5. License to Certifying authorities, who are licensed by CCA shall issue digital signature certificate
CA by CCA and perform other acts as specified by the Controller and perform other functions as
decided by Controller.

Concept 4. Offences
CMA Study Mat Heading Number: 10.1.1.4

6. Applicability The offences under this Act is applicable to any offence/contravention in any
country/national if it involves a computer, system or network located in India.

7. Kind of (a) tampering with computer source documents.

offences (b) hacking: destruction, deletion, alteration of nay data in any computer with an
intention of damage/injury
(c) misrepresentation to controller or certifying authorities
(d) breach of confidentiality and privacy
(e) publishing false digital signature certificates

Concept 5. Settlement of disputes

CMA Study Mat Heading Number: 10.1.1.5

8. Adjudicating Central Govt. has appointed adjudicating authorities having it and legal knowledge.
Authority

9. Cyber Any person not satisfied with the order of controller or adjudicating authorities may
Regulations appeal within 45 days.
Appellate
Tribunal

10. Appeal to Decision of appellate tribunal can be appealed to High Court within 6o days.
High Court

11. Jurisdiction Civil court does not have jurisdiction

of Civil Court

Concept 6. Settlement of disputes

CMA Study Mat Heading Number: 10.1.1.5

12. Adjudicating Central Govt. has appointed adjudicating authorities having it and legal knowledge.
Authority

10.1.2. Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal
Data or Information) Rules, 2011.

Concept 7. What is data protection

CMA Study Mat Heading Number: 10.1.2.1

13. Meaning of Data Protection refers to the set of privacy laws, policies and procedures that aim to
Data minimise intrusion into one’s privacy caused by the collection, storage and
Protection dissemination of personal data.

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CMA FINAL LAW Cyber Laws

14. Meaning of Personal data generally refers to the information or data which relate to a person who
Personal can be identified from that information or data whether collected by any Government
Data or any private organization or an agency.

15. Meaning of Data Protection laws provide a set of laws that deal with the matters related to privacy,
data policies, and procedures and it is imperative for the protection of one’s privacy and
protection regulating its collection.
laws

Concept 8. Data protection law in India

CMA Study Mat Heading Number: 10.1.2.1

16. Early India currently is not having a separate data protection law and when the Information
position Technology Act, 2000 (hereinafter referred to as the “IT Act”) first came into force on
October 17, 2000 it lacked provisions for protection and the procedure to be followed
to ensure the safety and security of sensitive personal information of an individual.

17. Present This was taken care of in Information Technology (Amendment) Act, 2008 whose
Position provisions came into force on October 27, 2009.

Section 43A was inserted in the IT Act and the Central Government, notified the
Information Technology (Reasonable security practices and procedures and sensitive
personal data or information) Rules,2011.

18. Right to The right to privacy in India was declared a fundamental right by the Hon’ble Supreme
Privacy Court of India on August 24, 2017.

Concept 9. Important Provisions of IT Act related to Data Protection

CMA Study Mat Heading Number: 10.1.2.1

19. Section 43A Section 43A of the IT Act explicitly provides that whenever a corporate body possesses
or deals with any sensitive personal data or information and is negligent in maintaining
a reasonable security to protect such data or information, which thereby causes
wrongful loss or wrongful gain to any person, then such body corporate shall be liable
to pay damages to the person(s) so affected.

20. Section 72A Section 72A provides for the punishment for disclosure of information in breach of
lawful contract and any person may be punished with imprisonment for a term not
exceeding three years, or with a fine not exceeding up to five lakh rupees, or with both
in case disclosure of information is made in breach of lawful contract.

Concept 10. Information Technology (Reasonable Security Practices and Procedures and Sensitive
Personal Data or Information) Rules, 2011
CMA Study Mat Heading Number: 10.1.3

21. Date of The Department of Information Technology notified Information Technology the 2011
applicability Rules on April 11, 2011.
of Rules

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CMA FINAL LAW Cyber Laws

22. Applicability The Rules 2011 only apply to bodies corporate and persons located in India.
of Rules

23. Main (i) Rule 3 of the 2011 Rules provides a list of items that are to be treated as “sensitive
Highlights of personal data”, and includes inter alia information relating to passwords, credit/debit
Rules cards information, biometric information (such as DNA, fingerprints, voice patterns,
etc. that are used for authentication purposes), physical, physiological and mental
health condition, etc. It is further clarified that any information is freely available or
accessible in the public domain is not considered to be sensitive personal data.

(ii) Rule 4 imposes a duty on Body Corporates seeking sensitive personal data to draft a
privacy policy and make it easily accessible for people who are providing the
information. This should be clearly published on the website of the body corporate and
should contain details on the type of information that is being collected, the purpose
for which it has been collected and the reasonable security practices that have been
undertaken to maintain the confidentiality of such information.

(iii) Rule 5 provides the guidelines that need to be followed by a Body Corporate while
collecting information and imposes the following duties on the Body Corporate:

Obtain consent from the person(s) providing information.

a. Information shall not be collected unless it is for lawful purpose, and is considered
necessary for the purpose. The information collected shall be used only for the purpose
for which it is collected and shall not be retained for a period longer than which is
required;

b. Ensure that the person(s) providing information are aware about the fact that the
information is being collected, its purposes & recipients, name and addresses of the
agencies retaining and collecting the information;

c. Offer the person(s) providing information an opportunity to review the information

provided and make corrections, if required;

d. Maintain the security of the information provided; and

e. Designate a Grievance Officer, whose name and contact details should be on the
website who shall be responsible to address grievances of information providers
expeditiously.

(iv) prior permission of the information provider before disclosing such information to
a third party unless.

(v) Rule 8 provides the reasonable security processes and procedures that may be
implemented by Body Corporates.

24. IS/ISO/IEC International Standards (IS/ISO/IEC 27001) is one such standard which can be
27001 implemented by a body corporate to maintain data security.

