In the past few years, there have been significant legislative and judicial developments to deal with the complexities of economic offenses and those accused thereof. However, the special statutes such as the Prevention of Money Laundering Act, 2002 (“the Act”), and their central tenets, such as bail under Section 45 of the Act continue to remain highly controversial, particularly after the Finance of Act, 2019. Even the Finance Minister, in her speech in Parliament for amendments in 2019 quoted that “Difficulties have been experienced in the interpretation of certain provisions of Act of 2002 as some of the provisions are being misconstrued resulting in defeating the very object and legislative intent of the Act.” With the increase in economic offenses, Presumably, the intent of the legislature for the 2019 amendments was to remove ambiguity by imposing stricter provisions and assist in the investigation of the alleged transactions. However, the amendments incorporated raise more questions than answers and violates the basic tenets of the right to freedom and liberty.
History of the Legislation and Section 45
In the late 20th Century, with growing concerns of an increase in transnational economic offenses and a lack of effective national laws to tackle organized crime and proceeds thereof, the Government of India introduced the Prevention of Money Laundering Bill 1998 in Parliament on 4th August 1998. The ‘Bill’ received the assent of the President and became the Prevention of Money Laundering Act, 2002 on 17th January 2003, and effective from 1st July 2005. The Act has been amended five times since enactment and was last amended as recently as in 2019. The Act consisting of 10 chapters containing 75 sections, primarily intends to prevent money laundering and to provide for confiscation and seizure of property obtained from laundered money or any other issue of money laundering in India.
However, since inception, the Act has persisted to be highly complex and controversial, particularly with arrest and grant of bail to a person accused under the Act.
Law of arrest
Section 19 of the Act empowers the investigating agency/ED to arrest any person who is guilty of money laundering under the Act. it requires that before making an arrest, on the basis of the material collected during investigation there must be ‘reason to believe’ that the accused person is ‘guilty’ of the offense of money laundering and the ‘reason to believe’ must be ‘recorded in writing’ before making such an arrest. It is relevant to note that the primary difference between Section 19 of PMLA and arrest by police under Section 41 of the Cr.P.C. is that arrest under PMLA has been put on a higher pedestal by the Legislature and requires sufficient evidence to form a ‘reason to believe’ that the person is ‘guilty’ of the offenses under PMLA, while an arrest by Police may be made on ‘mere suspicion’. In other words, the provision provides that an Arrest must only be made after investigation when there is sufficient reason to believe that the person is guilty of such person and such reason is recorded in writing.
Yet, in practice, arrests are being made by ED officials regularly without adhering to the conditions enunciated in Section 19, i.e., arrests are being made for investigation purposes and not after ‘sufficient evidence to form a reason to believe that the person is guilty’. In a recent trend, it is also observed that arrests are being made for ‘non-cooperation’ during the investigating stage. In Navendu Babbar vs. State of N.C.T. of Delhiv, Justice Anup Jairam Bhambhani, dealing with the issue of ‘non-cooperation’ rightly held that
“We must remember that under our system of criminal jurisprudence, an accused has a right of silence, apart from a fundamental right against self-incrimination under Article 20(3) of the Constitution. What would happen if an accused says that no other material is available, whereas the I.O. thinks or says that other material exists and must be delivered-up before the accused is granted bail? In such a case, would the court be persuaded to keep an accused in judicial custody endlessly, till this impasse is resolved? Consider another scenario: what if an accused wants to produce some exculpatory evidence in his defense during the trial; and fears, that if the exculpatory material is shared with the I.O. during an investigation, the I.O. may either not produce such material before the court or destroy it, so that it is not available to the accused for his defense? While in theory, the I.O. must collect all evidence, whether inculpatory or exculpatory, during an investigation and to place it before the court, it would be naive for a court to assume that this theory is put into practice by investigating agencies. It is also well within the rights of an accused to bring-out defense evidence only during trial. This is one of the reasons why, in a criminal trial, an accused is not required to furnish a written statement of his defense nor to file any affidavit disclosing the evidence he proposes to adduce during the trial. The I.O., therefore, cannot be heard to say that till the applicant hands-over to him every shred of evidence, which the I.O. think exists, the applicant should be kept in prison as an undertrial.”
