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PMLA Interpretation - 2018 Amendment Has Revived The Twin Conditions For Bail Which Were Struck Down : Solicitor General Tells Supreme Court
Mehal Jain
8 March 2022 9:50 PM IST
The Supreme Court on Tuesday resumed hearing the string of petitions challenging the constitutionality of several provisions of the PMLA Act.When Solicitor General Tushar Mehta, on Tuesday, sought to address the bench on the validity of section 45 of the PMLA, Justice A. M. Khanwilkar indicated that the first question is whether the provision, which was struck down by the Supreme Court in...
The Supreme Court on Tuesday resumed hearing the string of petitions challenging the constitutionality of several provisions of the PMLA Act.
When Solicitor General Tushar Mehta, on Tuesday, sought to address the bench on the validity of section 45 of the PMLA, Justice A. M. Khanwilkar indicated that the first question is whether the provision, which was struck down by the Supreme Court in Nikesh Tarachand Shah case in 2017, stands revived by virtue of the 2018 amendment.
Section 45, when it was struck down, and as it stands today on being revived, imposes twin conditions on the grant of bail- (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.
The SG replied that he would make submissions on the law on the concept of taking away the basis of the judgment. "There are two grounds on which your lordships would declare a provision to be unconstitutional- one, that the legislature which enacted the law was not competent. For example, the Parliament legislates in list II or the state legislature legislates on the subject in list one. On this ground, if the legislation is declared unconstitutional, it cannot be cured by curing the defect. Suppose the Supreme Court declared a provision to be beyond the legislative competence of Parliament, then if subsequently the Parliament becomes competent, maybe by the amendment of the seventh schedule, will the provision revive? The Supreme Court says no. Because it is a stillborn law. Because you never had the power to give birth to that child. The second ground for declaring a provision to be unconstitutional is if it affects the provisions of Part III (of the Constitution; Fundamental Rights). Here, the provision does not get wiped off from the statute book, it only becomes inoperative or unimplementable. It remains on the statute book because the power of repeal is the power only conferred with the legislature. Your Lordships have held this. Therefore, the ground on which Your Lordships held it to be offending Part III can always be changed, the lacuna found by your lordships can be cured, and since it remains on the statute book, it can be revived", he submitted.
The SG indicated the provision as it stood prior to Nikesh Tarachand Shah- "It was nobody's case that this provision lacked parliamentary competence, that was neither the challenge then nor now. The offending part in section 45(1), as it was then, was in as much as it said that Notwithstanding anything contained in the Cr. P. C., no person accused of an offence punishable for a term of imprisonment of more than three years under Part A of the Schedule shall be released on bail or on his own bond unless- then the twin conditions. The offending part was that the provision required that he should be guilty, and guilty of not money laundering but of an offence which is punishable with an imprisonment of only three years or more. This is precisely what was found to be contrary to article 14 and 21 in Nikesh Tarachand Shah."
Next, the SG indicated the position post-Nikesh Tarachand- "There has been curing of defect. The phrase 'Punishable for a term of imprisonment more than three years' goes. Now it reads 'under this Act'- that no person accused of an offence under this Act shall be released on bail or on his own bond unless…then the twin conditions. So the malignant part of the section, as it was so found in Nikesh Tarachand, goes."
The SG indicated that the provision, as it exists today and which is under challenge, remains the same.
The SG continuned to submit, "The argument in Nikesh Tarachand was based only on the fact that what attracts the twin conditions is 3 years or more imprisonment for Part A scheduled offences. The argument was that you club the twin conditions with the predicate offences and you are not even touching the offence under the money laundering act. The Court found that when the bill was introduced, you said that the twin conditions are for offences under this Act, but in the Act, you have linked twin conditions with the predicate offence, a part of predicate offence and only that part punishable with 3 years or more. Now we have cured the defect, we have removed predicate offenders who could be dealt under other law and confined it to money-launderers. The problem with 45 as it stood then was that you are not saying the person is guilty under this Act but that the person is guilty of a predicate offence, and that too a class within class that only those predicate offences which are punishable with three years or more of imprisonment. The applicability of 45 and its two conditions on a part of predicate offences was the issue before the court. The lacuna the court found, we have now cured. The court said that the twin conditions would apply only to predicate offences, and in that also, only in part. The court said you have not attached the twin conditions to the offences under the Act. So the court gives an illustration that if somebody does a Part B offence, where money laundering of a greater amount would take place, he would not be governed by the twin conditions and he could get bail under 439 (Cr. P. C.). Anybody doing offence under Part A but punishable with less than three years would also not attract the twin conditions. So that was deemed to be arbitrary. We removed the anomaly or the basis on which it was found to be arbitrary by saying that for offences under this Act, the twin conditions would be attracted."