25. Audit of It is pertinent to note that an audit of reasonable security practices and procedures
reasonable shall be carried cut by an auditor at least once a year or as and when the body
security corporate or a person on its behalf undertake significant upgradation of its process and
computer resource.
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CMA FINAL LAW Cyber Laws

10.2 Basic Principles of Data Privacy and Business Intelligence

Concept 1. Overview
CMA Study Mat Heading Number: NA

1. What is BI Business Intelligence (BI) is a technology-driven process for analyzing data and
delivering actionable information that helps executives, managers and workers make
informed business decisions.

2. Major As part of the BI process, organizations collect data from internal IT systems and
working of external sources, prepare it for analysis, run queries against the data and create data
BI visualizations, BI dashboards and reports to make the analytics results available to
business users for operational decision-making and strategic planning.

3. Ultimate The ultimate goal of BI initiatives is to drive better business decisions that enable
goal of BI organizations to increase revenue, improve operational efficiency and gain competitive
advantages over business rivals. To achieve that goal, BI incorporates a combination of
analytics, data management and reporting tools, plus various methodologies for
managing and analyzing data.

Concept 2. How the business intelligence process works?

CMA Study Mat Heading Number: 10.2.1

Dec 2023 Marks 7

The business intelligence has some process of works. Elucidate that process of works.

4. BI A business intelligence architecture includes more than just BI software. Business

Architecture intelligence data is typically stored in a data warehouse built for an entire organization
or in smaller data marts that hold subsets of business information for individual
departments and business units, often with ties to an enterprise data warehouse. BI
data can include historical information and real-time data gathered from source
systems as it’s generated, enabling BI tools to support both strategic and tactical
decision-making processes.

Before it’s used in BI applications, raw data from different source systems generally
must be integrated, consolidated and cleansed using data integration and data quality
management tools to ensure that BI teams and business users are analyzing accurate
and consistent information.

5. Steps in BI Steps in BI can be:

(a) data preparation, in which data sets are organized and modelled for analysis;
(b) analytical querying of the prepared data;
(c) distribution of key performance indicators (KPIs) and other findings to business
users; and
(d) use of the information to help influence and drive business decisions.

6. Change in BI Initially, BI tools were primarily used by BI and IT professionals. However, now,
Working business analysts, executives and workers are using business intelligence platforms
themselves, thanks to the development of self-service BI and data discovery tools.

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CMA FINAL LAW Cyber Laws

7. Advantage Self-service business intelligence environments enable business users to query BI data,
of Self- create data visualizations and design dashboards on their own.
Service BI
Tools
8. Advanced BI programs often incorporate forms of advanced analytics, such as data mining,
Analytics predictive analytics, text mining, statistical analysis and big data analytics. A common
example is predictive modelling that enables what-if analysis of different business
scenarios. In most cases, though, advanced analytics projects are conducted by
separate teams of data scientists, statisticians, predictive modelers and other skilled
analytics professionals, while BI teams oversee more straightforward querying and
analysis of business data.

Concept 3. Why business intelligence is important

CMA Study Mat Heading Number: 10.2.2

9. Importance  Overall, the role of business intelligence is to improve an organization’s business

of Business operations through the use of relevant data.
Intelligence
 Companies that effectively employ BI tools and techniques can translate their
collected data into valuable insights about their business processes and strategies.

 Without BI, organizations can’t readily take advantage of data-driven decision-

making.

Concept 4. Benefits of business intelligence

CMA Study Mat Heading Number: 10.2.3
June 2024 Marks 7
What do you mean by Business Intelligence in the context of Cyber Security? What are its benefits?

10. Overall A successful BI program produces a variety of business benefits in an organization.

Benefits
For example, BI enables C-suite executives and department managers to monitor
business performance on an ongoing basis so they can act quickly when issues or
opportunities arise. Analyzing customer data helps make marketing, sales and
customer service efforts more effective. Supply chain, manufacturing and distribution
bottlenecks can be detected before they cause financial harm. HR managers are better
able to monitor employee productivity, labor costs and other workforce data.

11. List of (i) speed up and improve decision-making;

benefits (ii) optimize internal business processes;
(iii) increase operational efficiency and productivity;
(iv) spot business problems that need to be addressed;
(v) identify emerging business and market trends;
(vi) develop stronger business strategies;
(vii) drive higher sales and new revenues; and
(viii)gain a competitive edge over rival companies.

12. Some BI initiatives also provide narrower business benefits - among them, making it easier
narrower for project managers to track the status of business projects and for organizations to

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CMA FINAL LAW Cyber Laws

benefits gather competitive intelligence on their rivals. In addition, BI, data management and IT
teams themselves benefit from business intelligence, using it to analyze various aspects
of technology and analytics operations.

Concept 5. Types of business intelligence tools and applications

CMA Study Mat Heading Number: 10.2.4

13. Ad hoc It’s the process of writing and running queries to analyze specific business issues 0n
analysis. casual or temporary basis.

14. Online OLAP tools enable users to analyze data along multiple dimensions, which is
analytical particularly suited to complex queries and calculations. bases.
processing
(OLAP).
15. Mobile BI. Here, BI applications and dashboards available on smartphones and tablets. This may
only display two or three data visualizations and KPIs so they can easily be viewed on a
device’s screen.

16. Real-time BI. In real-time BI applications, data is analyzed as it’s created, collected and processed to
give users an up-to-date view of business operations, customer behavior, financial
markets and other areas of interest. The real-time analytics process often involves
streaming data and supports decision analytics uses, such as credit scoring, stock
trading and targeted promotional offers.

17. Operational Also called operational BI, this is a form of real-time analytics that delivers information
intelligence to managers and frontline workers in business operations.
(OI).
18. Open source Business intelligence software that is open source typically includes two versions: a
BI (OSBI). community edition that can be used free of charge and a subscription-based
commercial release with technical support by the vendor.

