India: Supreme Court Declares Section 45(1) Of Prevention Of Money Laundering Act, 2002 As Unconstitutional

Last Updated: 8 January 2018
Article by Ajay Bhargava, Aseem Chaturvedi and Sharngan Aravindakshan

Most Read Contributor in India, December 2017

The Division Bench of the Supreme Court of India (SC), comprising Justice R F Nariman and Justice S K Kaul, has declared Section 45(1) of the Prevention of Money Laundering Act, 2002 (the Act) as unconstitutional insofar as it imposes two additional requisites for granting bail in addition to the conditions provided for in the Code of Criminal Procedure, 1973. The SC has held that these additional conditions are in violation of Articles 14 and 21 of the Constitution of India (Constitution).

Background

The SC was dealing with a series of writ petitions and appeals, all challenging the constitutional validity of Section 45 of the Act.

Section 45(1) of the Act, imposes the following two additional conditions for grant of bail in cases involving an offence punishable for a term of imprisonment of more than 3 years under Part A of the Schedule to the Act:

  1. The Public Prosecutor must be given an opportunity to oppose any application for release on bail; and
  2. The Court must be satisfied, where the Public Prosecutor opposes the application, 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.

Petitioners' contentions

It was contended by the Petitioners that imposition of the above two conditions for grant of bail was arbitrary and discriminatory, and in violation of Articles 14 and 21 of the Constitution. The arguments put forth by the Petitioner were as follows:

  1. When the Prevention of Money Laundering Bill, 1998, was introduced in Parliament, Clauses 43 and 44 of the Bill, which correspond to Sections 44 and 45 of the Act, dealt only with offences under the Act. Hence, the twin conditions under Section 45(1), at that time, were applicable only qua offences under the Act. However, on enactment in 2002, this scheme was completely changed and the same provision was made applicable to offences under Part A of the Schedule instead of offences under the Act.
  2. Further, when the Act was enacted in 2002, Part A was sparsely populated and comprised only of two offences under the Indian Penal Code, 1860 and 9 offences under the Narcotic Drugs and Psychotropic Substances Act, 1985. However, after the 2012 Amendment, the offences contained in Schedule B were in their entirety, transferred to Schedule A, thereby vastly increasing the scope of application of Section 45(1) to numerous other offences not present under the Act.
  3. Amending the provision from solely applying Section 45(1) to offences under the Act to application in other offences also is manifestly arbitrary as prosecution of the accused is in relation to offences committed under the Act, but bail as per this provision would be denied because of the charge of having committed a scheduled offence which includes non-Act offences also, renders Section 45(1) manifestly unreasonable.
  4. As per the second condition, while the accused is forced to disclose their defence, they would be unable to do so as it would be is a pre-requisite for them to get bail.
  5. Section 45(1) of the Act, ignores obvious contradictions such as the fact that since anticipatory bail is not prohibited under the Act, a person could apply for the same and stay out of jail for the entire trial. However, an arrested person accused of the same offences would be forced to satisfy the rigour of Section 45(1) of the Act before obtaining bail.
  6. Section 45(1) is in violation of Article 21 of the Constitution, inasmuch as the Eighth Amendment of the US Constitution providing the requirement against excessive bail has been read into Article 21 of the Constitution by the SC in Rajesh Kumar v State through Government of NCT of Delhi [(2011) 13 SCC 706].

Respondents' contentions

The arguments put forth by the Respondents were as follows:

  1. The scheme of the Act is to get back money which has been siphoned out of from the economy.
  2. Section 45 of the Act can easily be read down to make it constitutional. "Reasonable grounds for believing that he is not guilty of such offence" must be read as the Court making a prima facie assessment of reasonable guilt. Further, the conditions in Section 45(1)(ii) are already prevalent in a different form when bail is ordinarily granted.
  3. Section 24 of the Act read with Section 106 of the Indian Evidence Act, 1872, in any case, inverts the burden of proof and hence, must be read together with Section 45 of the Act.
  4. Section 45 of the Act, being an entire code, must be upheld to enable recovery of black money.

Held

The Court, after examining the history of precedents in light of Articles 14 and 21 of the Constitution of India as well as the principles in granting bail, held as follows:

  1. The mere circumstance that the offence of money laundering is being tried with an offence under Schedule A, cannot naturally lead to the grant or denial of bail by applying Section 45(1) of the Act.
  2. As per Section 45(1) of the Act, the grant of bail would depend on a circumstance which has nothing to do with the offence of money laundering [as the same is an offence under the Act, whereas Section 45(1) is only applicable to Schedule A offences]. Hence, no rational nexus exists between the object of the Act which is to punish money laundering and Section 45(1), which penalises the accused for other offences.
  3. In every statute that incorporates the twin test for bail under Section 45(1), such as the Terrorist and Disruptive Activities (Prevention) Act, 1987 or the Narcotic Drugs and Psychotropic Substances Act, 1985, the twin test is applied for offences under those respective Acts, and not for other scheduled offences.
  4. Classification of an offence based on sentence of imprisonment of more than three years in Part A of the Schedule is arbitrary and unjustified as it has no reasonable nexus to the object sought to be achieved by the Act.
  5. An anomalous situation is created when an accused can get anticipatory bail since the same is not prohibited under the Act and escape jail for the duration of the trial. However, a person after arrest, accused of the same charges, will have to satisfy the twin test of Section 45(1) of the Act.
  6. Section 45(1) of the Act is in violation of the presumption of innocence which cannot be justified even in light of the scheme of the Act. Section 24 of the Act, which reverses the burden of proof in offences under the Act, cannot be read with Section 45 as the latter solely applies to only Scheduled Offences.

Having held thus, the Court was pleased to strike down Section 45(1) of the Act as being violative of Articles 14 and 21 of the Constitution. The Court also directed that pending matters under the Act, be remanded to Courts that denied bail on the ground of application of the provisions of Section 45(1) of the Act, for reconsideration in light of the SC's judgment.

Comment

This ruling sheds much clarity on the jurisprudence of Article 14 and Article 21 of the Constitution. By striking down the restrictions on grant of bail as set out in Section 45(1) of the Act, the SC has rightly upheld the settled principles of natural justice enshrined in the Constitution.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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