"The court, in Nikesh Tarachand Shah, was not assisted as regards the seriousness of the offence and how the global community has considered that the statute must have a deterrent effect, a drastic effect. The Court quotes the statement of objects and reasons, but the Court was not shown how India is under obligation to treat it as the most serious offence. There was absence of assistance on the very foundational fact based on which PMLA was enacted. The court was not assisted on the aspect that terrorism and money laundering go hand-in-hand globally (in as much as the Court in Nikesh Tarachand noted that in upholding provisions akin to PMLA section 45 in TADA and other Acts, there was a compelling State interest and that indiscriminate application of the provisions of Section 45 will violate Article 21 )", continued the SG.
"The entire Act is not challenged (in Nikesh Tarachand), there is no challenge to competence of the Parliament. The ground for declaring 45 to be void is that it connects the twin condition not with the offence under the Act but some other provisions, namely, predicate offence, and only part of predicate offence, namely, Part A. If a provision is found unconstitutional for manifest arbitrariness, it remains on the statute book and the moment defect is cured, it comes back to life without reenactment", he submitted. The SG cited authorities to urge that if a law is in respect of a matter assigned to the Legislature and within the domain of the Legislature, but its provisions disregard Constitutional prohibitions, though the law would be unenforceable by reason of those prohibitions, when once they are removed, the law will become effective without reenactment.
Justice C. T. Ravikumar indicated the last paragraph of Nikesh Tarachand where the Court has stated as follows- "Regard being had to the above, we declare Section 45(1) of the Prevention of Money Laundering Act, 2002, insofar as it imposes two further conditions for release on bail, to be unconstitutional as it violates Articles 14 and 21 of the Constitution of India...". In this context, the judge observed, "The 45(1) second proviso says that the special court shall not take cognisance of any offence punishable under section 4 except upon a complaint in writing. So making of a complaint is made necessary under 45 itself. That is not touched. So 45 as such is not declared unconstitutional."
"I am immensely grateful for this paraphrasing", said the SG.
Justice Dinesh Maheshwari remarked, "The paragraph which Brother Justice Ravikumar has read, it says 'in so far as it imposes 2 further conditions'. It means what? These two conditions are declared unconstitutional. What the legislature has now done is to alter the opening part of 45(1), not the two conditions."
"No, no, no...", replied the SG, and advanced a clarification.
Justice Maheshwari then asked, "The judgment is proceeding for the reasons that because the bail condition is connected with the scheduled offence itself, that is why 45 is discriminatory or manifestly arbitrary. It is not that the two conditions by themselves are bad. That is what you mean to say?"
The SG replied, "Yes. The two conditions are not per se unconstitutional. They are unconstitutional because the legislature, as it stood then, connected them not at all to the offence under the Act but the predicate offence or to a part of the predicate offence. So the court says there is no object to be achieved or no rational justification for the same. And the court says that since you have selected only predicate offences under Part A, the court said it seems very arbitrary. The court analysed various situations and illustrations as to what happens if only Part A is the controlling factor."
Justice Khanwilkar noted, "We cannot read (this last paragraph) in isolation, it has to be read together with the other reasons. The paragraph says "having regard to the above". Those reasons are ascribeable only to section 45(1) opening part. Not to the twin conditions as the twin conditions are also found in other provisions (of other statutes)."
