Money laundering refers to the act of conversion of illegally obtained money and presenting it in such a manner that it appears to be obtained from a legitimate source. The Prevention of Money Laundering Act, 2002 is the legislation enacted by the parliament in order to curb money-laundering and to confiscate the property obtained thereby.

In the pre-trial stage, the question of ‘bail or jail’ has always been a grey area with respect to the justice system.[i] In the light of 8th US Constitutional Amendment, the Indian courts have evolved the principle of balancing the interest of community and rights of the accused while deciding on a bail application.

In the present context, the pre-bail conditions are imposed by certain special-legislations presumably on the basis of interest of state and the society at large. These conditions have been challenged in the courts from time to time to the extent where the rights of the accused have been violated.

In the case of Nikesh Tarachand Shah v. Union of India [ii], the SC was presented with a similar question where the petitioners challenged S. 45(1) of PMLA insofar it required fulfilment of two essential conditions for the grant of bail to the accused.

The SC struck down the aforementioned provision on the ground that the same is violative of the Art. 14 and 21 of the Constitution. The SC thereby directed the respective courts to decide the bail applications without application of the conditions contained in S. 45(1).

Structure and scheme of PMLA

The structure and scheme PMLA were challenged before the SC in the said case. According to S.3 of the PLMA, the offence of ‘money-laundering’ is only constituted when (a) there is commission of acts mentioned in Part A, B or C of the schedule (b) and projection of the property obtained through such act as untainted.

For the trials in aforementioned cases, special courts were constituted as per S.4 of the Act. In this context, S. 45(1) of the act[iii] provided for no person accused of an offence in Part A of the Schedule of the PMLA, which was punishable for a term of imprisonment of more than three years, shall be released on bail, unless the following two conditions were satisfied:

1. the public prosecutor was given an opportunity to oppose the application for such release; and
2. where the public prosecutor opposes such application for bail, the court was satisfied that there were reasonable grounds for believing that the accused was not guilty of such offence and that such person was not likely to commit any offence while on bail.

Issues raised with respect to the Section

Several issues were raised with respect to Section 45(1) of the Prevention of Money Laundering Act 2002.

First, it was contended that the now unconstitutional provision imposed further applicable conditions in addition to the existing conditions in order to receive a bail.

Secondly, it was stated that offences under PMLA now had to be assessed with respect to the twin principles, while offences are ordinarily dealt with the provisions of Code of Criminal Procedure (CrPC) alone.

It was also stated that while there was no legislative intent to treat persons convicted under Schedule A of the act differently, Section 45(1) effectively creates a difference where a person convicted under Schedule A is treated differently from a person convicted under Schedule B or Schedule C of the same act, Fourthly, there was no rational basis for fixing the criteria in regards to the term of the offence.

The criteria inviting applicability of Section 45(1) only regarding offences which entail imprisonment of three years or more is irrational and discriminatory in nature. This resulted in situations where denials were based on the now impugned conditions.

Lastly it was contended that the twin conditions itself were arbitrary and unfair in nature. The concerns raised were effectively dealt with in the judgment.

Judgment of the Court
The Supreme Court considered the arguments alleging discriminatory outcomes created by application of Section 45(1) to various situations, resulting in the court declaring that Section 45(1) is violative of Article 14 and 21 of the Indian Constitution and striking down the Section as unconstitutional.

The court also held that-
Classification made based on the length of sentence of imprisonment had no rational basis or relation with the objects of the Prevention of Money Laundering Act 2002.

Application of Section 45(1) led to situations where same offenders tried under different cases which end up with different results depending on whether Section 45(1) is applied or not.

The twin conditions under Section 45(1) were arbitrary and discriminatory in nature.

A difference was created between cases where regular bail was sought rather than anticipatory bail as in cases of anticipatory bail these twin conditions are not to be applied for granting bail leading to discrimination between those who apply for regular bail and anticipatory bail under Section 45(1).

S. 45 Post the judgement

Pursuant to this judgment, the GOI has amended S. 45(1) of the PMLA by adding the words "under this Act" to Sub-section (1) of S. 45 of the PMLA Act and deleting the words "punishable for a term of imprisonment of more than 3 years under Part A of the Schedule", as one of the grounds for striking down the section in the said judgment was that the appropriate Court while deciding the bail application should have reasonable grounds for believing that the accused is not guilty of a predicate offence instead of an offence under PMLA.

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-

1. the Public Prosecutor has been given an opportunity to oppose the application for such release; and
2. 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;

Provided that a person, who, is under the age of sixteen years, or is a woman or is sick or infirm, or is accused either on his own or along with other co-accused of money laundering a sum of less than one crore rupees may be released on bail, if the Special court so directs.

However, in the case of Vinod Bhandari vs. Assistant Director, Directorate of Enforcement [iv] the HC held that despite the amendment in the definition, the S. 45(1)(ii) of the Act has not been resurrected.

Conclusion
In the matters of PMLA, it can be contended that rigors provided under Section 45(1) of the PMLA for the grant of the bail are not applicable as the said section has not been revived and only the provisions of Section 437 of the Code of Criminal Procedure, 1973 would be applicable for deciding the bail of the accused. The judgement of the Hon’ble court in Nikesh Tarachand raises questions on the legality of pre-bail conditions of bail in similar economic offenses.

The SC quashed the scheme of provisions. Whether an economic offence, such as money laundering, demanded such stringent conditions and whether the rights of an individual could be curtailed by the state in the case of such economic offence, still remains to be answered.

Hence, the justiciability of the pre-bail conditions, in the case of economic offences, was not particularly addressed by the Supreme Court in the Nikesh Tarachand Case. Therefore, the legality and justiciability of pre-bail conditions is still elusive and demands judicial clarification. [v]

Endnotes:

1. Gudikanti Narasimhulu v. Public Prosecutor, (1978) 1 SCC 240
2. Nikesh Tarachand Shah v. Union of India, AIR 2017 SC 5500.
3. S. 45(1), PMLA Prior to the Amendment
4. Vinod Bhandari vs. Assistant Director, Directorate of Enforcement, IV (2018) CCR 178 (MP).
5. Rohit Tandon v. The Enforcement Directorate, 2017 SCC online SC 1304