Case Number

Writ Petition (Criminal) 67/2017

Equivalent Citation

(2018) 11 SCC 1

Petitioner

Nikesh Talwar Shah

Respondent

Union of India and Ors.

Bench

Justice R. F. Nariman

Decided on

November 23, 2017

Relevant Act/ Section

Article 21 of Constitution of India, 1949; Section 45, 65 and 71 of Prevention of Money Laundering Act.

Brief Facts and Procedural History

The constitutionality of Section 45 of the Prevention of Money Laundering Act was contested in an appeal. Two requirements are imposed by Section 45 before the bond can be issued. The court must be satisfied that the prisoner was not guilty of such a crime and that he would not conduct any crimes while on release. Additionally, the prosecution must have the opportunity to oppose any motion for bail.

Judicial History

In Hussainara Khatoon v. Bihar State,¹ the Supreme Court was presented with the issues of several sub-treaties whose incarceration periods surpassed the incarceration periods required for the crimes against them. These sub-treaties made up 80% of the jail population. Following, Maneka Gandhi v. Union of India², the Court ordered the release of individuals whose prison terms had surpassed the sentence terms for their offences, in accordance with Article 21. In Mantoo Majumdar v. State of Bihar,³ the Supreme Court upheld the accused’s right to personal liberty once more and ruled that the petitioners should be released on their bail and without any sort of security because they had been imprisoned for six years while awaiting trial.

Issues before the Court

1. Whether Section 45 of the Prevention of Money Laundering Act, 2002 is unconstitutional or not?

The Decision of the Court

The senior attorney, Shri Mukul Rohatgi, argued that Section 45 of the PMLA is manifestly arbitrary, discriminatory, and in violation of the petitioner’s fundamental rights under Article 14 read with Article 21 of the Constitution when it imposes two additional conditions before the granting of the bond. He further stated that the goal was not to refuse bail to people charged with the offences listed in Part B above and that doing so would be discriminatory and a violation of Article 14 of the Constitution because it would amount to treating ‘unequals’ identically.

Additionally, according to skilled senior counsel, the three-year threshold mentioned in Section 45 of the 2002 Act is by itself arbitrary because it only refers to the predicate offence and not to the money laundering offence itself. Regarding the 2002 Act, there is no requirement for the categorization based on the quantity of money that is laundered, which might be a legitimate basis for classification. Furthermore, according to the experienced senior counsel, if the requirements of Section 45(1) are met at the bail stage, the defendants will be required to reveal their defense at a time when they are unable to do so since they were arrested and weren’t given bail at the beginning itself.

The Supreme Court took into account the discrimination brought about by (a) the classification of the offences under Section 45(1) and (b) the application of Section 45(1) to diverse circumstances with respect to the challenge under Article 14. The Supreme Court ruled that a classification based on the length of time spent in jail for a Scheduled Offence had no reasonable connection to the goal of the PMLA, which is to attach and reinvest significant sums of money obtained via criminal activity. Although the court believed that other serious crimes under the IPC (crimes with a maximum sentence of 10 years) that were not specifically mentioned in Part A could also be the source of the money or proceeds, a person accused of such a crime could still obtain bail without the need for an application of the impugned conditions.

Regarding the application of the impugned conditions, the Supreme Court, among other things, held that: Section 45(1) of the PML Act created a situation in which the same offenders in various cases might end up experiencing various outcomes in terms of the grant of bail, depending on whether or not Section 45(1) applied. This was deemed to be especially problematic because the decision to grant or deny bail had no bearing on the money laundering offence under the PML Act; rather, the denial of bail was based solely on the fact that the offence was being tried alongside the offences under Part A.

The contested conditions were arbitrary and discriminatory because they required the accused to prove that they were not guilty of “such an offence” and that they were not likely to commit “any offence” while out on bail. Even though they might demonstrate that they had good reason to think they were innocent of the money laundering charge, an accused was being denied bail for the Scheduled Offence based on the Impugned Conditions. A person might be granted anticipatory bail for the same offence of money laundering and the Scheduled Offence because the PMLA did not forbid the grant of one, but he would then be granted regular bail upon satisfying the conditions of the anticipatory bail.

