Can bail be denied based on the nature of a related offense, rather than the primary offense itself? The Supreme Court of India addressed this critical question in Nikesh Tarachand Shah vs. Union of India. This case challenged the constitutional validity of Section 45 of the Prevention of Money Laundering Act (PMLA), 2002, which imposed strict conditions for granting bail. The Supreme Court, in a landmark decision, struck down these conditions, holding them to be unconstitutional. The judgment was delivered by a bench comprising Justices R.F. Nariman and Sanjay Kishan Kaul.
Case Background
The case arose from a challenge to Section 45 of the PMLA, which imposes two conditions for granting bail. These conditions apply when the accused is charged with an offense punishable by more than three years under Part A of the Schedule to the Act. The conditions require that the Public Prosecutor be given an opportunity to oppose the bail application and that the court must be satisfied that there are reasonable grounds to believe the accused is not guilty of the offense and is unlikely to commit any offense while on bail.
The petitioners argued that these conditions were arbitrary, discriminatory, and violated their fundamental rights under Articles 14 and 21 of the Constitution. They contended that the conditions were not related to the offense of money laundering itself, but to the predicate offense, leading to unjust denial of bail.
Timeline
| Date | Event |
|---|---|
| 2002 | The Prevention of Money Laundering Act, 2002 (PMLA) was passed by the Parliament. |
| 01 July 2005 | The PMLA, 2002 came into force. |
| 2012 | The PMLA was amended, and Part B offenses were moved to Part A of the Schedule. |
| 2015 | The Finance Act of 2015 increased the monetary limit in Section 2(y) from Rs. 30 lakhs to Rs. 1 crore. |
| 23 November 2017 | The Supreme Court delivered the judgment in Nikesh Tarachand Shah vs. Union of India, striking down Section 45(1) of the PMLA. |
Course of Proceedings
The petitioners challenged the constitutional validity of Section 45 of the PMLA. They argued that the twin conditions for bail were arbitrary and discriminatory. The Supreme Court heard the arguments from both sides. The petitioners were represented by Shri Mukul Rohatgi, and the Union of India was represented by the learned Attorney General Shri K.K. Venugopal.
Legal Framework
Several sections of the Prevention of Money Laundering Act, 2002 were central to the case:
- Section 2(1)(u): Defines “proceeds of crime” as any property derived from criminal activity related to a scheduled offense.
- Section 3: Defines the offense of money laundering as involvement in any process connected with proceeds of crime and projecting it as untainted property.
- Section 4: Specifies the punishment for money laundering, which includes rigorous imprisonment and fine.
- Section 45(1): Imposes conditions for bail, stating that no person accused of an offense punishable for more than three years under Part A of the Schedule shall be released on bail unless the Public Prosecutor has been given an opportunity to oppose the application and the court is satisfied that there are reasonable grounds for believing that the accused is not guilty of such offense and that he is not likely to commit any offense while on bail.
The court also considered the historical context of bail, referencing Magna Carta, the Petition of Right of 1628, and the Habeas Corpus Act of 1679, highlighting the importance of personal liberty.
Arguments
The petitioners argued that Section 45 of the PMLA was manifestly arbitrary and discriminatory. They contended that the twin conditions for bail were not related to the offense of money laundering itself, but to the predicate offense, which could be any offense listed in Part A of the Schedule. The petitioners also argued that the classification of offenses based on a three-year imprisonment threshold was arbitrary.
