Legal Briefing

Nikesh Tarachand Shah v. Union of India – Constitutionality of the pre-bail conditions provided in the Prevention of the Money Laundering Act, 2002

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International Comparative Guides | 04 June 2018

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Introduction

The question “Bail or Jail?” at the pre-trail stage, as famously pointed out by the famous Indian jurist, Hon’ble V R Krishna Iyer, shall always belong to the “blurred area of the criminal justice system[1]. The Indian courts, in line with the Eight Amendment of the US Constitution, have acknowledged that ‘bail, not jail, is the norm’[2] but at the same time have also evolved principles such as “collective interest of the community and the safety of the nation[3], to carefully balance the interest of the state and the rights of the accused while deciding bail applications made by accused persons.

In this context, the pre-bail conditions that are imposed by certain special legislations, presumably on the basis of ‘interest of the state’, have presented further challenge to the courts. The extent to which such conditions could infringe the rights of the accused is an important topic of discussion and hence this article. .

Recently, the Hon’ble Supreme Court of India (“Supreme Court”) was presented with one such challenge (“Nikesh Tarachand Case”),[4] where the petitioners had challenged the constitutional validity of Section 45(1) of the Prevention of the Money Laundering Act 2002 (“PMLA”), insofar as it imposed two additional conditions (explained in detail below) for the grant of bail for a person accused of an offence under Part A of the Schedule to the PMLA.

The Supreme Court struck down the aforesaid provision on the ground that it violated Article 14 and Article 21 of the Constitution of India, i.e. provisions which protect the constitutional right to equality and the right to life and personal liberty, and it directed all the petitions (arising from bail applications) to be remanded to the respective courts to be heard and decided on merits, without the application of the additional conditions contained in Section 45(1) of the PMLA.

This article seeks to analyze the judgment of the Supreme Court in the Nikesh Tarachand Case and its impact on the other cases concerning economic offences.

Scheme of the PMLA

The scheme and structure of the PMLA was central to the petitioners’ challenge in the Nikesh Tarachand Case. Under Section 3 of the PML Act, the offence of ‘money laundering’ requires (a) the direct or indirect involvement in specified criminal activities, i.e. the offences specified in Part A, Part B and Part C of the schedule to the PMLA (“Scheduled Offences”)[5], for the purposes of obtaining and deriving any property and (b) projecting or claiming the property so derived or obtained from such criminal activities as untainted property.

In furtherance of the aforesaid definition, the special courts established under the PMLA were conferred the power to take cognizance and try the offence of money laundering (Section 4 of the PMA) as well as the corresponding Scheduled Offence(s). In this context, Section 45(1) of the PMLA prescribed that no person accused of an offence in Part A of the Schedule of the PMLA (“Part A”), which was punishable for a term of imprisonment of more than three years, shall be released on bail, unless the following two conditions (“Impugned 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.

Illustratively, prior to the enactment of the Prevention of Money Laundering (Amendment) Act, 2012 (“Amendment Act, 2012”), the offences under Part A which attracted the Impugned Conditions, included the offences such as waging or attempting to wage a war against the government of India, offences relating to the trade or dealings in narcotic drugs & psychotropic substances and offences relating to unlawful activities such as raising of funds for terrorist act or making demands of radioactive substances or nuclear devices or causing or attempt to cause an explosion likely endangering the life or property. Similarly, prior to the Amendment Act, 2012, the offences under Part B of the Schedule to the PMLA which attracted the Impugned Conditions, included the offences such as extortion, robbery, dacoity, forgery, cheating, trafficking of persons, corruption etc. However, vide the Amendment Act, 2012, the offences which were previously classified under Part B of the Schedule to the PML Act (which also envisaged a monetary threshold of Rs. 30 Lakhs for the purposes of culpability under the PML Act) were moved to Part A, with the purported intent to put “all the offences listed in Part A and Part B of the Schedule into Part A…… so that the provision of monetary threshold does not apply to the offences”.

Generally, as per the provisions of the Code of Criminal Procedure, 1973 (“CrPC”) and various precedents, a court dealing with the bail applications moved by the accused persons shall consider the following factors, amongst others, while making a decision with respect to the grant or rejection of bail to such person[6] accused of an offence:

  1. The nature of the accusation and the severity of punishment in case of conviction;
  2. The nature of supporting evidence for the purposes of recording a prima facie satisfaction of the court in support of the charge;
  3. Reasonable apprehension of the witnesses being tampered with by the accused or the apprehension of threat to the complainant;
  4. The danger of accused absconding or fleeing if released on bail;
  5. The likelihood of the offence being repeated.