19. Embedded Embedded business intelligence tools put BI and data visualization functionality
BI. directly into business applications. That enables business users to analyze data within
the applications they use to do their job. Embedded analytics features are most
commonly incorporated by application software vendors, but corporate software
developers can also include them in home grown applications.

20. Collaborative This is more of a process than a specific technology. It involves the combination of BI
BI. applications and collaboration tools to enable different users to work together on data
analysis and share information with one another. For example, users can annotate BI
data and analytics results with comments, questions and highlighting via the use of
online chat and discussion tools.

21. Location This is a specialized form of BI that enables users to analyze location and geospatial
intelligence data, with map-based data visualization functionality incorporated. Location
(LI) intelligence offers insights on geographic elements in business data and operations.
Potential uses include site selection for retail stores and corporate facilities, location-
based marketing and logistics management.

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CMA FINAL LAW Cyber Laws

Concept 6. Types of business intelligence tools and applications

CMA Study Mat Heading Number: 10.2.5

22. Modern BI Modern BI platforms typically include:

Platform (i) data visualization software for designing charts and other infographics to show data
in an easy-to-grasp way;
(ii) tools for building BI dashboards, reports and performance scorecards that display
visualized data on KPIs and other business metrics;
(iii) data storytelling features for combining visualizations and text in presentations for
business users; and
(iv) usage monitoring, performance optimization, security controls and other functions
for managing BI deployments. In general terms, enterprise BI use cases include:
(i) monitoring business performance or other types of metrics;
(ii) supporting decision-making and strategic planning;
(iii) evaluating and improving business processes;
(iv) giving operational workers useful information about customers, equipment, supply
chains and other elements of business operations; and
(v) detecting trends, patterns and relationships in data.

23. Specific use Specific use cases and BI applications vary from industry to industry. For example,
cases financial services firms and insurers use BI for risk analysis during the loan and policy
approval processes and to identify additional products to offer to existing customers
based on their current portfolios. BI helps retailers with marketing campaign
management, promotional planning and inventory management, while manufacturers
rely on BI for both historical and real-time analysis of plant operations and to help
them manage production planning, procurement and distribution.

Airlines and hotel chains are big users of BI for things such as tracking flight capacity
and room occupancy rates, setting and adjusting prices, and scheduling workers. In
healthcare organizations, BI and analytics aid in the diagnosis of diseases and other
medical conditions and in efforts to improve patient care and outcomes. Universities
and school systems tap BI to monitor overall student performance metrics and identify
individuals who might need assistance, among other applications.

Concept 7. Business intelligence trends

CMA Study Mat Heading Number: 10.2.6

24. Team In addition to BI managers, business intelligence teams generally include a mix of BI
Memebers architects, BI developers, BI analysts and BI specialists who work closely with data
architects, data engineers and other data management professionals. Business analysts
and other end users are also often included in the BI development process to represent
the business side and make sure its needs are met.

25. Modern A growing number of organizations are replacing traditional waterfall development
Approach with Agile BI and data warehousing approaches that use Agile software development
techniques to break up BI projects into small chunks and deliver new functionality on
an incremental and iterative basis.

Doing so enables companies to put BI features into use more quickly and to refine or
modify development plans as business needs change or new requirements emerge.

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CMA FINAL LAW Cyber Laws

10.3 Cybercrime/Cyber Fraud- Meaning, Remedies and Penalties

Concept 1. What is cybercrime?
CMA Study Mat Heading Number: 10.3.1

1. Meaning of Cybercrime is a broad term that is used to define criminal activity in which computers
Cyber Crime or computer networks are a tool, a target, or a place of criminal activity and include
everything from electronic wracking to denial of service attacks.

It is a general term that covers crimes like phishing, Credit card frauds, bank robbery,
illegal downloading, industrial espionage, child pornography, kidnapping children via
chat rooms, scams, cyber terrorism, creation of viruses. It also covers that traditional
crimes in which computers or networks are used to enable the illicit activity.

2. Increasing Cyber crime is increasing day by day, nowadays it has become a new fashion to earn
rate of Cyber money by fraud calls or to take revenge through hacking other accounts.
Crime
With the increasing use of computers in society, cybercrime has become a major issue.
The advancement of technology has made man dependent on internet for all his
needs. Internet has given man access to everything while sitting at one place.

Social networking, online shopping, online studying, online jobs, every possible things
that Man can think of can be done through the medium of internet.

3. How Cyber The cyber crime is different from any other crime happening in the society. The reason
crime is being, it has no geographical boundaries and the cyber criminals are unknown. It is
different? affecting all the stakeholders from government, business to citizens alike. In India
cybercrime is increasing with the increased use of Information and Communication
Technology (ICT).

Concept 2. Types of Cyber crimes

CMA Study Mat Heading Number: 10.3.2

4. Three Cyber crimes can be basically divided into three major categories:
categories
A. Cyber crimes against persons like harassment occur in cyberspace or through the
use of cyberspace. Harassment can be sexual, racial, religious, or other.
B. Cyber crimes against property like computer wreckage (destruction of others’
property), transmission of harmful programs, unauthorized trespassing, unauthorized
possession of computer information.
C. Cyber crimes against Government like Cyber terrorism

5. Cyber crimes Cyber-Stalking: It means to create physical threat that creates fear to use the
against computer technology such as internet, e-mail, phones, text messages, webcam,
persons websites or videos.

Obscenity: It includes Indecent exposure/ Pornography (basically child pornography),

hosting of web site containing these prohibited materials.

Defamation: It is an act of imputing any person to lower down the dignity of the
person by hacking his mail account and sending some mails with using vulgar language

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CMA FINAL LAW Cyber Laws

to unknown persons.