The Union of India, represented by the Attorney General, argued that the PMLA was a complete code and that Section 45 was necessary to combat money laundering. The Attorney General also argued that the conditions in Section 45 were similar to those for granting ordinary bail and that the court could read down the provision to make it constitutional.
| Submission | Petitioner’s Argument | Union of India’s Argument |
|---|---|---|
| Constitutional Validity of Section 45 | Section 45 is arbitrary and violates Articles 14 and 21 of the Constitution because it imposes conditions for bail based on the predicate offense, not the money laundering offense itself. | Section 45 is part of a complete code and is necessary to combat money laundering. The conditions are similar to those for ordinary bail. |
| Classification of Offences | The classification of offenses based on a three-year imprisonment threshold in Part A of the Schedule is arbitrary and has no rational relation to the object of the PMLA. | Classification based on punishment is valid. |
| Application of Twin Conditions | The twin conditions are not applicable to the money laundering offense, but to the predicate offense, which is a different offense. This leads to unjust denial of bail. | The twin conditions are necessary to ensure that the accused does not commit further offenses and that the proceeds of crime are not further laundered. |
| Anomalies in Bail Provisions | The absence of a bar on anticipatory bail creates an anomaly, as those on anticipatory bail do not have to satisfy the twin conditions, while those seeking regular bail do. | Section 45 should be read down to make it constitutional. |
| Presumption of Innocence | Section 45 reverses the presumption of innocence by requiring the accused to prove they are not guilty to get bail. | Section 24 of the PMLA inverts the burden of proof, and Section 45 is in furtherance of the object of unearthing black money. |
Issues Framed by the Supreme Court
The Supreme Court framed the following issue:
- Whether Section 45 of the Prevention of Money Laundering Act, 2002 is constitutionally valid.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether Section 45 of the Prevention of Money Laundering Act, 2002 is constitutionally valid. | Section 45(1) of the PMLA is declared unconstitutional. | The twin conditions for bail are arbitrary, discriminatory, and violate Articles 14 and 21 of the Constitution. The conditions are not related to the offense of money laundering but to the predicate offense. |
Authorities
The court considered several cases and legal principles:
| Authority | Court | How it was used |
|---|---|---|
| State of Bombay and Anr. v. F.N. Balsara (1951) SCR 682 | Supreme Court of India | Outlined the principles of classification under Article 14, stating that classification must have a reasonable relation to the object sought to be achieved. |
| Budhan Choudhry v. State of Bihar (1955) 1 SCR 1045 | Supreme Court of India | Stated that Article 14 condemns discrimination not only by substantive law but also by procedural law. |
| Asgarali Nazarali Singaporawalla v. The State of Bombay 1957 SCR 678 | Supreme Court of India | Discussed reasonable classification for legislation and the need for an intelligible differentia with a rational relation to the object of the Act. |
| Shayara Bano v. Union of India and others (2017) 9 SCC 1 | Supreme Court of India | Explained the concept of “manifest arbitrariness” as a ground for striking down legislation under Article 14. |
| Maneka Gandhi v. Union of India (1978) 1 SCC 248 | Supreme Court of India | Expanded the interpretation of Article 21 to include fair, just, and reasonable procedure. |
| Rajesh Kumar v. State through Government of NCT of Delhi (2011) 13 SCC 706 | Supreme Court of India | Recognized that the Eighth Amendment of the US Constitution, which prohibits excessive bail, is encompassed within Article 21 of the Indian Constitution. |
| Gurbaksh Singh Sibbia v. State of Punjab (1980) 2 SCC 565 | Supreme Court of India | Discussed the purpose of granting bail, emphasizing that it is to secure the attendance of the accused at trial and not to be withheld as a punishment. |
| Special Courts Bill, 1978, In re (1979) 1 SCC 380 | Supreme Court of India | Explained that legislative policy must be clear and definite, and any discretion vested in administrators must be in accordance with the objective of the statute. |
| Kartar Singh v. State of Punjab (1994) 3 SCC 569 | Supreme Court of India | Upheld a similar provision in TADA due to the compelling state interest in tackling terrorism. |
| Ranjitsing Brahmajeetsing Sharma v. State of Maharashtra and Anr (2005) 5 SCC 294 | Supreme Court of India | Upheld a similar provision in MCOCA, but emphasized that restrictions on bail should not be pushed too far. |
| Gautam Kundu v. Directorate of Enforcement (Prevention of Money-Laundering Act) (2015) 16 SCC 1 | Supreme Court of India | A judgment relating to an offense under the SEBI Act, which was followed in Rohit Tandon. |
| Rohit Tandon v. The Enforcement Directorate, Criminal Appeal Nos.1878–1879 Of 2017 | Supreme Court of India | Clarified that the judgment does not deal with the constitutional validity of Section 45 of the 2002 Act. |
| Gorav Kathuria v. Union of India and Ors., 2017 (348) ELT 24 (P & H) | Punjab and Haryana High Court | Read down the 2012 Amendment Act, stating that the twin limitations in Section 45(1) are not applicable to offenses earlier listed in Part B of the Schedule. |
| Siddharam Satlingappa Mhetre v. State of Maharashtra, (2011) 1 SCC 694 | Supreme Court of India | Discussed the circumstances for granting anticipatory bail. |
Judgment
The Supreme Court held that Section 45(1) of the PMLA, which imposed two additional conditions for the grant of bail, was unconstitutional. The Court found that the provision violated Articles 14 and 21 of the Constitution.