However, as it is evident from the aforesaid, Section 45(1) of the PML Act imposed additional conditions on the grant of bail to a person accused of any offence falling under Part A, which would otherwise have been decided only as per the provisions of the CrPC. In fact, Section 45(2) of the PMLA explicitly mentions that the Impugned Conditions with respect to the grant of bail to a person accused of an offence under Part A were in addition to the limitations prescribed under the CrPC.

Therefore, the Impugned Conditions manifested the legislative intent to treat the persons accused of an offence under Part A differently from the persons accused of an offence under Part B or Part C of the Schedule to the PML Act.[7]

Substance of the challenge to Section 45(1) of the PML Act

It was the grievance of the petitioners that the Impugned Conditions were manifestly arbitrary, discriminatory and violative of their fundamental rights and a challenge to such conditions was made, inter alia, on the following grounds:

  1. The threshold of three years and above stipulated as a condition in Section 45(1) of the PML Act was discriminatory and manifestly arbitrary and therefore violative of Article 14 of the Constitution of India;
  2. Such classification resulted in anomalous situations where a person was being prosecuted for an offence under the PMLA, but he was being denied bail because of the Impugned Conditions;
  3. Furthermore, a person accused of such Scheduled Offence could on one hand be enlarged on anticipatory bail[8] in case of charges under the Indian Penal Code 1860 but a person arrested for such Scheduled Offence pursuant to a charge under the PMLA could only secure bail subject to the satisfaction of the Impugned Conditions; and
  4. The twin conditions were unfair, unjust and against Article 21 of the Constitution on India (i.e. the right to life and personal liberty), inasmuch as they required the accused to disclose their defence at the stage of arrest itself.

To establish that the threshold of three years and above as contained in Section 45 of the PML Act was discriminatory and manifestly arbitrary in its application, the petitioners argued that the classification of offences as being punishable with three years or more was wholly irrelevant and had no rational nexus to the object of granting bail insofar as the offences under the PMLA were concerned.

Secondly, it was argued that it was never the intention of the legislature to deny bail to the persons accused of offences that were previously classified under Part B of the Schedule to the PMLA. It was submitted that until the Amendment Act, 2012, Part A contained only extremely heinous offences such as offences under Section 121 (Waging or attempting to wage war, or abetting waging of war, against government of India) and Section 121A (Conspiracy to commit offences punishable under Section 121) of the Indian Penal Code, 1860 (“IPC”) and a few other offences under the Narcotic Drugs and Psychotropic Substances Act, 1985, the Explosive Substances Act, 1908 and the Unlawful Activities (Prevention) Act, 1967. However, when the offences under Part B of the Schedule to the PMLA were moved to Part A vide the Amendment Act, 2012, due consideration was not given to the effect that the Impugned Conditions would have on the applications for bail for the offences that were previously classified under Part B of the Schedule to the PMLA. Therefore, it was the grievance of the Petitioners that as an unintended consequence of the Amendment Act, 2012, the restrictions that were envisaged for the heinous offences were discriminatingly being made applicable to offences that were otherwise under Part B of the Schedule to the PMLA.

Judgment of the Supreme Court

With respect to the challenge under Article 14, the Supreme Court considered the discrimination caused by (a) the classification of the offences under Section 45(1) and (b) the application of Section 45(1) to various situations. The Supreme Court held that a classification based on sentence of imprisonment of the Scheduled Offence, had no rational relation to the object of the PMLA, i.e. attaching and bringing back into the economy large amounts byway of proceeds of crime. The court considered that the money/proceeds could also be derived from other serious offences under the IPC (i.e. offences with a maximum punishment of 10 years), which were not explicitly mentioned in Part A, however, a person accused of such an offence could get bail without the application of the Impugned Conditions.

With respect to the application of the Impugned Conditions, the Supreme Court, inter alia, held that:

  1. Section 45(1) of the PML Act lead to a situation where the same offenders in different cases might end up facing different results insofar as the grant of bail was concerned, depending on whether Section 45(1) did or did not apply. This was held to be particularly problematic as the grant or rejection of the bail had no relation to the offence of money laundering under the PML Act, however the mere fact that the offence of money laundering was being tried with the offences under Part A, led to the denial of bail.
  2. The Impugned Conditions which required the accused to establish that the accused was not guilty of “such offence” and that the accused was not likely to commit “any offence” while on bail were manifestly arbitrary and discriminatory. An accused was being denied bail for the Scheduled Offence basis the Impugned Conditions, although such person could prove that there were reasonable grounds for believing that he or she was not guilty of the offence of money laundering.
  3. The PMLA had not prohibited the grant of an anticipatory bail, thereby resulting in an anomalous situation where for the same offence of money laundering and the Scheduled Offence, a person could be granted anticipatory bail, however he shall be granted regular bail subject to the satisfaction of the Impugned Conditions.