Hacking: unauthorized control/access over computer system and act of hacking

completely destroys the whole data as well as computer programmes. Cracking:
Cracking means that a stranger has broken into your computer systems without your
knowledge and consent and has tampered with precious confidential data and
information.

Spoofing: A spoofed e-mail may be said to be one, which misrepresents its origin. It
shows its origin to be different from which actually it originates. Spoofing is a blocking
through spam which means the unwanted uninvited messages. Wrongdoer steals
mobile phone number of any person and sending SMS via internet and receiver gets
the SMS from the mobile phone number of the victim.

Carding: It means false ATM cards i.e. Debit and Credit cards used by criminals for their
monetary benefits through withdrawing money from the bank account mala-fidely.

Fraud: It means the person who is doing the act of cyber crime i.e. stealing password
and data storage has done it with having guilty mind which leads to fraud and cheating.

Threat: refers to threatening a person with fear for their lives or lives of their families
through the use of a computer network i.e. E-mail, videos or phones.

6. Cyber crimes There are certain offences which affects person or properties which are as follows:
against
property Any unlawful act by which the owner is deprived completely or partially of his rights is
an offence. The common form of IPR violation may be said to be software piracy,
infringement of copyright, trademark, patents, designs and service mark violation etc.

Squatting: It means where two persons claim for the same Domain Name either by
claiming that they had registered the name first on by right of using it before the other
or using something similar to that previously.

Vandalism: Vandalism means deliberately destroying or damaging property of another.

Thus cyber vandalism means destroying or damaging the data when a network service
is stopped or disrupted. It may include within its purview any kind of physical harm
done to the computer of any person.
Hacking: Hacktivism attacks those included Famous Twitter, blogging platform by
unauthorized access/ control over the computer. Due to the hacking activity there will
be loss of data as well as computer.

Virus: Viruses are programs that attach themselves to a computer or a file and then
circulate themselves toother files and to other computers on a network. They usually
affect the data on a computer, either by altering or deleting it. Worm attacks plays
major role in affecting the computerize system of the individuals.

Trespass: It means to access someone’s computer without the right authorization of

the owner and does not disturb, alter, misuse, or damage data or system by using
wireless internet connection.

7. Cyber crimes There are certain offences done by group of persons intending to threaten the
against international governments by using internet facilities. It includes:
Government
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CMA FINAL LAW Cyber Laws

Cyber terrorism is a major burning issue in the domestic as well as global

concern. The common form of these terrorist attacks on the Internet is by distributed
denial of service attacks, hate websites and hate e-mails, attacks on sensitive computer
networks etc. Cyber terrorism activities endanger the sovereignty and integrity of the
nation.

It refers to politically motivated hacking to damage and spying. It is a form

of information warfare sometimes seen as analogous to conventional warfare although
this analogy is controversial for both its accuracy and its political motivation.
means distributing pirated software from one computer to another intending to
destroy the data and official records of the government.

formation:
It is very easy to access any information by the terrorists with the aid of internet and to
possess that information for political, religious, social, ideological objectives.
(i) Tampering with Computer source documents - Sec.65
(ii) Hacking with Computer systems, Data alteration - Sec.66
(iii) Publishing obscene information - Sec.67
(iv) Un-authorised access to protected system Sec.70
(v) Breach of Confidentiality and Privacy - Sec.72
(vi) Publishing false digital signature certificates - Sec.73

Concept 3. Cyber Laws to protect cyber crime:

CMA Study Mat Heading Number: 10.3.4

8. Role of To combat the crimes related to internet, The Information Technology Act, 2000 was
Cyber Laws enacted with prime objective to create an enabling environment for commercial use of
I.T.

The IT Act specifies the acts which have been made punishable. The Indian Penal Code,
1860 has also been amended to take into its purview cyber crimes.

Concept 4. The various offenses related to internet which have been made punishable under the IT
Act and the IPC are enumerated below:
CMA Study Mat Heading Number: 10.3.5
June 2023 Marks 8
List 5 Cyber Crimes under IPC and special laws.

9. Cyber crimes (i) Tampering with Computer source documents - Sec.65

under the IT (ii) Hacking with Computer systems, Data alteration - Sec.66
Act: (iii) Publishing obscene information - Sec.67
(iv) Un-authorised access to protected system Sec.70
(v) Breach of Confidentiality and Privacy - Sec.72
(vi) Publishing false digital signature certificates - Sec.73

10. Cyber (i) Sending threatening messages by email - Sec 503 IPC
Crimes (ii) Sending defamatory messages by email - Sec 499 IPC
under IPC (iii) Forgery of electronic records - Sec 463 IPC
and Special (iv) Bogus websites, cyber frauds - Sec 420 IPC
Laws: (v) Email spoofing - Sec 463 IPC
(vi) Web-Jacking - Sec. 383 IPC
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CMA FINAL LAW Cyber Laws

(vii) E-Mail Abuse - Sec.500 IPC

11. Cyber (i) Online sale of Drugs under Narcotic Drugs and Psychotropic Substances Act
Crimes (ii) Online sale of Arms Arms Act
under the
Special Acts:

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CMA FINAL LAW PMLA/AML

11.1 Laws and Regulations Related to Anti - Money Laundering

The table below shows the past trend of this chapter in last 11 exams
June 17 Dec June Dec June Dec Dec Dec June Dec June
17 18 18 19 19 21 22 23 23 24
4 4 6 2 9 4 6 5 8 0 3

Concept 1. OVERVIEW
CMA Study Mat Heading Number: 11.1.1

1. Dirty Money Where does dirty money come from?

Illegal arms sales, smuggling, and other organized crime, including drug trafficking and
prostitution rings, can generate huge amounts of 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.

The money so generated is tainted and is in the nature of ‘dirty money’.

