"Money-Laundering A Heinous Crime ; Twin Conditions For Bail Not Unreasonable": Supreme Court Upholds Section 45(1) PMLA

The Supreme Court upheld the Constitutional validity of "twin conditions" for bail under amended Section 45 of the Prevention of Money Laundering Act, 2002 Act.

Money-laundering is one of the heinous crimes, which not only affects the social and economic fabric of the nation, but also tends to promote other heinous offences, such as terrorism, offences related to NDPS Act, etc., the three judges bench headed by Justice AM Khanwilkar observed.

The bench comprising Justices Dinesh Maheshwari and CT Ravikumar added that irrespective of the nature of proceedings, including those under Section 438 CrPC or even upon invoking the jurisdiction of Constitutional Courts, the underlying principles and rigours of Section 45 may apply. 

Section 45(2) before and after 2018 amendment

The two conditions under Section 45 are: (i) Prosecutor is given opportunity to oppose the bail application and (ii) 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.

Presently, after 2018 amendment, the relevant part of Section 45(2) reads thus : 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—(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:.....

Prior to 2018 amendment, instead of 'under this Act', it was 'punishable for a term of imprisonment of more than three years under Part A of the Schedule'. In Nikesh Tarachand Shah vs. Union of India (2018) 11 SCC 1, the Supreme Court declared such conditions to be unconstitutional being violative of Articles 14 and 21 of the Constitution.

It cannot be said that twin conditions does not get revived

The first issue raised in this case was whether the twin conditions, in law, continued to remain on the statute book post decision of this Court in Nikesh Tarachand Shah? The petitioners relied on an observation in State of Manipur & Ors. vs. Surajkumar Okram & Ors 2022 LiveLaw (SC) 112 that owing to the declaration by a Court that the statute is unconstitutional obliterates the statute entirely as though it had never been passed.

The bench referring to various judgments including that of Constitution Bench observed:

It is, therefore, clear from above that if by amending the provision retrospectively, the Parliament has removed the defect or has taken away the basis on which the provision was declared void then the provision cannot be said to be in conflict with Article 13 of the Constitution. In other words, if the very premise on which the judgment of the Court declaring the provision to be void has been uprooted by the Parliament, thereby resulting in the change of circumstances, the judgment could not be given effect to in the altered circumstances, then the provision cannot be held to be void. In this case, as has been stated above, the anomalies noted in Nikesh Tarachand Shah have been removed by way of Act No. 13 of 2018. Further, it has been clarified by way of Finance (No.2) Act, 2019 that amendment shall operate retrospectively. Thus, it cannot be said that twin conditions under Section 45 of the 2002 Act does not get revived.

The court also note that even after declaration of unconstitutionality on the ground of violating provisions of Part III of Constitution, it is open to the Parliament/Legislature to cure the defect reckoned by the Constitutional Court in relation to the concerned provision whilst declaring it as unconstitutional.

It was open to the Parliament to cure the defect noted 

The court noted that in Nikesh Tarachand Shah, the provision was declared unconstitutional on these grounds (1) the provision, as it existed at the relevant time, was founded on a classification based on sentencing of the scheduled offence and it had no nexus with objectives of the 2002 Act; and (2) the twin conditions were restricted only to a particular class of offences within the 2002 Act, such as offences punishable for a term of imprisonment for more than three years under Part A of the Schedule, and not to all the offences under the 2002 Act.

By the 2018 amendment , the defects have been duly cured by deleting the words "punishable for a term of imprisonment of more than three years under Part A of the Schedule" in Section 45(1) of the 2002 Act and substituted by words "under this Act", the court noted. It further observed:

"On a fair reading of the judgment, we must observe that although the Court declared the twin conditions as unconstitutional, but it was in the context of the opening part of the sub-section (1) of Section 45, as it stood then, which resulted in discrimination and arbitrariness as noticed in the judgment. But that opening part referring to class of offences, namely punishable for a term of imprisonment of more than three years under Part A of the Schedule having been deleted and, instead, the twin conditions have now been associated with all the offences under the 2002 Act, the defect pointed out in the stated decision, stands cured. To answer the question posed above, we may also usefully refer to the enunciation of the Constitution Bench of this Court, which recognises power of the Legislature to cure the defect when the law is struck down by the Constitutional Court as violative of some fundamental rights traceable to Part-III of the Constitution. It has been consistently held that such declaration does not have the effect of repealing the relevant provision as such. For, the power to repeal vests only in the Parliament and none else. Only upon such repeal by the Parliament, the provision would become non est for all purposes until re-enacted, but it is open to the Parliament to cure the defect noticed by the Constitutional Court so that the provision, as amended by removing such defect gets revived. This is so because, the declaration by the Constitutional Court and striking down of a legal provision being violative of fundamental rights traceable to Part III of the Constitution, merely results in the provision, as it existed then, becoming inoperative and unenforceable, even though it may continue to remain on the statute book. "

"The twin conditions declared as unconstitutional by this Court in Nikesh Tarachand Shah was in reference to the provision, as it existed at the relevant time, predicating application of Section 45 of the 2002 Act to only offences punishable for a term of imprisonment of more than three years under Part A of the Schedule of the 2002 Act and not even linked to the offences of money-laundering under the 2002 Act. The reasons which weighed with this Court for declaring the twin conditions in Section 45(1), as it stood at the relevant time, unconstitutional in no way obliterated the provision from the statute book. Therefore, it was open to the Parliament to cure the defect noted by this Court and to revive the same provision as in the present form, post amendment Act 13 of 2018 with effect form 19.4.2018."