Law of bail
Section 45 of the Act deals with bail, and imposes an embargo on bail by way of ‘twin conditions’, i.e., the public prosecutor must be allowed to oppose any application for release on bail and if he does so, the court shall be 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. Simply put, it provides that bail shall only be granted when the accused can prove that there exists no reasonable ground for believing that the accused person has committed the offense. Other Statutes, i.e., offences under Companies Act that are investigated by the ‘Serious Fraud Investigation’ (“SFIO”), Narcotic Drugs and Psychotropic Substances Act, 1985 or Maharashtra Control of Organised Crime Act, 1999, dealing with a more serious class of offenses also impose similar ‘twin conditions’ on the grant of bail to an accused person.
Initially, when the Act was tabled before the Parliament Section 44 which corresponds to Section 45 of the present Act provided that offenses punishable under the Act were to be cognizable, and the twin conditions for release on bail would apply only insofar as the offenses under the Act itself were concerned. However, in 2005, at the time of notification, there was a dramatic change in the provisions of the grant of bail, and that bail would be granted only if the twin conditions under Section 45(1) are satisfied with, where the offense was punishable for a term of imprisonment of more than three years falling under Part A of the Schedule for the predicate offense. It is pertinent to mention that such conditions on bail have neither been adopted by other judicial systems nor recommended by the Financial Action Task Force.
Consequentially, due to the anomaly between the jurisprudence of Bail and the application of such ‘twin condition’ on the predicate offenses, in 2017, the constitutionality of Section 45(1) of the Act was challenged by way of a Writ Petition in Nikesh Tarachand Shah vs. Union of India & Anr before the Supreme Court. It is pertinent to mention that the law of bail in India has been manifested by Justice Krishna Iyer in the State of Rajasthan vs. Balchand as ‘Bail is the rule, and Jail is an exception’.
This challenge in Nikesh Tarachand Shah was broadly based on four grounds. Firstly, the stipulated threshold of three years and above in Section 45(1) of the Act was manifestly arbitrary and discriminatory and without any basis and therefore violative of Article 14 of the Constitution of India. Secondly, such classification resulted in anomalous situations where a person was being denied bail because of the ‘twin conditions’ on the predicate offense while being tried under PMLA. Thirdly, a person may be enlarged on anticipatory bail for a scheduled offense but can only be enlarged on bail under PMLA only after the satisfaction of the ‘twin conditions’.
Lastly, The twin conditions were arbitrary, discriminatory, and against Article 21 of the Constitution on India, since they required the accused to disclose their defense at the stage of arrest itself.
After due consideration of numerous possible or foreseeable scenarios, the Court held that Section 45 is discriminatory particularly against those accused persons, who are being tried for a scheduled offense having punishment of more than three years coupled with an offense under PMLA in comparison to a person being tried for an offense merely under the provisions of PMLA. In the words of the Court:
“All these examples show that manifestly arbitrary, discriminatory and unjust results would arise on the application or non-application of Section 45, and would directly violate Articles 14 and 21, in as much as the procedure for bail would become harsh, burdensome, wrongful and discriminatory depending upon whether a person is being tried for an offense which also happens to be an offense under Part A of the Schedule or an offense under Part A of the Schedule together with an offense under the 2002 Act. The grant of bail would depend upon a circumstance that has nothing to do with the offense of money laundering. On this ground alone, Section 45 would have to be struck down as being manifestly arbitrary and providing a procedure which is not fair or just and would, thus, violate both Articles 14 and 21 of the Constitution.”
In terms of Right to Liberty and bail, the Court held that the provision for bail goes back to Magna Carta and reiterated the observations of Justice Krishna Iyer as “… the issue of bail is one of liberty, justice, public safety and burden of the public treasury, all of which insist that a developed jurisprudence of bail is integral to a socially sensitized judicial process.” In its pursuit to protect the Right to Liberty enshrined in the Constitution, the bench of Justice Rohinton Nariman and Justice Sanjay Kishan Kaul also held that the anomaly between the grant of anticipatory bail and regular bail which is created by section 45 would also lead to manifestly arbitrary and unjust results, and therefore declared the draconian embargo of ‘twin condition’ imposed under Section 45(1) of the Act to be violative of Article 14 and 21 of the Constitution.
