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Labyrinth of bail under the Prevention of Money Laundering Act, 2002

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Gaurav Thote
Gaurav Thote
Advocate, Bombay High Court

Recently[1], the Delhi High Court while denying bail to an accused charged under the Prevention of Money Laundering Act 2002 (“PMLA/Act”) refused to accept the contention that Section 45 of the Act (which imposed the rigors of twin conditions for grant of bail) was unconstitutional in view of the original Section 45 being struck down previously by the Supreme Court. According to the High Court, when a provision was declared unconstitutional, it would not get repealed or wiped out from the statute book but would only become unenforceable. It was thus observed that if the Parliament cured the defect in the unconstitutional provision through an amendment, it would become enforceable.

Relying upon a judgment of the Supreme Court in P.Chidambaram v. Enforcement of Directorate[2], the Delhi High Court observed that though the original provision was struck down by the Supreme Court previously, the Parliament brought in the amended Section 45 which appeared to have cured the defect, and hence there existed a presumption of constitutionality vis-à-vis the amended provision. 

Original Section 45 of the PMLA and subsequent amendment

In Nikesh Tarachand Shah v. Union of India[3], the Supreme Court had struck down Section 45[4] of the PMLA which imposed the rigors of twin conditions for the predicate offence punishable for a term of imprisonment of more than 3 years under Part A of the Schedule contained in PMLA, on the grounds of being manifestly arbitrary, discriminatory and violative of Articles 14 and 21. It was observed-

A reference to paragraph 23 of Part A of the Schedule would also show how Section 45 can be used for an offence under the Biological Diversity Act, 2002. If a person covered under the Act obtains, without the previous approval of the National Biodiversity Authority, any biological resources occurring in India for research or for commercial utilization, he is liable to be punished for imprisonment for a term which may extend to 5 years under Section 55 of the Act. A breach of this provision, when combined with an offence under Section 4 of the 2002 Act, would lead to bail being obtained only if the twin conditions in Section 45 of the 2002 Act are satisfied. 

By no stretch of imagination can this kind of an offence be considered as so serious as to lead to the twin conditions in Section 45 having to be satisfied before grant of bail, even assuming that classification on the basis of sentence has a rational relation to the grant of bail after complying with Section 45 of the 2002 Act.

However, the learned Attorney General has argued before us that we must uphold Section 45 as it is part of a complete code under the 2002 Act. According to him, Section 45, when read with Sections 3 and 4, would necessarily lead to the conclusion that the source of the proceeds of crime, being the scheduled offence, and the money laundering offence, would have to be tried together, and the nexus that is provided is because the source of money laundering being as important as money laundering itself, conditions under Section 45 would have to be applied. We are afraid that, for all the reasons given by us earlier in this judgment, we are unable to agree.

We must not forget that Section 45 is a drastic provision which turns on its head the presumption of innocence which is fundamental to a person accused of any offence. Before application of a section which makes drastic inroads into the fundamental right of personal liberty guaranteed by Article 21 of the Constitution of India, we must be doubly sure that such provision furthers a compelling State interest for tackling serious crime. Absent any such compelling State interest, the indiscriminate application of the provisions of Section 45 will certainly violate Article 21 of the Constitution. Provisions akin to Section 45 have only been upheld on the ground that there is a compelling State interest in tackling crimes of an extremely heinous nature.

Subsequently, on 29th March 2018, a notification was promulgated by the Government, thereby amending Section 45(1)[5] of the PMLA which retained the rigors of twin conditions for grant of bail. The amendment, however, made the twin conditions only applicable to offences under the PMLA.

Is the defect really cured?

In Nikesh Tarachand Shah’s ruling, the bench had contemplated reading down the provision, but it was observed unnecessary in the latter part of the judgment. The manifest intention of the Supreme Court, thus, was to strike down the twin conditions for the predicate offence as well as offences under the PMLA. In essence, the bench had struck down Section 45 as a whole insofar as the provision imposed twin conditions for grant of bail. It was observed-

Again, we are afraid that merely reading down the two conditions would not get rid of the vice of manifest arbitrariness and discrimination, as has been pointed out by us hereinabove. Also, we cannot agree with the learned Attorney General that Section 45 imposes two conditions which are akin to conditions that are specified for grant of ordinary bail.

We are of the opinion that, even though the Punjab High Court judgment appears to be correct, it is unnecessary for us to go into this aspect any further, in view of the fact that we have struck down Section 45 of the 2002 Act as a whole.

Apart from this, the Delhi High Court relied on various judgments of the Supreme Court but it did not take into account the ruling of the larger bench in Barsi Municipal Council v. Rajan Textile Mills[6] wherein it was held that when a rule was struck down by a constitution court, it could never deemed to have been passed. It is thus manifest that the rule would not merely become unenforceable but the effect is of nullity. Unfortunately, none of the judgments relied upon by the Delhi High Court refer to this precedent. It is well settled[7] that if a view does not refer to a binding precedent on the issue, the subsequent view has no binding force. In this backdrop, the rulings referenced by the Delhi High Court on this point would be per incuriam and it would not be correct to say that when a provision is declared unconstitutional, it merely becomes unenforceable.

Conclusion

Section 45 of the amended provision makes applicable the twin conditions for all offences under the PMLA. This essentially includes all the schedules contained under the Act. As observed by the Supreme Court in Nikesh Tarachand Shah’s ruling, by no stretch of imagination are all the combined offences so heinous so as to lead to the twin conditions being satisfied for obtaining bail. It is manifest that the defect pointed out by the Supreme Court while striking down Section 45 of the PMLA does not appear to have been cured by the amendment.

The Delhi High Court’s view is essentially based on the Supreme Court’s observations in P.Chidambaram’s ruling which was in regard to anticipatory bail. Undoubtedly, a reference was made to the changes that were brought in by the legislature. However, the bench did not make any observations/comments on revival of twin conditions for obtaining bail. In fact, while granting bail to the very petitioner[8] later on, the Supreme Court straightaway passed an order of bail without referring to the amended Section 45. It was observed that one of the circumstances to consider the gravity of offence was the sentence prescribed for the offence.

As regards revival of twin conditions contained in the amendment, the Bombay High Court’s view in Deepak Virendra Kochhar v. Directorate of Enforcement[9] falls contrary to the Delhi High Court’s ruling as it holds that the twin conditions which were struck down by the Supreme Court in Nikesh Shah’s judgment do not stand revived by the amendment of Section 45 of the PMLA as it continues to make drastic inroads into the fundamental right of personal liberty. 

In view of this conflicting position, it is high time that the Supreme Court settles the troubled waters in matters of bail under the PMLA.


[1] BAIL APPLN. NO. 112/2021

[2] (2019) 9 SCC 24

[3] AIR 2017 SC 5500

[4] 45.Offences to be cognizable and non-bailable-

(1) Notwithstanding anything contained in the Cr.P.C.,1973 no person accused of an offence punishable for a term of imprisonment of more than 3 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 guilty of such offence and that he is not likely to commit any offence while on bail.

[5] 45.Offences to be cognizable and non-bailable-

(1) Notwithstanding anything contained in the Cr.P.C, 1973 no person accused of an offence [under this Act] 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 guilty of such offence and that he is not likely to commit any offence while on bail.

[6] (1972) 2 SCC 857

[7] (2013) 3 SCC 63

[8] (2020) 13 SCC 791

[9] BA No. 1322/2020 decided on March 25, 2021

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Gaurav Thote
Gaurav Thote
Advocate, Bombay High Court
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