The Right To Bail Under Prevention Of Money Laundering Act: Balancing Justice And Liberty?

Understanding PMLA

Money laundering refers to making clean the money or property that has been earned or procured through 'dirty' means smuggling, tax evasion etc. The offence of Money laundering takes shape in three stages vis-à-vis:

(i) Placement - The most susceptible stage where the illegal proceeds of crime are introduced into the economy.

(ii) Layering – At this stage the goal is to make a trail or layer of financial transactions to hide the actual source or origin of money. The illegal money is put through or invested in multiple transactions so that the source or origin is lost beneath numerous layers of financial transactions or the 'trail'.^[2]

(iii) Integration - The final stage is where the money is again introduced into the economy as a legitimate source through front businesses in cash-intensive sector, investments in real estate, false invoicing, huge charitable donations etc. At this stage, it is usually hard to nab the money launderer as it is a tedious and time-consuming task to trace the trail.

The origins of money laundering go way beyond the modern times however, the legislations developed to successfully prevent money laundering are as old as the 20th century. In the United States, the Money Laundering Control Act of 1986 was enacted to counter the menace of money laundering for the first time and shortly thereafter, other countries followed suit. Following the success of the 'Vienna Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances', it was discovered that the act of money laundering formed the backbone of the drug trade. To counter and prohibit these money laundering trails the Financial Action Task Force was established in 1989.^[3] At the Global level Article 6 (Criminalization of the laundering of proceeds of crime) and Article 7 (Measures to combat money-laundering) of the 'United Nations Convention against Transnational Organized Crime', 2000 also showcased the pressing need to combat money laundering activities.^[4]

Legislations in India, such as the Criminal Law Amendment Ordinance (1944) and the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act (1976), were not specifically aimed at money laundering. However, they did play a vital role in addressing some of the underlying activities that contribute to money laundering. For example, the Criminal Law Amendment Ordinance granted authorities the power to seize and confiscate properties acquired through illegal means, which could be applied to assets that were later laundered. Similarly, the Smugglers and Foreign Exchange Manipulators Act targeted the fight against smuggling and illegal foreign exchange activities, commonly used for laundering illicit funds. Despite their impact, these existing laws had their limitations as they were unable to fully tackle the constantly evolving methods of money laundering, which were becoming increasingly sophisticated. The then existing legal framework lacked the specific provisions and investigative powers needed to effectively target these new schemes.^[5] To tackle these limitations, the Prevention of Money Laundering Act, 2005, was passed by the Parliament.

Bail is the Rule?

The term bail has been defined in the Bharatiya Nagarik Suraksha Sanhita, 2023,^[6] as the release of a person accused of or suspected of committing a crime from custody, based on certain conditions set by an officer or court, which require the person to sign a bond or bail bond. It imposes pre-trial conditions on the suspect to ensure they cooperate with the investigation and trial. According to Black's Law Dictionary,^[7] bail is a form of security, such as cash or a bond, required by the court to release a prisoner who must appear in court on a later date. Wharton's Law Lexicon^[8] describes bail as setting a person at liberty who has been arrested or imprisoned, based on security taken for their appearance at a specified time as well as place.

The principle that bail is the rule and jail is the exception is well-established by judicial pronouncements. This principle is in line with Article 21 of the Constitution, which is the cornerstone of the fundamental rights, safeguarding the rights to life and personal liberty of all citizens of India. In Nikesh Tarachand Shah v. Union of India,^[9] it was held that bail aims to ensure the attendance of the accused at trial and should not be used as a punitive measure as it is intended to facilitate the presence of the accused at trial rather than as punishment. In Gurcharan Singh v. State (UT of Delhi),^[10] the Supreme Court acknowledged that no rigid formula governs bail matters and that they should be based on the specific facts and circumstances of each case. Similarly, in Sanjay Chandra v. CBI,^[11] the Supreme Court reiterated that bail's primary purpose is to ensure the accused appears at trial, not to punish him and the object of pre-trial detention should not be punitive. It should be justified only by the necessity to secure the attendance of the accused at trial.

