The CAG said Maharashtra undertook projects that were not permissible under the MNREGA while delays in execution cost the state over Rs80 crore
Irregular expenditure and delay in execution of the Mahatma Gandhi National Rural Employment Guarantee (MNREGA) scheme in Maharashtra cost the state exchequer Rs81.47 crore.
According to the annual report of the Comptroller and Auditor General (CAG), works not permissible under the scheme were undertaken leading to irregular expenditure of Rs47.19 crore while due to delay in execution of work, a number of works were abandoned leading to another unfruitful expenditure of Rs34.28 crore.
The annual CAG report tabled in December said, project completion report was not accompanied by report of Vigilance and Monitoring Committee or photographs of completed work.
The CAG said there were delays in payment of wages and unemployment allowance. Also, differential in wages due to revision in wage rates too remained unpaid.
There were shortfalls in verifications and inspection works and conducting of social audit. The management information system database did not provide an assurance on its reliability, the report added.
The implementation of MGNREGA in the state was 'deficient' as eight of the nine test-checked districts did not prepare the District Perspective Plans (DPP) to facilitate advance planning for effective implementation of the scheme.
The annual development plans were also 'unrealistic' as the quantum of employment actually provided against the estimated demand was substantially down, the CAG noted.
The CAG has also found that in the Pradhan Mantri Gram Sadak Yojna, irregular price escalation amounting to Rs17.84 crore were allowed to contractors in respect of 61 works though none of the works were completed within the specified time limit in the contracts.
Also, item rates were revised during execution, leading to an irregular payment to the tune of Rs92.43 lakh to the contractor, the report said.
The RBI needs to come out with comprehensive guidelines on KYC to ensure that customers are not harassed by banks. At the same time customers should also be made to get involved in the ongoing KYC process at banks
Know Your Customer (KYC) is a process to identify the veracity of a customer’s identity as well residence proof. This is an integral part of establishing business relationship with a customer for banks and financial institutions. Additionally, the KYC process helps prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. Last, but not the least, KYC procedures also enable banks to understand their customers and their financial dealings better which in turn help them manage their risks prudently.
Banks and financial institutions grapple with the issues related to the KYC compliance. Non-compliance of KYC is a major challenge faced by the banks in India. There are two aspects of KYC compliance that banks need to monitor. The first aspect that they need to check is whether the employees are following the KYC guidelines properly or not. The second, but no less important, is the co-operation of customers. Without help from customers, it is difficult for a bank to build a robust KYC process.
The role of the customer is important in the KYC process at two critical steps: first, when the account is opened; second, when the ongoing process of KYC once business relationship has been established. While the first step of KYC is easy to monitor, it is in the ongoing process of KYC that many banks face challenge.
The guidelines of Reserve Bank of India (RBI) on KYC process states that banks should follow ‘risk-based’ approach of KYC process and classify customers into low, medium and high risk. The significance of classification lies in the fact that ongoing KYC process is driven by the classification. As per RBI guidelines, “Banks should introduce a system of periodical updation of customer identification data (including photograph/s) after the account is opened. The periodicity of such updation should not be less than once in five years in case of low risk category customers and not less than once in two years in case of high and medium risk categories. Such verification should be done irrespective of whether the account has been transferred from one branch to another and banks are required to also maintain records of transactions as prescribed”.
After master circular was issued on 1st July, the RBI carried out amendment in these guidelines for low and medium risk customers which were mentioned by central bank in the notification.
So considering the above guidelines, what should a bank do, say for a low risk customer who has failed to produce updated customer identification data? The Bank has two options. First, close the account, especially, if it has become dormant and has nominal balance. Second, the customer should be penalised for failing to submit KYC documents. A bank faces a challenge in intimating customers about the need to re-submit documents, after specified number of years, as many customers move from their initial residence and it also involves cost.
SBI’s recent initiative
State Bank of India (SBI) has started an initiative in this direction recently. It has come out with advertisement in the newspapers asking customers to comply with KYC requirements at the earliest and has provided a timeline up to 28th February for customers to comply with KYC guidelines. Customers who have not complied with KYC will attract a nominal charge of Rs112. There are restrictions also going to be placed on these accounts by the bank. Also a certain category of account is liable to get closed as well.
Is this a right move by the bank? Does this need to be made a permanent feature of KYC process and should it get complete regulatory backing? Should there be a provision for penalty and not just charges?
The answer is a firm yes.
In order to ensure better compliance process, the bank should penalise a nominal amount to customer if he, or she, fails to provide documents related to proof of residence and identity and other relevant documents wherever applicable. This will act as a deterrent for the customer who tends to take KYC compliance as the responsibility of the banks and not that of the customer. The regulator should come out with comprehensive guidelines on this to ensure that customers are not harassed; however the customers should be made to get involved in the ongoing KYC process.
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)
This is the concluding part of a two-part series on the technical and legal issues of virtual currencies, especially Bitcoins. One of the major legal issues in Bitcoin like economy is anyone could be a victim of theft or malpractice and there is no consumer protection available
This part deals with the legal issues around Bitcoins. The principal question that comes to mind is what exactly the definition of Bitcoins in legal science is. While the law in this field is yet to take shape, some of the existing definitions can be explored to see where this fits.
Is it a currency?
The Reserve Bank of India (RBI) Act defines "currency" to include all coins, currency notes, banks notes, postal notes, postal orders, money orders, cheques, drafts, traveller's cheques, letters of credit, bills of exchange and promissory notes. In economics, a currency is a system of money (monetary units) in common use in a nation. Under this definition, Indian Rupee, British pounds, US dollars, Japanese yen and Euros are different types of currencies. Currencies in this definition need not be physical objects, but as stores of value are subject to trading between nations in foreign exchange markets. Currency must not be perishable, should be a medium of exchange, and should have a stable store of value. This is reason why wheat or jute cannot be treated as currency because they do not have stable store of value and are perishable. It is for the same reason that the world moved away from the pre-historic barter system.