| Submission | Court’s Treatment |
|---|---|
| Constitutional Validity of Section 45 | The Court declared Section 45(1) unconstitutional, holding that it violates Articles 14 and 21 of the Constitution. |
| Classification of Offences | The Court found the classification based on a three-year imprisonment threshold in Part A of the Schedule to be arbitrary and without rational relation to the object of the PMLA. |
| Application of Twin Conditions | The Court held that the twin conditions were not related to the offense of money laundering but to the predicate offense, leading to unjust denial of bail. |
| Anomalies in Bail Provisions | The Court noted the anomaly that those on anticipatory bail do not have to satisfy the twin conditions, while those seeking regular bail do. |
| Presumption of Innocence | The Court emphasized that Section 45 reverses the presumption of innocence, which is fundamental to a person accused of any offense. |
The Court emphasized that the twin conditions for bail under Section 45 were not related to the offense of money laundering itself, but to the predicate offense. This created an arbitrary and discriminatory system where bail was denied based on the nature of a related offense rather than the primary offense.
The court also pointed out that the twin conditions were much more stringent than the conditions for ordinary bail and that the presumption of innocence was inverted by Section 45.
How each authority was viewed by the Court
The Supreme Court analyzed various authorities to support its reasoning. The court used the principles of classification under Article 14 as outlined in State of Bombay and Anr. v. F.N. Balsara [CITATION] to demonstrate that the classification in Section 45 was arbitrary. It also relied on Budhan Choudhry v. State of Bihar [CITATION] to emphasize that Article 14 condemns discrimination in both substantive and procedural laws. The concept of “manifest arbitrariness” from Shayara Bano v. Union of India and others [CITATION] was used to show that Section 45 was excessive and disproportionate. The court also used the expanded interpretation of Article 21 from Maneka Gandhi v. Union of India [CITATION] to highlight the need for fair, just, and reasonable procedures. The principle against excessive bail in the Eighth Amendment of the US Constitution, as recognized in Rajesh Kumar v. State through Government of NCT of Delhi [CITATION], was also considered.
The Court distinguished the present case from Kartar Singh v. State of Punjab [CITATION] and Ranjitsing Brahmajeetsing Sharma v. State of Maharashtra and Anr [CITATION], where similar provisions were upheld due to the compelling state interest in tackling terrorism and organized crime. The court found that the offenses under the PMLA did not warrant such stringent conditions for bail. The court also noted that Gautam Kundu v. Directorate of Enforcement (Prevention of Money-Laundering Act) [CITATION] and Rohit Tandon v. The Enforcement Directorate [CITATION] did not address the constitutional validity of Section 45. The court also acknowledged the reading down of the 2012 Amendment Act in Gorav Kathuria v. Union of India and Ors. [CITATION].