Navigating the Right to Bail under the PMLA

The principal object of any criminal legislation is to protect the society by punishing the wrongdoers although no person should be punished without a fair trial. A person is presumed to be innocent until his/her guilt is proved beyond reasonable doubt in a trial before an impartial and competent court of law. It is very important, in the administration of justice, that justice should not only be done, but should manifestly and undoubtedly be seen to be done. However, the right to bail is not an absolute one. The legislations like the PMLA, impose stricter conditions for granting bail, reflecting the gravity of the offences they address.

In P. Chidambaram v. Directorate of Enforcement,^[12] the Supreme Court held that the economic offences, given their potential societal impact, can be classified as grave offences, and when assessing bail applications in such cases, courts must be sensitive to the nature of the allegations. The gravity of the offense can also be gauged by the severity of the sentence prescribed for the alleged crime. It was emphasized that even in cases of severe economic offenses, bail should not be automatically denied, as no legislation or established bail jurisprudence mandates such a blanket rule. Each case must be evaluated individually based on its specific facts, with the ultimate goal of ensuring the presence of an accused for trial.

Section 45 of the PMLA, in particular, sets a high threshold for bail. Under Section 45 of the PMLA, the Public Prosecutor has to be given an opportunity to oppose the bail application and the court must be convinced that there are valid reasons to believe that the accused is innocent of the offence and is unlikely to commit any further offences while out on bail.

The Test under PMLA

Under PMLA, obtaining bail is challenging due to the stringent conditions laid out in Section 45. The section mandates that before granting bail, the following ingredients must be fulfilled:

1. The Public Prosecutor has been given an opportunity to oppose the bail application;
2. Where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that the accused is not guilty of such offence and that he is not likely to commit any offence while on bail.

An important question arises after examining the elements of the above conditions: if an accused is kept behind bars for an indefinite period while awaiting the speedy completion of the trial, would this not deprive them of their fundamental right to liberty under Article 21 of the Constitution?

Balancing Liberty and Justice? (Judgment in Manish Sisodia v. Directorate of Enforcement^[13]

The above question was discussed by the Supreme Court in the Manish Sisodia (supra) judgment. The matter is a typical example of the challenges which are faced by the courts in balancing liberty and justice. The matter involved the appellant seeking bail after being incarcerated for an extended period without the trial even commencing. The Supreme Court held that while the nature of the offence under PMLA is indeed serious, the right to a speedy trial and the right to liberty cannot be ignored. It was held that the trial had been delayed for reasons not attributable to the appellant, and that the investigation itself had not concluded within the expected timeframe. This raised questions about the fairness of continued incarceration without a clear timeline for the trial's completion. The Court relied upon the judgment in Javed Gulam Nabi Shaikh v. State of Maharashtra and Another,^[14] in which it was held that – if the State or any prosecuting agency, including the concerned court, lacks the resources to ensure or safeguard the fundamental right to a speedy trial of an accused as guaranteed under Article 21 of the Constitution, then the State or any other prosecuting agency should not oppose a bail application solely on the basis that the crime committed is serious and that Article 21 of the Constitution applies regardless of the severity of the crime.

The Supreme Court's reasoning in the Manish Sisodia (supra) judgment highlighted several important points, such as: -

1. Trial Not Commenced: The court observed that the trial had not only been delayed but had not even commenced after a long period of incarceration suffered by the appellant running for around 17 months, which was a significant violation of his right to a speedy trial.
2. Right to Bail in the Context of Delays:
   The court referred to its earlier order, which stated that the right to bail should be read into Section 45 of PMLA in cases where there is a prolonged delay in trial. This interpretation aligns with the principle that bail is a rule, and jail is an exception, particularly when the trial's delay is not the fault of the accused.
3. No Contribution of Accused to Delay: The court found that the appellant had not contributed to the delay in the trial. While the prosecution argued that the appellant had filed numerous applications, the court noted that these applications were largely related to procedural matters, such as obtaining documents necessary for a fair trial. The court also pointed out that the trial court had allowed these applications.
4. Magnitude of the Case: The court acknowledged the complexity of the case, which involved thousands of pages of documents, over a lakh pages of digitized documents and over 493 witnesses. However, it stressed that the sheer volume of evidence should not justify indefinite incarceration, especially when the trial is not progressing.
5. Right to Liberty: The court reiterated that the right to liberty is sacrosanct and cannot be compromised without just cause. It emphasized that keeping the appellant in custody for an indefinite period, with no clear timeline for the trial, would effectively punish him without a conviction.
6. Bail Conditions to Address Concerns: The court addressed the prosecution's concerns about the possibility of the appellant tampering with evidence or influencing witnesses. It suggested that these concerns could be mitigated by imposing stringent conditions on the appellant's bail, such as reporting to the Investigating Officer and no attempt be made to influence the witnesses or to tamper with the evidence.

