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Bail Under PMLA 2002: The Post Amendment Scenario

Ankit Gupta
17 July 2021 2:50 AM GMT
Bail Under PMLA 2002: The Post Amendment Scenario
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Prevention of Money Laundering Act, 2002 [the Act] is special statute enacted with the avowed object to prevent money-laundering and deal with this serious threat to the Indian financial system. The Act provides special procedure in matters of inquiry, investigation, trial, etc. for offences under the Act. Amongst other departures from the general provisions under the Code of...

Prevention of Money Laundering Act, 2002 [the Act] is special statute enacted with the avowed object to prevent money-laundering and deal with this serious threat to the Indian financial system. The Act provides special procedure in matters of inquiry, investigation, trial, etc. for offences under the Act. Amongst other departures from the general provisions under the Code of Criminal Procedure, 1973 (the Code), the Act, under Section 45, inter-alia, imposes two additional conditions for grant of bail to an accused person. Section 45, prior to its amendment in 2018, read:

"Section 45. Offences to be cognizable and non-bailable.

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), 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--

  • the Public Prosecutor has been given an opportunity to oppose the application for such release; and
  • where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail:…"

The constitutional validity of the erstwhile Section 45 was tested by Hon'ble Supreme Court in Nikesh Tarachand Shahv. Union of India, reported as (2018) 11 SCC 1 (Nikesh Tarachand). The Court held that Section 45 of the Act, insofar as it imposes twin conditions for release on bail, to be unconstitutional for being violative of Article 14 and 21 of the Indian Constitution. It remanded the cases in which bail was denied by relying on the twin conditions under Section 45, for reconsideration by respective Courts, de hors the twin conditions under Section 45.

To overcome this situation and cure the vice of unconstitutionality, the Indian Government enacted the Finance Act of 2018 (2018 Amendment), thereby amending Section 45 of the Act which, today, reads:

"Section 45. Offences to be cognizable and non-bailable.—

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), no person accused of an offence [under this Act] shall be released on bail or on his own bond unless—]

  • the Public Prosecutor has been given an opportunity to oppose the application for such release; and
  • where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail:…"

The State took the position that post the 2018 Amendment, the Supreme Court's decision in Nikesh Tarachand stood over-ruled and the twin conditions under the PMLA Act stood revived. While some High Court's decision countenanced such a submission[1], others however, outrightly negated it[2]. These matters kept on reaching the Supreme Court, which while admitting the appeals, granted interim stay on the bail orders[3]. In such a situation, High Courts starting expressing doubts over the applicability/ inapplicability of Section 45 of the Act. As such, there arose a legal vacuum as to the effect of 2018 Amendment upon the applicability of Section 45 of the Act.

Hitherto, a lot has been said and written about the 2018 Amendment, however, the moot question still remains unanswered. The question which requires our consideration is whether by inserting the words "under this Act", the legislature has in-fact over-ruled Nikesh Tarachand Shah's case and revived the twin conditions under Section 45 of the Act?

The answer to this question lies in a detailed analysis of the Nikesh Tarachand Shah's case itself. Unfortunately, the same has been ignored by the High Courts which have upheld the inapplicability of Section 45 of the Act, notwithstanding the 2018 Amendment. The High Courts, without analysing the import of Nikesh Tarachand Shah's case, have simply concluded that having been declared unconstitutional, the twin conditions under Section 45 could not have been revived by the 2018 Amendment. What has however, been ignored are the opening lines of para 45 of the Nikesh Tarachand Shah's case, which reads "regard being had to above" and makes it indubitably clear that the declaration of the unconstitutionality was premised and restricted to the analysis contained in the judgment.

Decoding Nikesh Tarachand Shah

With this preliminary understanding, let us ascertain the true import of Nikesh Tarachand Shah's case. The Supreme Court was seized of the constitutional vires of pre-amended Section 45 under which the twin conditions were only applicable to an offence punishable for a term of imprisonment of more than three years under Part A of the Schedule. Part A of the Schedule under the Act contained an exhaustive list of the offences under various Indian penal laws (hereinafter scheduled offences) which in-fact, is the genesis of any prosecution under the Act.

