Supreme Court Declares Key Bail Conditions Under Prevention of Money Laundering Act Unconstitutional

Section 45(1) of PMLA, imposing stringent twin conditions for bail, struck down for violating Articles 14 and 21; courts directed to reconsider bail pleas without applying these conditions

In a landmark judgment dated November 23, 2017, the Supreme Court of India in the case of Nikesh Tarachand Shah v. Union of India has declared Section 45(1) of the Prevention of Money Laundering Act, 2002 (PMLA) unconstitutional to the extent it imposes two additional conditions for grant of bail in offences punishable with imprisonment exceeding three years under Part A of the Schedule to the Act.

Section 45(1) currently mandates that no person accused of such an offence shall be released on bail unless the Public Prosecutor is given an opportunity to oppose the bail application, and where opposition is raised, the Court must be satisfied that there are reasonable grounds to believe that the accused is not guilty of the offence and is not likely to commit any offence while on bail.

The constitutional validity of this provision was challenged on grounds that it violates the fundamental rights guaranteed under Articles 14 (right to equality) and 21 (protection of life and personal liberty) of the Constitution. The petitioners, represented by senior advocate Mukul Rohatgi, contended that the twin conditions are arbitrary, discriminatory, and impose an excessively high burden on the accused at the bail stage, inverting the presumption of innocence. They further argued that the application of these conditions to predicate offences listed in Part A of the Schedule, which include diverse offences under various Acts, results in unequal treatment of accused persons and has no rational nexus to the offence of money laundering itself.

The Union of India, represented by Attorney General K.K. Venugopal, defended the provision as a necessary measure to combat the serious menace of money laundering, emphasizing that the PMLA constitutes a complete code and that the twin conditions ensure stringent checks on accused persons who pose a threat to the financial system. The government argued that the classification based on offences punishable with imprisonment exceeding three years in Part A of the Schedule is justified and that the conditions are akin to those applied under other enactments dealing with heinous crimes.

After an exhaustive examination of the statutory framework, legislative history, and constitutional principles, the Supreme Court observed that the twin conditions under Section 45(1) produce manifestly arbitrary and unjust results, leading to discrimination without rational basis. The Court highlighted several anomalies, including:

- The twin conditions relate to the predicate offence under Part A of the Schedule rather than the offence of money laundering under the PMLA, resulting in denial of bail based on a separate offence.

- The extension of Part B offences into Part A through the 2012 Amendment Act grouped disparate offences together, leading to unequal treatment.

- The threshold of imprisonment exceeding three years for the predicate offence has no rational relation to the objectives of the PMLA, which aims to combat money laundering and attach proceeds of crime.

- The provisions allow for anticipatory bail without satisfying these twin conditions, creating inconsistent treatment of similarly situated accused persons.

- The twin conditions invert the presumption of innocence by requiring the accused to prove they are not guilty at the bail stage, which is incompatible with fair and just procedure under Article 21.

The Court traced the historical evolution of bail rights from Magna Carta and the English Bill of Rights to the expanded interpretation of Article 21 by Indian Supreme Court precedents such as Maneka Gandhi v. Union of India, emphasizing that bail is the rule and pre-trial detention the exception.

Relying on settled principles of classification under Article 14, the Court found that Section 45(1) fails the test of reasonable classification and manifests arbitrariness. It drew distinctions with other statutes like TADA and MCOCA, where similar conditions were upheld due to the extremely heinous nature of offences and compelling State interest.

The judgment also noted that judicial precedents cited by the government did not address the constitutional validity of Section 45(1) and that attempts to read down the provision could not cure its constitutional infirmities.

Consequently, the Supreme Court struck down the twin conditions in Section 45(1), holding them violative of Articles 14 and 21. The Court ordered that all pending cases where bail was denied on the basis of these conditions be remanded to the respective courts for fresh consideration without applying the twin conditions. The Court emphasized the urgency of expeditious hearing considering the liberty of accused persons.

This ruling is a significant development in the jurisprudence relating to bail under special laws, reinforcing the fundamental constitutional safeguards against excessive pre-trial detention and arbitrary denial of bail.

Statutory provisions

Prevention of Money Laundering Act, 2002 Section 45(1), Sections 2, 3, 4, 24, 43, 44, 46, 65, 71; Indian Penal Code Sections 120B, 409, 420, 471, 477A; Prevention of Corruption Act Section 13; Code of Criminal Procedure, 1973 Sections 173, 439; Narcotic Drugs and Psychotropic Substances Act Sections 19, 24, 27A, 29, 37; Indian Evidence Act Section 106

Nikesh Tarachand Shah v. Union of India, (SC) : Law Finder Doc Id # 933022