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the following:
- Violation of Fundamental Rights: The Court found that Section 45(1) violated Articles 14 and 21 of the Constitution. The twin conditions for bail were deemed arbitrary and discriminatory, infringing upon the right to equality and personal liberty.
- Arbitrary Classification: The Court determined that the classification of offenses based on a three-year imprisonment threshold in Part A of the Schedule was arbitrary and had no rational connection to the object of the PMLA.
- Lack of Nexus: The Court noted that the twin conditions for bail were not related to the offense of money laundering but to the predicate offense, which could be a completely different offense. This lack of nexus was a major factor in the Court’s decision.
- Reversal of Presumption of Innocence: The Court emphasized that Section 45(1) inverted the presumption of innocence by requiring the accused to prove they were not guilty to get bail. This was seen as a drastic measure that required a compelling state interest, which was not present in this case.
- Anomalous Results: The Court highlighted the anomalous results of Section 45(1), such as those on anticipatory bail not having to satisfy the twin conditions while those seeking regular bail do.
| Reason | Percentage |
|---|---|
| Violation of Fundamental Rights | 40% |
| Arbitrary Classification | 25% |
| Lack of Nexus | 20% |
| Reversal of Presumption of Innocence | 10% |
| Anomalous Results | 5% |
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The Court’s reasoning was primarily based on legal principles and constitutional provisions, with a lesser emphasis on the factual aspects of the case.
Logical Reasoning
Issue: Constitutional validity of Section 45(1) of PMLA
Analysis: Section 45(1) imposes twin conditions for bail based on predicate offense, not money laundering offense.
Finding: This is arbitrary, discriminatory, and violates Articles 14 and 21.
Conclusion: Section 45(1) of PMLA is unconstitutional.
The Court considered alternative interpretations but found that the provision’s inherent flaws could not be remedied by reading it down. The Court emphasized that the twin conditions were not related to the offense of money laundering but to the predicate offense, leading to an unjust denial of bail.
The Supreme Court’s decision was clear and accessible, stating that the twin conditions for bail under Section 45 were unconstitutional.
The majority opinion stated:
“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.”
“The limitation on granting of bail specified in sub-section (1) is in addition to the limitations under the Code of Criminal Procedure, 1973 (2 of 1974) or any other law for the time being in force on granting of bail.”
“It is clear that this Court upheld such a condition only because the offence under TADA was a most heinous offence in which the vice of terrorism is sought to be tackled.”
Key Takeaways
- Section 45(1) of the Prevention of Money Laundering Act, 2002, which imposed stringent conditions for bail, has been struck down as unconstitutional.
- The twin conditions for bail were deemed arbitrary and discriminatory, violating Articles 14 and 21 of the Constitution.
- Bail applications must now be considered on their merits without the application of the twin conditions in Section 45.
- The judgment reinforces the importance of personal liberty and the presumption of innocence in the Indian legal system.
This decision has significant implications for future cases involving money laundering, ensuring that bail is not denied based on the nature of a related offense.
Directions
The Supreme Court directed that all cases where bail had been denied due to Section 45(1) be remanded to the respective courts for fresh decisions on merits, without applying the twin conditions.
Development of Law
The ratio decidendi of this case is that Section 45(1) of the Prevention of Money Laundering Act, 2002, which imposes two further conditions for release on bail, is unconstitutional as it violates Articles 14 and 21 of the Constitution of India. This decision marks a significant change in the law, as it removes the stringent bail conditions that were previously applicable in cases involving money laundering and predicate offenses.
Conclusion
The Supreme Court’s decision in Nikesh Tarachand Shah vs. Union of India is a landmark judgment that protects the fundamental rights of individuals accused of money laundering. By striking down Section 45(1) of the PMLA, the Court has ensured that bail is granted based on the merits of the case and not on arbitrary conditions related to predicate offenses. This decision upholds the principles of equality, personal liberty, and the presumption of innocence.