2. Money Money Laundering is the process of conversion of such proceeds of crime, the ‘dirty
Laundering money’, to make it appear as ‘legitimate’ money

3. Money In the PMLA, 2002, money laundering has been defined as

Laundering  “any process or activity
definition  connected with proceeds of crime
 including its concealment, possession, acquisition or use and
 projecting or claiming it
 as untainted property”.

4. Historical The Prevention of Money Laundering Act (PMLA), 2002 was enacted in January, 2003.
background
The Act along with the Rules framed thereunder have come into force with effect from
1st July, 2005.

5. Applicability The Act extends to the whole of India including the state of Jammu & Kashmir.

6. Competition The Act was amended by the Prevention of Money Laundering (Amendment) Act 2009
Commission w.e.f. 01.06.2009.
of India
The Act was further amended by the Prevention of Money – Laundering (Amendment)
Act, 2012 w.e.f. 15-02-2013.

7. International The Prevention of Money-laundering Act, 2002 addresses the international obligations
Obligations under the Political Declaration and Global Programme of Action adopted by the
General Assembly of the United Nations to prevent money laundering.

8. Structure of 10 chapters, 75 sections and 1 Schedule divided into 5 parts.

the Act

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CMA FINAL LAW PMLA/AML

Chapter I containing section 1 and 2 deals with short title, extent and commencement
and definitions.

Chapter II containing sections 3 and 4 provides for offences and punishment for money
laundering.

Chapter III (Section 5-11) provides for attachment, adjudication and confiscation and

Chapter IV (Sections 12-15) deals with obligations of banking companies, financial

institutions and intermediaries.

Chapter V (Sections 16-24) relates to Summons, Searches and Seizures etc.

Concept 2. Objects of the Act

CMA Study Mat Heading Number: 11.1.2

9. Three (a) To prevent and control money laundering.

Objectives (b) To confiscate and seize the property obtained from the laundered money. and
Dec 2014 (c) To deal with any other issue connected with money laundering in India.
Marks 3

Concept 3. Authorities under the Act

CMA Study Mat Heading Number: 11.1.3

10. ED The Directorate of Enforcement in the Department of Revenue, Ministry of Finance is

responsible for investigating the cases of offence of money laundering under
Prevention of Money Laundering Act, 2002.

11. FIU Financial Intelligence Unit - India (FIU-IND) under the Department of Revenue,
Ministry of Finance is the central national agency responsible for receiving,
processing, analysing and disseminating information relating to suspect financial
transactions to enforcement agencies and foreign FIUs.

12. Adjudicating Central Govt.(CG) shall appoint adjudicating authority to exercise jurisdiction and
Authority powers conferred under the Act.

Concept 4. The process of Money Laundering

CMA Study Mat Heading Number: 11.1.4

June 2023 Marks 5

Describe briefly the process of Money Laundering.

June 2024 Marks 3

Briefly enumerate the process of Money Laundering.

13. Step 1: What is done?

Placement The Money Launderer introduces the illegal funds into the financial systems.

How is it done?

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CMA FINAL LAW PMLA/AML

This might be done by breaking up large amount of cash into less conspicuous smaller
sums which are deposited directly into a Bank Account or by purchasing a series of
instruments such as Cheques, Bank Drafts etc., which are then collected and
deposited into one or more accounts at another location.

14. Step 2: What is done?

Layering In this stage, the Money Launderer typically engages in a series of continuous
conversions or movements of funds, within the financial or banking system by way of
numerous accounts, so as to hide their true origin and to distance them from their
criminal source.

How is it done?
The Money Launderer may use various channels for movement of funds, like a series
of Bank Accounts, sometimes spread across the globe, especially in those jurisdictions
which do not co– operate in anti-Money Laundering investigations.

15. Step 3: What is done?

Integration The Launderer moves to this third stage in which the funds reach the legitimate
economy, after getting inseparably mixed with the legitimate money earned through
legal sources of income.

How is it done?
The Money Launderer may invest the funds into real estate, business ventures &
luxury assets, etc. so that he can enjoy the laundered money, without any fear of law
enforcement agencies.

Concept 5. Offence of Money Laundering

CMA Study Mat Heading Number: 11.1.5

16. Who is guilty? Whosoever

 directly or indirectly attempts to indulge or
 knowingly assists or
 knowingly is a party or
 is actually involved in any process or activity

connected with the proceeds of crime including its concealment possession,

acquisition or use or projecting or claiming as untainted property

shall be guilty of offence of money-laundering.

17. Scheduled The offences listed in the Schedule the Act, are scheduled offences and are divided
Offences into three parts - Part A,B and C.

18. Three Parts In Part A, offences to the Schedule have been listed in 28 paragraphs and it comprises
of
 offences under Indian Penal Code,
 offences under Narcotic Drugs and Psychotropic Substances,
 offences under Explosive Substances Act, 1908,
 offences under Unlawful Activities (Prevention) Act, 1967,
 offences under Arms Act, 1959,

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CMA FINAL LAW PMLA/AML

 offences under Wild Life (Protection) Act, 1972,

 offences under the Immoral Traffic (Prevention) Act,1956,
 offences under the Prevention of Corruption Act, 1988,
 offences under the Explosives Act, 1884 and
 offences under Antiquities& Arts Treasures Act, 1972 etc.

Part ‘B’ of the Schedule are offences with total value involved is `1 crore or more.

Part ‘C’ deals with trans-border crimes and is a vital step in tackling Money
Laundering across International boundaries.

19. Predicate The Scheduled Offence is called Predicate Offence and the occurrence of the same is a
Offence pre-requisite for initiating investigation into the offence of money laundering.

Dec 2021 Marks 5

State on the nature of liability caused on an offence committed under the prevention of Money
Laundering Act, 2002.