The Court opined that such a stipulation was manifestly arbitrary and does not have any nexus to the offence of money laundering under Section 3 and 4 of the Act. The said conclusion was sought to be justified on several grounds, but we shall restrict ourselves to the two most important ones.

Firstly, the Court hypothesized that there might arise a situation where one Mr. X is accused of scheduled offence but not of money laundering. The mandatory requirement that a scheduled offence is tried with offence of money laundering would inevitably subject Mr. X to the rigors of Section 45. So, when Mr. X could have been granted bail subject to liberal parameters under Section 439 of the Code, he is now compelled to satisfy the higher threshold under Section 45 even though, he was nowhere involved in the same. The situation becomes all the more absurd when Mr. X is granted bail in the scheduled offence and offence of money laundering was subsequently invoked. Now, Mr. X would have to again apply for bail as twin conditions under Section 45 becomes applicable. This second situation was exactly the plight of Nikesh Tarachand Shah, the Petitioner in the case.

The Court then noted that the second condition under Section 45 mandates that there are reasonable grounds for believing that the accused is not guilty of 'such offence'. This 'such offence' is relatable to offences under Part A of the schedule, which is in-fact, not the offence of money laundering but a completely different offence. In such a situation, a person who may prove that are reasonable grounds for believing that he is not guilty of the offence of money laundering may yet be denied bail, because he is unable to prove that there are reasonable grounds for believing that he is not guilty of the scheduled offence.

The Court ultimately observed that in statutes where similar conditions as under Section 45 exists (For e.g., TADA 1987, NDPS 1985, MCOCA 1999) the reasonable grounds for believing that an accused is not guilty exits in relation to the offences under that Act and no other offence.

Hence, the Court concluded that regarding being had to the above, we declare Section 45(1) of the Act, insofar as it imposes two further conditions for grant of bail, to be unconstitutional as it violated Article 14 and 21 of the Indian Constitution.

Nikesh Tarachand – The Aftermath

As discussed above, in 2018, the State amended Section 45 of the Act and restricted the twin conditions to offences punishable under the Act i.e., ones punishable under Section 3 and 4 of the Act. The State, therefore, maintained that twin conditions under Section 45 of the Act were only declared unconstitutional in so far as it extended its application to altogether different offences. However, as of now, since the twin conditions were restricted to only offences under the Act, the vice of unconstitutionality stood removed and Courts ought to invoke the same while adjudicating bail applications.

A perusal of the pre and post amended Section 45 and the Nikesh Tarachand Shah's case makes the State's contention valid and plausible. The application of twin conditions, being restricted to offences under the Act, has brought the provision in line with the provisions in other Statues wherein their constitutionality has been upheld. Therefore, as things stand today, twin conditions under Section 45 ought to be invoked by the Courts while adjudicating bail applications. Having said that, the question of retaining such a provision for the offence of money laundering still requires consideration. Statutes which retain provisions similar to Section 45 have been declared constitutional primarily because they address and target heinous offences i.e., offences punishable with seven or more than seven years of imprisonment or offences punishable with death. In case of offence of money laundering, the Act, in addition to fine, only prescribes rigorous imprisonment for a term which shall not be less than three years, but which may extend to seven years and in certain cases up to ten years. Therefore, by virtue of the prescribed punishment, offences under the Act cannot be regarded as heinous offences. It is this aspect which merits consideration by the Supreme Court and that too at the earliest so that life and liberty are not unjustly infringed upon.

[1] Mohammad Arif v. Directorate of Enforcement, Govt. of India, 2020 SCC OnLine Ori 544.

[2] Directorate of Enforcement, through Deputy Director v. Shivender Mohan Singh, 2020 SCC OnLine Del 766; Upender Rai v. Directorate of Enforement, 2019 SCC OnLine 9086.

[3] Directorate of Enforcement, New Delhi v. Upender Rai, SLP (Crl.) No. 5150 of 2020; Directorate of Enforcement, through Deputy Director v. Shivender Mohan Singh, SLP (Crl.) No. 3473 of 2020.

The writer is a Delhi based lawyer. Views are personal

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