After an elaborate discussion on the challenges to the Impugned Conditions on the basis of Article 14, the Supreme Court also cursorily dealt with the challenge to the conditions under Article 21, i.e. if the Impugned Conditions, which inversed the presumption of innocence, violated the fundamental right of personal liberty. The Supreme Court held that the Impugned Conditions were “drastic provisions…..which makes drastic inroads into the fundamental right of personal liberty” and that such provisions could only be upheld on the ground that there was a “compelling state interest in tackling crimes of an extremely heinous nature”. It may be worthwhile to note that the Supreme Court was not compelled to address if the Impugned Conditions actually met the muster of ‘compelling state interest’, as it could ex facie strike down the Impugned Conditions on the aforementioned grounds that it violated the constitutional right to equality of the accused.

Analysis

The judgment of the Supreme Court in the Nikesh Tarachand Case on the legality of the pre-bail conditions raises questions on similar provisions in other statutes particularly dealing with economic offences.

While the judgment of the Supreme Court in the instant case is very important and the inconsistencies in the scope and applicability of the pre-bail conditions under the PMLA made out a very strong case for striking down the Impugned Conditions, to ascertain the precedential value of the judgment with respect to the constitutionality of the pre-bail conditions (especially in economic offences), it may be worthwhile to consider if the Supreme Court would have struck down the otherwise harsh Impugned Conditions, but for the ambiguity caused by the Amendment Act, 2012.

Given the (mis)scheme of the Scheduled Offences under the PML Act, it was obvious that the Supreme Court could not have arrived at any other conclusion. Whether an economic offence, such as money laundering, demanded stringent/drastic conditions such as the Impugned 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. Therefore, the justiciability of the pre-bail conditions, such as the Impugned Conditions, in the case of economic offences, was not particularly addressed by the Supreme Court in the Nikesh Tarachand Case.

Consider the provisions of Section 212(6) of the Companies Act, 2013, which also envisage restrictions akin to the Impugned Conditions, in case of persons accused of fraud in relation to the affairs of a company. If a constitutional challenge was to be made against such pre-bail conditions, solely on the grounds that they are inherently excessive and unreasonable, it is highly unlikely that such a challenge would be upheld, especially when it has already been acknowledged by the Supreme Court that the “economic offences ……..need to be viewed seriously and considered as grave offences affecting the economy of the country and thereby posing serious threat to the financial health of the country”.[9] Therefore, the legality and justiciability of the pre-bail conditions (akin to the Impugned Conditions) in the case of economic offences is still elusive and awaits judicial clarification.

[1] Gudikanti Narasimhulu v. Public Prosecutor, (1978) 1 SCC 240.

[2] Dataram Singh v. State of Uttar Pradesh, SLP (Criminal) No. 151 of 2018.

[3] Kartar Singh v. State of State of Punjab, (1994) 3 SCC 599.

[4] Nikesh Tarachand Shah v. Union of India, WP (Criminal) No. 67 of 2017.

[5] Part A of the Schedule to the PML Act contains 28 paragraphs, which enlist various offences under the Indian Penal Code 1860, the Prevention of Corruption Act, 1988, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Explosive Substances Act, 1908, the Unlawful Activities (Prevention) Act, 1967, the Arms Act, 1959, the Immoral Traffic (Prevention) Act, 1956, amongst others. Part B of the Schedule to the PML Act contains offences under the Customs Act, 1962. Part C of the Schedule to the PML Act contains those offences specified in Part A or such other offences specified thereunder, which have cross border implications.

[6] Kalyan Chandra Sarkar v. Rajesh Ranjan, 2004 (7) SCC 528; State through C.B.I. v. Amarmani Tripathi, (2005) 8 SCC 21.

[7] Gorav Kathuria v. Union of India, (2017) 348 ELT 24.

[8] Anticipatory bail is granted to a person who apprehends that he may be arrested on accusation of having committed a non-bailable offence. It is granted pursuant to a direction under Section 438 of the Code of Criminal Procedure, 1973 by the High Court or Court of Session, to release a person on bail in the event that such person is arrested at a future date for the commission of a non-bailable offence.

[9] Rohit Tandon v. The Enforcement Directorate, 2017 SCC online SC 1304.