Money Laundering basically is knowingly dealing with proceeds of crime directly or indirectly. The Act
provides both for civil and criminal liability. Criminal liability under the Prevention of Money Laundering
Act Crime which results in tainted money is a separate offence under various laws as specified in
Schedule to Prevention of Money Laundering Act. These offences are punishable under those Acts. The
punishment is to the person/s who is/are involved in actually committing that offence. The offence as
specified in Section 4 of the Prevention of Money Laundering Act is a separate offence. The punishment
under section 4 of Prevention of Money Laundering Act is not only to those who are actually involved in
dealing with tainted money but also on those who are knowingly involved, directly or indirectly, in
dealing with proceeds of crime. This is a criminal offence, which will be tried by special courts designated
for this purpose under Section 2 (Z) of the Prevention of Money Laundering Act. The trail will be both for
charges under the specific Act which is a crime and also offence of money laundering under Prevention
of Money Laundering Act. However it is not „joint trial‟ Civil Liability i.e. confiscation of tainted property
In addition to criminal liability, the property involved in money laundering can be attached and frozen by
Central Government and later confiscated.

Concept 6. Punishment for the Offence of Money Laundering

CMA Study Mat Heading Number: 11.1.6

20. Punishment Rigorous imprisonment:

Minimum 3 Years
Maximum 7 Years
and shall also be liable to fine.

But where the proceeds of crime involved in money-laundering relate to Narcotics,

the maximum punishment may extend to 10 years instead of 7 years.

June 2018 Marks 3

Sohan Lal, a farmer, was found involved in embezzlement of opium cultivated by

him. State the punishment that can be awarded to him under the Prevention of
Money Laundering Act, 2002

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CMA FINAL LAW PMLA/AML

Section 4 of the Prevention of Money Laundering Act, 2002 provides for the
punishment for Money-Laundering. Whoever commits the offence of
moneylaundering shall be punishable with rigorous imprisonment for a term which
shall not be less than 3 years but which may extend to 7 years and shall also be
liable to fine. But where the proceeds of crime involved in money-laundering relate
to any offence specified under paragraph 2 of, Part A of the Schedule, the maximum
punishment may extend to 10 years instead of 7 years. Paragraph 2 of Part A of
Schedule to the Prevention of Money Laundering Act, 2002, covers Offences under
the Narcotic Drugs And Psychotropic Substances Act, 1985 Whereby, embezzlement
of opium by cultivator (section 19) is covered under paragraph 2 of Part A. In the
present case, Sohan Lai, a farmer, who was involved in embezzlement of opium
cultivated by him shall be liable for the rigorous imprisonment for a term which may
extend to 10 years and shall also be liable to fine.

Dec 2015 Marks 4

Explain the meaning of the term "Money Laundering", x, a known smuggler was
caught in transfer of funds illegally exporting narcotic drugs from India to some
countries in Africa. State the maximum punishment that can be awarded to him
under prevention of Money Laundering Act, 2002.

Money Laundering: Whosoever directly or indirectly attempts to indulge or

knowingly assists or knowingly is a party or is actually involved in any process or
activity connected with the proceeds of crime including its concealment, possession,
acquisition or use and projecting it as untainted property shall be guilty of offence
of money laundering. [Section 3 of the Prevention of Money Laundering Act, 2002]
Paragraph 2 of Part A of the Schedule to the Prevention of Money Laundering Act,
2002, covers offences under the Narcotic Drugs and Psychotropic Substances Act,
1985. Whereby, illegal import into India, export from India or transshipment of
narcotic drugs and psychotropic substances (section 23) is covered under paragraph
2 of Part A. Punishment: Section 4 of the said Act provides for the punishment for
Money-Laundering. Whoever commits the offence of money-laundering shall be
punishable with rigorous imprisonment for a term which shall not be less than 3
years but which may extend to 7 years and shall also be liable to fine. But where the
proceeds of crime involved in money- laundering relate to any offence specified
under paragraph 2 of Part A of the Schedule, the maximum punishment may extend
to 10 years instead of 7 years

June 2016 Marks 5

Mr. Clever has been arrested for a cognizable and non-bailable offence punishable
for a term of imprisonment for more than three years under the Prevention of
Money Laundering Act, 2002.Advise, as to how can he be released on bail in this
case?

Section 45 of the Prevention of Money Laundering Act 2002, provides that the
offences under the Act shall be cognizable and non-boilable. Notwithstanding
anything contained in the Code of Criminal Procedure, 1973, no person accused of
an offence punishable for a term of imprisonment of more than three years under
Part A of the Schedule shall be released on bail or on his own bond unless- (i) The
Public Prosecutor has been given an opportunity to oppose the application for such
release and (ii) Where the Public Prosecutor opposes the application, the court is
satisfied that there are reasonable grounds for believing that he is not only guilty of
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CMA FINAL LAW PMLA/AML

such offence and that he is not likely to commit any offence while on bail. In case of
any person who is under the age of 16 years or in case of woman or in case of a sick
or infirm person, the Special Court can direct the release of such person on bail.

21. What about Property made out of proceeds of crime, directly or indirectly attached and/or
the property confiscated by the authority.
generated out
of proceeds
of crime

Concept 7. Procedure of Investigation / Authorities under PMLA

CMA Study Mat Heading Number: 7.3.5

22. ED Certain officers of the Directorate of Enforcement shall carry out investigations and
attach the property involved in money laundering.
23. Adjudicating PMLA prescribes setting up of an Adjudicating Authority to exercise jurisdiction,
Authority power and authority essentially to confirm attachment or order confiscation of
attached properties.

24. Appellate It also prescribes setting up of an Appellate Tribunal to hear appeals against the order
Tribunal of the Adjudicating Authority and the authorities like Director FIU-IND.

25. Special Courts PMLA prescribes designation of one or more courts of sessions as Special Court or
Special Courts to try the offences punishable under PMLA.

PMLA and offences of other acts may be charged at the same trial.