The Supreme Court briefly addressed the challenge to the conditions under Article 21 after a lengthy discussion on the challenges to the impugned conditions based on Article 14, specifically whether the conditions, which reversed the presumption of innocence, violated the fundamental right to personal liberty. The impugned conditions, according to the Supreme Court, are “dramatic measures that make substantial intrusions into the fundamental right to personal liberty” and can only be supported on the basis of a “compelling state interest in confronting crimes of an exceedingly heinous kind.”

It may be important to note that the Supreme Court was not required to decide whether the contested conditions actually met the requirements of a “compelling state interest,” as it could ex facie invalidate the contested conditions on the grounds that they infringed the accused’s constitutional right to equality. Following the ruling in the Maneka Gandhi case⁴, Article 21 now provides protection not only from executive action but also from legislation that robs a person of his or her life and personal freedom.

While the Supreme Court’s decision, in this case, is significant and the inconsistent nature of the pre-bail conditions under the PMLA provided a compelling argument for their elimination, it may be worthwhile to speculate whether the Supreme Court would have reached the same conclusion regardless of whether the pre-bail conditions were constitutional (especially in cases involving economic offences).

It was clear that the Supreme Court could have reached no other judgement given the scheme of the Scheduled Offences under the PML Act. It is still unclear if an economic offence like money laundering requires severe or harsh provisions like the Impugned Conditions and whether the state has the authority to restrict an individual’s rights in such circumstances. Therefore, the Supreme Court did not specifically consider the justiciability of the pre-bail conditions, such as the Impugned Conditions, in the instance of economic offences.

It was contended that the phrase “there are reasonable grounds to believe that you are not guilty of such a crime” in Section 45 should be interpreted as the Court’s initial determination of a defendant’s responsibility. Second, the wise Attorney General asserts that when the bonus is generally provided concerning offences in general and referred to the State of UP through C.B.I. v. Amarmani Tripathi⁵ for this reason, the requirements stipulated in Section 45 (1) (ii) are there in a different form. The astute Attorney General claims that Section 45 is unarguable when read in accordance with the principle of harmonious construction. Its foundation was Section 24 of the PMLA, which reversibly shifts the burden of proof, and it heavily cited Gautam Kundu⁶.

In the case of individuals charged with fraud in connection with a company’s affairs, take into consideration the provisions of Section 212(6) of the Companies Act, 2013, which also foresees restrictions similar to the impugned conditions. It is highly unlikely that a constitutional challenge to such pre-bail conditions would be upheld on the basis that they are inherently excessive and unreasonable, especially in light of the Supreme Court’s prior declaration that “economic offences need to be viewed seriously and considered as grave offences affecting the economy of the country and posing a serious threat to the financial health of the nation.”⁷ As a result, it is currently unclear and pending court clarification whether the pre-bail requirements (similar to the impugned conditions) are legitimate and justiciable in the context of economic offences.

It was clear that the Supreme Court could have come to no other judgement given the (inaccurate) list of offences included in the PMLA Act. The question of whether economic crimes like money laundering required harsh or contentious conditions and if the state might restrict a person’s rights in such cases is still open.

Pre-bail conditions’ constitutionality was decided by the Supreme Court in the instant case, and inconsistent interpretations of their scope and applicability under the anti-money laundering law presented a compelling argument. It may be worthwhile to analyze if the Supreme Court would have deleted the conditions otherwise fiercely contested except for the ambiguity produced by the Amendment Act, 2012, given the finding about the legitimacy of the conditions prior to bail (particularly in economic crimes).

Citations

1. AIR 1979 SC 1360.
2. AIR 1978 SC 597.
3. AIR 1980 SC 846.
4. AIR 1978 SC 597.
5. (2005) 8 SCC 21.
6. (2015) 16 SCC 1.
7. Rohit Tandon v. The Enforcement Directorate, 2017 SCC online SC 1304.

This article is written by Sanskar Garg, a last-year student of School of Law, Devi Ahilya University, Indore.