Jail is the Exception under PMLA? (Prem Prakash v. Union of India)^[15]

The Supreme Court in Prem Prakash (supra) held that bail under PMLA can be granted provided certain conditions are satisfied. The principle that bail is the rule and jail is the exception is only a paraphrasing of Article 21 of the Constitution of India, which states that no person shall be deprived of his life or personal liberty except according to the procedure established by law. It was held that liberty of the individual is always a Rule and deprivation is the exception. Deprivation can only be by the procedure established by law, which has to be a valid and reasonable procedure. Section 45 of PMLA by imposing certain conditions does not re-write this principle to mean that deprivation is the norm and liberty is the exception. All that is required is that in cases where bail is subject to the satisfaction of certain conditions, those conditions must be satisfied.

Implications

The Supreme Court's pronouncements in the Manish Sisodia (supra) and Prem Prakash (supra) have significant implications for the interpretation of bail under PMLA. It underscores the need for a balanced approach to be adopted by the courts that considers both the seriousness of the offence and the fundamental rights of the accused, especially when there is delay in trial and incarceration for a long period of time. These judgment also highlight the judiciary's role in ensuring that laws like PMLA are applied in a manner consistent with constitutional objectives.

Striking a Balance

The right to bail under PMLA remains a contentious issue, as it involves balancing the need for stringent measures to combat money laundering with the fundamental rights of the accused persons. The judgments in Manish Sisodia (supra) and Prem Prakash (supra) reflect the judiciary's effort to strike this balance by ensuring that the right to a speedy trial and liberty of the accused are not unduly compromised. As the country continues to grapple with complex economic offences, the interpretation of bail provisions under the PMLA will likely evolve, with the efflux of time. Courts will need to remain vigilant in ensuring that the law is applied fairly, without infringing on the fundamental rights of the accused persons. The principle that bail is the rule and jail is an exception must continue to guide the judiciary in safeguarding justice and liberty in the face of stringent laws.

Authors: Nihit Nagpal, (Associate Partner) and Muneeb Rashid Malik (Associate) at S.S. Rana & Co. Views are personal.

1. Act No. 15 of 2003. ↑

2. United Nations Office on Drugs and Crimes. ↑

3. The History on Money Laundering available at https://kyc-chain.com/the-history-of-money-laundering/. ↑

4. United Nations Convention Against Transnational Organized Crime And The Protocols, Vienna, 2004, printed in Australia, V.04-56153—September 2004—1,900. ↑

5. The Criminal Law (Amendment) Ordinance, 1944 (38 of 1944). ↑

6. Section 2 (1) (b) (Act 46 of 2023). ↑

7. Black's Law Dictionary, 9th Edn., pg. 160. ↑

8. Wharton's Law Lexicon, 14th Edn., pg. 105. ↑

9. Nikesh Tarachand Shah v. Union of India (2018) 11 SCC 1. ↑

10. Gurcharan Singh v. State (UT of Delhi) (1978) 1 SCC 118. ↑

11. Sanjay Chandra v. CBI (2012) 1 SCC 40. ↑

12. P. Chidambaram v. Directorate of Enforcement (2020) 13 SCC 791. ↑

13. Manish Sisodia v. Directorate of Enforcement 2024 LiveLaw (SC) 563. ↑

14. Javed Gulam Nabi Shaikh v. State of Maharashtra and Another 2024 LiveLaw (SC) 437 ↑

15. Prem Prakash v. Union of India 2024 LiveLaw (SC) 617. ↑