26. Reciprocal The Act provides for reciprocal arrangements for processes/assistance with regard to
arrangements accused persons.

27. Bilateral The Act provides for bilateral agreements between countries to cooperate with each
Agreements other and curb the menace of money laundering.
between
countries These agreements shall be for the purpose of
 either implementing the provisions of this Act or
 for the exchange of information.

28. FIU The Government has constituted the Financial Intelligence Unit, India, in November,
2004, headed by Director in the rank of a Joint Secretary to the Government of India.

The organization has become functional and has started receiving Cash Transaction
Reports and Suspicious Transactions Reports from the banking companies etc.

Concept 8. Enforcement Directorate (ED)

CMA Study Mat Heading Number: 11.1.8

29. ED The Directorate of Enforcement is responsible for enforcement of

 the Foreign Exchange Management Act, 1999 (FEMA) and
 certain provisions under the Prevention of Money Laundering Act.
The Directorate is under the administrative control of Department of Revenue for
operational purposes.

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CMA FINAL LAW PMLA/AML

Concept 9. Financial Intelligence Unit - India (FIU-IND)

CMA Study Mat Heading Number: 11.1.9

30. FIU-IND ‘Financial Intelligence Unit – India was set by the Government of India during
November 2004 as the central national agency responsible for
 receiving,
 processing,
 analyzing and
 disseminating information
relating to suspect financial transactions.

FIU-IND is also responsible for coordinating and strengthening efforts of national and
international intelligence, investigation and enforcement agencies in pursuing the
global efforts against money laundering and related crimes.

FIU-IND is an independent body reporting directly to the Economic Intelligence

Council (EIC) headed by the Finance Minister.

Concept 10. Obligations of the Reporting Entity [Section 12].

CMA Study Mat Heading Number: 11.1.10

31. Reporting ‘Reporting Entity’ means a banking company, financial institution, intermediary or a
Entity person carrying on a designated business or profession.

32. Obligations (a) Every reporting entity have to maintain a record of all prescribed transactions.
(b) They shall furnish to the Director (FIU) within prescribed time information relating
to such transactions.
(c) They shall verify the identity of its clients.
(d) They shall identify the beneficial owner, if any, of such of its clients.
(e) They shall maintain record of documents evidencing identity of its clients and
beneficial owners as well as account files for a period of 5 years in case of record and
information relating to transactions, and
(f) They shall maintain the same for a period of 5 years after the business relationship
between a client and the reporting entity has ended or the account has been closed,
whichever is later.

Concept 11. Functions of Adjudicating Authority

CMA Study Mat Heading Number: 11.1.11

33. Authority of Adjudicating Authority exercise jurisdiction, powers and authority conferred by or
Adjudicating under the PMLA.
Authority

34. Order of Where the Adjudicating Authority decides that any property is involved in money-
Attachment laundering, Adjudicating Authority shall, by an order in writing confirm the
attachment of the property made or retention of property or record seized.

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CMA FINAL LAW PMLA/AML

Dec 2022 Marks 5

Mr. 'Bemaan' purchased a flat out of the proceeds obtained by illegal transactions of business. The flat
was attached by the Director of Enforcement Directorate after complying with the procedures under
section 5 of the Prevention of Money Laundering Act, 2002. Mr. 'Bemaan' got a stay from the High Court
for any proceedings under the said Act. The stay was subsequently vacated. State the relevant provisions
of the PMLA, 2002 for computing the period of provisional attachment including extension, if any.
Whether Mr. 'Beta', son of Mr. 'Bemaan' can occupy the flat during the period of provisional
attachment?

According to section 5 of the Prevention of Money Laundering Act, 2002, where the Director or any other
officer (not below the rank of Deputy Director authorized by the Director), has reason to believe (the
reason for such belief to be recorded in writing), on the basis of material in his possession, that-
(i) Any person is in possession of any proceeds of crime; and
(ii) Such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may
result in frustrating any proceedings relating to confiscation of such proceeds of crime under this
Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding 180
days from the date of the order, in such manner as may be prescribed.

Provided further that, any property of any person may be attached under this section if the Director or
any other officer not below the rank of Deputy Director authorised by him has reason to believe (the
reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such
property involved in money-laundering is not attached immediately under this Chapter, the non-
attachment of the property is likely to frustrate any proceeding under this Act. Computation of period of
attachment:

Provided also that for the purposes of computing the period of 180 days, the period during which the
proceedings under this section is stayed by the High Court, shall be excluded and a further period not
exceeding 30 days from the date of order of vacation of such stay order shall be counted.

No effect on the right to enjoy the property: This section shall not prevent the person interested in the
enjoyment of the immovable property attached from such enjoyment. Here, "person interested", in
relation to any immovable property, includes all persons claiming or entitled to claim any interest in the
property. In the given case, Mr. Beta, son of Mr. Bemaan can occupy the flat during the period of
provisional attachment if he claims to have any interest in the said property.

Concept 12. Appellate Tribunal

CMA Study Mat Heading Number: 11.1.12

35. Who Under Section 25 of the Prevention of Money-laundering Act, 2002, the Central
established Government has established an Appellate Tribunal.

36. Chairperson Section 28(4) of the PMLA provides that the Chairperson or a Member holding a post
or member of as such in any other Tribunal, may be additionally, appointed as the Chairperson or a
another Member, as the case may be, of the Appellate Tribunal under this Act.
tribunal in
PMLA

37. Constitution The Tribunal consists of a Chairperson and two other Members.
of Tribunal
under PMLA

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CMA FINAL LAW PMLA/AML

38. Which other The Chairman and one Member of Appellate Tribunal for Forfeited Property (ATFP)
Tribunal holds additional charge of the post of Chairman and Member of Tribunal under PMLA.
works for
PMLA as well

Concept 13. Special Courts

CMA Study Mat Heading Number: 11.1.13

39. How Special For trial of offence punishable under section 4 of PMLA, 2002, the Central
Courts are Government, in consultation with the Chief Justice of the respective High Courts, by
designated or notification, has designated one or more Courts of Session as Special Court or Special
established Courts for such area or areas or for such case or class or group of cases as specified in
the notifications.