Money-laundering has been regarded as an aggravated form of crime "world over" ; Twin Conditions not unreasonable

The bench then proceeded to consider the challenge to the twin conditions as applicable post amendment of 2018. In this regard, it observed:

Considering the purposes and objects of the legislation in the form of 2002 Act and the background in which it had been enacted owing to the commitment made to the international bodies and on their recommendations, it is plainly clear that it is a special legislation to deal with the subject of moneylaundering activities having transnational impact on the financial systems including sovereignty and integrity of the countries. This is  not an ordinary offence. To deal with such serious offence, stringent measures are provided in the 2002 Act for prevention of moneylaundering and combating menace of money-laundering, including for attachment and confiscation of proceeds of crime and to prosecute persons involved in the process or activity connected with the proceeds of crime. In view of the gravity of the fallout of moneylaundering activities having transnational impact, a special procedural law for prevention and regulation, including to prosecute the person involved, has been enacted, grouping the offenders involved in the process or activity connected with the proceeds of crime as a separate class from ordinary criminals. The offence of money-laundering has been regarded as an aggravated form of crime "world over". It is, therefore, a separate class of offence requiring effective and stringent measures to combat the menace of moneylaundering.

Considering the concern expressed by the  international community regarding the money-laundering activities world over and the transnational impact thereof, coupled with the fact that the presumption that the Parliament understands and reacts to the needs of its own people as per the exigency and experience gained in the implementation of the law, the same must stand the test of fairness, reasonableness and having nexus with the purposes and objects sought to be achieved by the 2002 Act. Notably, there are several other legislations where such twin conditions have been provided for. Such twin conditions in the concerned provisions have been tested from time to time and have stood the challenge of the constitutional validity thereof..

Money-laundering is one of the heinous crimes

The bench then disagreed with the observations made in Nikesh Tarachand Shah that the offence of money laundering is less heinous offence than the offence of terrorism sought to be tackled under TADA Act or that there is no compelling State interest in tackling offence of money-laundering. The court observed that the Money-laundering is one of the heinous crimes, which not only affects the social and economic fabric of the nation, but also tends to promote other heinous offences, such as terrorism, offences related to NDPS Act, etc

In this regard, the bench observed:

"It is well settled by the various decisions of this Court and policy of the State as also the view of international community that the offence of money-laundering is committed by an individual with a deliberate design with the motive to enhance his gains, disregarding the interests of nation and society as a whole and which by no stretch of imagination can be termed as offence of trivial nature. Thus, it is in the interest of the State that law enforcement agencies should be provided with a proportionate effective mechanism so as to deal with these types of offences as the wealth of the nation is to be safeguarded from these dreaded criminals. As discussed above, the conspiracy of money-laundering, which is a three-staged process, is hatched in secrecy and executed in darkness, thus, it becomes imperative for the State to frame such a stringent law, which not only punishes the offender proportionately,  but also helps in preventing the offence and creating a deterrent effect. . In the case of the 2002 Act, the Parliament had no reservation to reckon the offence of money-laundering as a serious threat to the financial systems of our country, including to its sovereignty and integrity. Therefore, the observations and in particular in paragraph 47 of Nikesh Tarachand Shah, are in the nature of doubting the perception of the Parliament in that regard, which is beyond the scope of judicial review. That cannot be the basis to declare the law manifestly arbitrary."

Twin Conditions need to be satisfied for granting anticipatory bail also

Another issue raised was regarding the application of rigors of Section 45 in respect of anticipatory bail filed under Section 438 CrPC. In this regard, the court said that it would not be logical to disregard the limitations imposed on granting bail under Section 45, in the case of anticipatory bail as well.

"Suffice it to observe that it would be preposterous and illogical to hold that if a person applies for bail after arrest, he/she can be granted that relief only if the twin conditions are fulfilled in addition to other stipulations predicated in the 1973 Code; but another person, who is yet to be arrested in connection with the same offence of money-laundering, will not be required to fulfil such twin conditions whilst considering application for grant of bail under Section 438 of the 1973 Code. The relief of bail, be it in the nature of regular bail or anticipatory bail, is circumscribed by the stipulations predicated in Section 45 of the 2002 Act. The underlying principles of Section 45 of the 2002 Act would get triggered in either case before the relief of bail in connection with the 458 offence of money-laundering is taken forward. Any other view would be counterproductive and defeat the purposes and objects behind the stringent provision enacted by the Parliament for prevention of money-laundering and to combat the menace on account of such activity which directly impacts the financial systems, including the sovereignty and integrity of the country."