'Arnesh Kumar decision will not apply to PMLA'- SG Tushar Mehta
"One argument that was made was whether Arnesh Kumar applies or not. It says that you issue a notice under Cr. P. C. section 41A (in cases where offence is punishable with imprisonment for a term which may be less than seven years or which may extend to seven years, instead of making automatic arrests). 41A cannot apply on the plain language and terms of the section- it relates to Cr. P. C. section 41 where the power of arrest (threshold for arrest) is at a very, very low level. Please bear the distinct nature of the offence that the moment the accused comes to know that some authority is investigating, everything can vanish in a matter of literally few seconds. It is only when a potential arrest is to be avoided, based on suspicion, that 41 A contemplates the issuance of a notice. I have three submissions on 41A- 1. 41A on its terms cannot apply particularly in the light of section 65 and 71 of PMLA which exclude Cr. P. C. so long as and so far as anything inconsistent is there; 2. PMLA section 19 excludes the applicability of 41A. It has its own safeguards; 3. Reading in the requirement of section 41A would mean the very intent, object and purpose of section 19 would become meaningless because the purpose is not to alert the person, either who is to be arrested or who is the witness against the main accused. 41A can never coexist with 19 on its plain language. The quintessential condition is not to alert the accused while ensuring all safeguards against possible misuse", urged the SG.
"That does not mean that the rest of the provisions would not apply. For example, 41B would apply. There is nothing inconsistent in the PMLA as regards the 'procedure of arrest and the duty of officer making arrest' provided therein. The ED has issued instructions in writing that all guidelines of D.K. Basu judgment will apply even to the authorities under the PMLA", he continued.
Justice Khanwilkar asked, "Like in 19, you have to furnish grounds of arrest. In Cr. P. C. what is the scheme as regards what is to be given to him at the time of arrest?"
"There is no provision in Cr. P. C. It has to be traced to Article 22", replied the SG.
Justice Khanwilkar continued, "The argument was that at the time of arrest he gets FIR copy..."
Justice Maheshwari added, "The FIR copy is given because of Cr. P. C. section 154. Even in absence of arrest, he will get the copy. That is precisely the reason why 65 and 71 exclude."
Justice Khanwilkar noted, "The Constitution recognises that a person being arrested is aware of the grounds of arrest, not necessarily the material for arrest. That is one criticism here, that the person arrested does not know on what basis he is arrested."
"He is given the grounds on the basis of which we have formed our reasons to believe. FIR can be one line also- that the murder has taken place and the body is found here. There he would not know why he was arrested and what is the material", replied the SG.
Justice Khanwilkar continued, "The argument of the other side is that he does not know on what basis the subjective satisfaction is reached on the basis of which he is arrested. Only grounds are provided, and no material?"
"At the time of arrest, he is required to be supplied with grounds of arrest and other reasons...", repeated the SG.
Justice Khanwilkar asked, "Grounds of arrest, we understand. It is the common thread in the Constitution. PMLA also says grounds of arrest. Cr. P. C. also says it is grounds of arrest. The argument was that material has to be furnished like FIR or any other material."
Then, the bench remarked, "Material need not be furnished under PMLA scheme. That is the departure."
The SG replied, "that is a conscious departure."
Justice Khanwilkar said, "It is to be kept in sealed cover and given to adjudicating authority?"
"Because this might contain some sensitive information", said the SG.
Justice Khanwilkar continued, "There is an express provision to not disclose. Only grounds have to be given, not material?"
The SG replied, "Even at the time of arrest in Cr. P. C., he is not getting any material. He gets that material of section 161 and 164 statements only when the chargesheet is filed. In PMLA also, nothing will be informed till you are affected. If your property is being attached, we will have to give you reasons based on which we have formed an opinion. If you are being arrested, we will give you reasons. The reasons are always detailed reasons. The reasons will have to meet with the requirements of Cr. P. C. section 167. Based on those reasons, we apply for remand."
Justice Khanwilkar stated, "We take your submission that the requirement under 19 or any other provisions of PMLA Act is limited to furnishing grounds of arrest and nothing more. And that is not inconsistent with the provisions of the Constitution because it provides only for grounds of arrest."
"I am grateful. I could not have couched it in a better language", said the SG.
Justice Khanwilkar continued, "Even Cr. P. C. does not say the statements recorded by the Investigating Officer have to be furnished. It merely says grounds of arrest. The police officer is also expected only to give grounds of arrest, nothing else."
The SG concluded, "So Arnesh Kumar accordingly will not apply."