40. Simultaneous While trying an offence of money laundering under PMLA,2002, a Special Court has
trial of PMLA also to try the offences, with which the accused may, under the Code of Criminal
and predicate Procedure.
offences

41. Area of An offence of money laundering punishable under Section 4 of PMLA, 2002 and any
jurisdication scheduled offence connected to the offence of money laundering, shall be triable by
the Special Court constituted for the area in which the offence has been committed.

Dec 2016 Marks 4

How a trial under the prevention of money Laundering Act, 2002 is conducted in Special Courts?

As per Sec.43 of the Prevention of Money Laundering Act, 2002, the Central Government, in consultation
with the Chief Justice of the High Court, shall for trial of offence punishable under Sec.4 by notification
designate one or more courts of session as special Court or courts for such area or areas or for such class
or case or group of cases as may be specified in the notification. Here, “High Court” means the High
Court of the State in which a Session Court designated as Special Court was functioning immediately
before such designation. While trying an offence under this Act, a special Court shall also try an offence,
other than an offence referred to in sub-section (1), with which the accused may, under the Code of
Criminal Procedure, 1973 ( 2 of 1974), be charged at the same trial.

Concept 14. STR (Suspicious Transaction Reports)

CMA Study Mat Heading Number: 11.1.14

42. Meaning of Suspicious transaction means a transaction whether or not made in cash which, to a
Suspicious person acting in good faith:
Transactions (a) Gives rise to a reasonable ground of suspicion that it may involve the proceeds or
crime, or
June 2017 (b) Appears to be made in circumstances of unusual or unjustified complexity. or
Marks 4 (c) Appears to have no economic rationale or bonafide purpose.

43. Reports of The Prevention of Money laundering Act, 2002 and the Rules made there under
Suspicious require every banking company to furnish details of suspicious transactions.
Transactions

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CMA FINAL LAW PMLA/AML

11.2 The Prevention of Money Laundering (Maintenance of Record)

Rules, 2005
Concept 1. Date of Rules
CMA Study Mat Heading Number: 11.2.1

1. Rules made In 2005

2. Rules In Dec 2020

revised

Concept 2. Maintenance of Records

CMA Study Mat Heading Number: 11.2.1

3. Which Every reporting entity shall maintain record of all transactions, including record of
transactions a) Cash transaction of more than `10 lakhs.
are to be b) All series of integrated transaction below `10 Lakh per month
recorded and c) All transaction of receipt of `10 lakhs and more on its equivalent foreign currency
reported d) All transactions with counterfeit currency
e) Any suspicious transaction made in cash or otherwise including transactions
involving transfer of immovable property.

4. Format of  Reporting entities shall keep record uniformly in prescribed format.

recording and  The entity shall make out a mechanism and system of disseminating and analysing
reporting of records and information available to them.
 Few records are to be taken and retained in hard copy only.

5. Person Every entity shall designate a principal officer, who shall report to the Director of
responsible Financial intelligence Unit.
for recording
and reporting

6. Identity  Every entity shall identify its clients and take required details to check the status
verification and authenticity of the details furnished.

 Reporting entities shall then, within 10 days’ file electronic data to central KYC
records Registry established under this rule.

 The reporting entity may have reasonable ground for believing on the statements
of the clients/third party.

 For each of the category of client the required document/information will vary.

 The entities may conduct client due diligence which is a matter of detail.

June 2019 Marks 5

Explain the responsibilities of banking companies under the Prevention of Money Laundering Act, 2002.

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CMA FINAL LAW PMLA/AML

Section 12 provides for the obligation of Banking Companies, Financial Institutions and Intermediaries or
a person carrying on a designated business or profession. According to subsection (1), every banking
company, financial institution and intermediary or a person carrying on a designated business or
profession shall – (a) maintain a record of all transactions, including information relating to transactions
covered under clause (b), in such manner as to enable it to reconstruct individual transactions; (b)
furnish to the Director within such time as may be prescribed, information relating to such transactions,
whether attempted or executed, the nature and value of which may be prescribed; (c) verify the identity
of its clients in such manner and subject to such conditions, as may be prescribed; (d) identify the
beneficial owner, if any, of such of its clients, as may be prescribed; (e) maintain record of documents
evidencing identity of its clients and beneficial owners as well as account files and business
correspondence relating to its clients. Every information maintained, furnished or verified, save as
otherwise provided under any law for the time being in force shall be kept confidential. The records
referred to in clause (a) of sub-section (I) shall be maintained for a period of five years from the date of
transaction between a client and the reporting entity. The records referred to in clause (e) of sub-section
(I) shall be maintained for a period of five years after the business relationship between a client and the
reporting entity has ended or the account has been closed, whichever is later. The Central Government
may, by notification, exempt any reporting entity or class of reporting entities from any obligation under
this chapter.

Concept 3. Central KYC records Registry

CMA Study Mat Heading Number: 11.2.2

7. Role of A central KYC registry has been constituted in 2015 to keep centralised data which
Central KYC would include analysis, dissemination transforming of data. The registry will comply
Registry with the instructions issued the Regulation.

Concept 4. Digital KYC process

CMA Study Mat Heading Number: 11.2.3

8. Digital KYC  The Regulations have made detailed process of accepting, verifying,
authenticating and certifying KYC records of the clients, which is on line and
secured.

 Digital payments, electronic record, live transactions are some of the systems
which will reduce illegal and immoral transactions of people.

 The aadhar, telephone, bank account, income tax all are inter linked and hence all
transactions now shall be transparent.

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