Bitcoins are not perishable, they are a medium of exchange (many stores and shops do accept payments in Bitcoins, only a few do). However, they have no stable store of value; no entity or assets back up Bitcoin value. Bitcoin value is entirely virtual—a Bitcoin is only worth what another person thinks it is worth. This is different than currency issued by countries. A country’s currency is backed by that country’s government. This backing can either be by fiat (government regulation or law) or by commodity (such as the gold). Bitcoin value is not based on government regulation or law mandating its use in a country. Similarly, it is not backed by gold.
Is it a security?
"Securities" include—(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ii) Government securities; (iii) rights or interests in securities.
A security is an instrument that is secured against something else. A security represents a rights on something else. For example, the value of a bond, note or a promise to pay depends on the financial condition of the promisor. A share is secured against the equity interests of a company. Therefore by owning a share, the shareholder owns an interest in the company. The market value of a share depends on what the buyer is willing to pay, given the profitability conditions of the underlying assets. In case of bonds or debentures, a security creates an obligation on one party to pay another party.
Now, a bitcoin is not a security because there is nothing underlying in it. It is not creating an interest or right in any asset or anything else for that matter. Nor is it creating an obligation on one party to pay another party.
However, it may be alternatively argued that a bitcoin can be a security, if someone is purchasing bitcoins as a speculative investment and intending to profit off of a future sale of those bitcoins, then that purchase would be an investment of money. Some uses of Bitcoin may not be an investment of money (such as using Bitcoins to purchase a good). However, people are certainly speculating on the price of Bitcoins, as can be seen by the emergence of Bitcoin investment vehicles. Further, the investment rules and requirements of Bitcoin exchanges which are already in existence can classify a Bitcoin as a security and a transaction as a securities transaction, even if Bitcoins are not security in itself.
In US, the Securities Exchange Commission (SEC) has authority to regulate securities, like stocks, in the United States. In SEC vs Trendon Shavers (2013), the United States District Court for the Eastern District of Texas was concerned with the question whether Bitcoin-related investments were “securities” and hence subject to the jurisdiction of the SEC. Trendon Shavers was the founder and operator of Bitcoin Savings and Trust (BTCST) and solicited Bitcoin in principal investments from investors. The investors suffered losses and hence the SEC brought an action against Trendon Shavers and BTCST on the ground that they have made misrepresentations regarding the nature of the investments and had defrauded the investors. Trendon Shavers adopted the argument that SEC had no jurisdiction because the investments were not “securities” because Bitcoin is not money, and is not regulated in the US. He also argued that no money changed hands. The court did not accept Trendon Shavers’ arguments and instead ruled in favour of the SEC.
But so far, the agency has not determined whether Bitcoin itself can be categorized as a security, making it hard for it to crack down on trading fraud.
Is it a ‘good’?
‘Goods’ means every kind of movable property, other than actionable claims and money; and includes stocks and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Intangible things like trademarks, patents, copyright, goodwill, water, gas, electricity are all goods. Further, the Supreme Court has held in Tata Consultancy Services vs State of Andhra Pradesh (2004) that the test to determine whether a property is ‘good’ is not whether the property is tangible or intangible or incorporeal. The test is whether the concerned item is capable of abstraction, consumption and use and whether it can be transmitted, delivered, stored, possessed etc.
Bitcoins do resemble goods. It is movable, it is not money, it is not an actionable claim because it does not impose a claim on anybody or anything against which an action can be taken, it can be abstracted by a computer program (within a certain limit placed by the algorithm, and hence it is countable and finite), it is being used and consumed by people dealing in Bitcoins, it can be transmitted, delivered over a network, stored in a wallet and in USB drives. Bitcoins are an abstraction, much like a painting or a song, for which any price can be paid. There is no prohibition on much price one can pay for a painting or a song. Person ‘A’ can pay Rs1 crore, whereas Person ‘B’ can pay Rs1 lakh for the same painting. In other words, the value is perception-based at best.
Thus we may say that Bitcoin is an online commodity. What does this mean for the application of laws to Bitcoins? Section 4 of Sale of Goods Act defines a contract of sale as “a contract whereby a seller transfers or agrees to transfer the property in goods to the buyer for a price.” The consideration in a contract of sale has necessarily to be ‘money’. Thus, if Bitcoins are sold for money, then Sale of Goods Act will be applicable. But if Bitcoins are used an exchange medium for goods, then Sale of Goods Act will not apply. The Chinese authorities are also of the same view. They have announced that bitcoin was a “virtual commodity that does not share the same legal status of a currency.” In the United States, such a classification could put bitcoin under the Commodity Futures Trading Commission (CFTC). But CFTC has not assumed responsibility.
If they are considered as goods, there seems to be no reason to consider Bitcoins as illegal. But there are other legal issues to consider. A trader cannot export goods from India and receive payment in Bitcoins. Under Foreign Exchange Management Act (FEMA), such export proceeds must be repatriated to India in terms of foreign exchange through normal banking channels. Similarly importation of Bitcoins would pose legal difficulties, if transactions are not carried out through legitimate banking channels. Further, legal issues involve lack of consumer protection in any sector of the Bitcoin economy. Anyone could be a victim of theft or malpractice. In the immediate future, the most likely source of enforcement in the US may be the Federal Bureau of Investigation (FBI)’s cybersecurity team.
(Shambo Dey, a student of Government Law College, Mumbai, works as a Research Assistant at Vinod Kothari & Company)