'Existence of material to back grounds for arrest is mandatory and shall be shared with court at every stage, while ensuring the accused does not come to know'- SG Tushar Mehta
"Now the next argument is that Section 19 can be invoked only after complaint is filed -till you file a complaint, you cannot arrest. And the complaint here is akin to a chargesheet under 173. Your lordships are aware in an FIR case, it culminates into a report, chargesheet or challan under section 173. In other than FIR cases, it results into a complaint and complaint is a culmination of investigation, it is the end point of investigation, subject to further investigation. So to say that till you complete the investigation, you cannot arrest is turning the very intent and language on its head. 19 never says you can arrest only after complaint. Section 19 necessarily means that a part of the investigation would always be prior to the filing of the complaint. Arrest is a part of investigation, it can't be done at the end of investigation at the time of filing of chargesheet, which here is the complaint. Complaint is the starting point of trial, the court takes cognisance then, it is absurd to say that we can arrest only when trial commences", advanced the SG.
Justice Khanwilkar noted, "The whole purpose of arrest is to elicit whatever information you have by custodial interrogation."
"Yes, and that can form part of the complaint. It is only that material which forms part of the complaint. To say that arrest can only be made after complaint is to turn the provision on its head. You don't investigate, you don't collect information, you don't arrest and you file complaint", said the SG.
Justice Khanwilkar noted, "It is not turning the provision on its head but it is saying that you will file complaint and then you can investigate and then file further report. And then for further report, arrest becomes necessary and not for filing complaint."
Continuing, the judge observed, "The argument is right to know, I should know why I have been arrested. I need the grounds to pursue my bail application or to defend myself. Because the accused is then at a disadvantage. He does not have any material- what has persuaded the authorities to reach at that conclusion that it is essential that he be arrested, nor the judge is furnished with that material. The material goes to the adjudicating authority in a sealed cover. That was the whole argument."
Continuing, the judge observed, "The dichotomy is this- while considering bail application, the judge has to record the clear finding that he is not so involved, for which he needs to see the material which is the basis for ground of arrest. Now that material is not even available to the judge."
The SG replied, "Please recall the language of 19- 'Reasons to believe that he is guilty of the offence'.That necessarily presupposes detailed reasons that he is prima facie guilty. This involves an elaborate reasoning process. He comes to know the grounds on which he is arrested...Also, what is being kept confidential is from the accused, not from the court. Please take my submission for that, take my statement for that. Before the learned judge, not only the reasons for arrest, or the grounds recorded for his arrest, but the material in my possession based on which I have reached that conclusion is also produced."
Justice Khanwilkar said, "So we will take into account your submission; that based on this submission, the argument may not survive."
The SG continued, "There is nothing confidential from the court from the first day when within 24 hours of arrest he is produced before the court."
Justice Khanwilkar said, "We have highlighted this that the entire record is produced."
"Yes, the entire original record. Whenever the judge says we would like to study it, we give it it in a sealed cover so that it does not get percolated to others", replied the SG.
The bench continued to ask, "The follow-up argument would be if the judge does not share it with the accused, he will not mention it in the judgment and merely say that I am satisfied that the investigating officer has appropriate material. The accused does not know what that material is. So at every stage, the entire record will have to be produced before the court."
The SG asserted, "Yes, at every stage. It is to be placed before the special court, before the High Court, even before your Lordships. There cannot be any confidentiality from the court. We are producing. I have myself produced in over 20 cases. In a criminal offence under the Cr. P. C., case diary is shown only to the judge."
Justice Khanwilkar asked, "This argument will be supported by which section that it cannot be referred to by the judge concerned in the judgment?"
The SG replied, "19 read with 45. 19 says that the documents or the material in my possession is of such a nature, so confidential that even the adjudicating authority is not supposed to look at it. It is only a custodian to preserve. The very essence of the object of money laundering act requires that the judge, in his wisdom and in his judicial discretion, not divulge more than what is required."
Justice Khanwilkar continued, "45 also mentions that there are to be reasonable grounds- not material- to believe. 45 will help you. He does not have to refer to the material in the judgment..."
"It is confidentiality qua the accused, co-accused and possible witnesses. But before the court, we must satisfy the court's conscience...The existence of material is mandatory, sufficiency cannot be gone into at that stage", said the SG.
Justice Khanwilkar then said that the bench is recording the following submission on behalf of the SG- "The existence of material to back reasons, grounds recorded for arrest is mandatory and shall have to be shared with the court at every stage of proceedings, while ensuring the accused does not come to know about it. And the court may examine only the existence of material and grounds, but may not go into sufficiency of such material for formulating the grounds. And the court may not analyse the material in the judgment (so as to not alert the accused)."
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