Amendments (2018 and 2019)
On 19.04.2018, the legislature amended section 45 PMLA via Finance Act 2018, whereby the phrase “punishable for a term of imprisonment of more than three years under Part A of the Schedule” was replaced with “under this Act”. This Amendment failed to mention anything about the applicability of the ‘twin conditions’ for bail causing an extreme lack of clarity amongst Courts and lawyers.
However, with continuing complexities, the government introduced another amendment in August 2019. In this amendment, an Explanation was inserted after section 45 of the Act of 2002 to clarify that the expression ‘Offences to be cognizable and non-bailable’. This amendment is critical as it also widened the scope of term ‘proceeds of crime’, i.e., even possession of proceeds of crime has been criminalized implying that an accused person would have to resort to predicate offense and show that the possession is not proceeds of crime, making the law similar to that before the judgment of Nikesh Tarachand and resurrecting one of the fundamental problems that the accused will have to disclose its defense at the stage of bail itself.
The 2019 Act further broadens the power of the Enforcement Directorate by also deleting the proviso contained in Sections 17(1) and 18 (1) and empowering the ED to undertake search actions and arrest even in the absence of a report under Section 157 Cr.P.C.
The Judicial Approach
The issue of applicability of twin conditions post the amendment first came up before the Bombay High Court in the case Sameer M. Bhujbal, wherein Justice P. D. Naik was pleased to hold that since the Supreme Court unequivocally struck down Section 45(1) of the Act as a whole and there is no mention of Retrospective applicability of the amendment to the Act rigors of two conditions cannot be deemed to be revived or resurrected. Interestingly, in this case, the Ld. ASG, appearing on behalf of the agency submitted that:
“In view of the amendment to Section 45 (1) of the PMLA Act which came into effect from 19.4.2018, the original Section 45(1)(ii) has to be inferred and treated as it still exists on the statute book and holds the field even as of today for deciding an application for bail by an accused under PMLA Act. He further submitted that by amending Section 45(1) of the Act and by inserting words ‘under this Act’ the judgment delivered by the Supreme Court in the case of Nikesh Shah (supra) has become ineffective and therefore the prayer for bail of the applicant has to be considered in view of the amended provisions of Section 45(1) of the PMLA Act.”
However, the Court discarded this argument and aptly held that “the original Subsection 45(1)(ii) has therefore neither revived nor resurrected by the Amending Act and therefore, as of today there is no rigor of said two further conditions under original Section 45(1)(ii) of PMLA Act for releasing the accused on bail under the said Act.”
A similar view was also taken by Justice P.K. Jaiswal of the Madhya Pradesh High Court in Dr. Vinod Bhandari vs. Enforcement Directorate, and by Justice Mukta Gupta of the High Court of Delhi in Upendra Rai vs. Directorate of Enforcement, and by Justice C.S. Singh of the Patna High Court in Ahilya Devi vs. The State Of Bihar on 28th May 2020, wherein the Court was pleased to hold that the amendment does not resurrect twin conditions provided for under section 45(1) which were struck down by Supreme Court in 2017 and therefore, for deciding bail applications under the Act, only considerations are, prima facie material available to fortify commission of an offense, gravity of the offense, severity of punishment, chances of fleeing and tampering with evidence. In other words, only section 439 Cr.P.C has to be considered. It is also pertinent to note that, a Bench comprising of Justice Rohinton Nariman and Justice S. Ravindra Bhat of the Supreme Court also dismissed the Petition filed by the ED for cancellation of bail in Directorate of Enforcement vs. D. K. Shivakumar in which one of the grounds invoked for cancellation of bail was the applicability of Section 45(1) PMLA.
All in all, the Prevention of Money Laundering Act has undergone significant changes since its inception. However, various High Courts across the country have settled the position that mere substitution of the word ‘under this Act’ will neither revive nor resurrect the application of twin conditions, which have been declared unconstitutional as a whole by the Supreme Court.
Adv. Pramod Kumar Dubey is a practising lawyer in Delhi.
