Challenges to the Prevention of Money laundering Act: Solicitor General Tushar Mehta Argues That Onerous Bail Conditions Are Constitutional

On March 8th, 2022, Justices A.M. Khanwilkar, Dinesh Maheshwari, and C.T. Ravikumar commenced the 20th day of final hearings in the challenges to the Prevention of Money Laundering Act, 2002 (PMLA). Having spent four days establishing the background and context for the Act, Solicitor General (SG) Tushar Mehta, on behalf of the Union government, began responding to the petitioners’ crucial challenges to the PMLA’s provisions for arrest and bail today. (Read Mr. Mehta’s arguments about the ED’s powers of arrest here.)

Over 100 petitioners, many of whom are accused of money laundering themselves, have argued that Section 45 of the Act places an onerous burden of proof on the accused—which is in violation of the Court’s Judgment in Nikesh Tarachand Shah v Union of India (2017). This makes it impossible for those charged under the PMLA to get bail. 

SG Mehta: Section 45 of PMLA Not in Contravention with Nikesh Tarachand Shah

Section 45 of the PMLA, which has been amended twice by Parliament, lays down that an accused can only be granted bail if the magistrate is convinced that the accused is not guilty of the offence. This is distinct from the CrPC, where bail can be granted if the magistrate is convinced that the accused will not impede the investigation or pose a flight risk if released on bail. The petitioners previously argued that Section 45 places an unduly onerous burden on the accused to prove their innocence, making bail virtually impossible to secure. 

A two-Judge Bench of the SC—comprising Justices Rohinton Nariman and Sanjay Kishan Kaul—held Section 45 to be unconstitutional in Nikesh Tarachand Shah. Mr. Mehta argued today that the reason for this decision was not the onerous requirements suggested in Section 45. The Court found the provision unconstitutional because it required proof of innocence for both the predicate offence—from which the proceeds of crime had arisen—and the money laundering offence. The Court found that there was no nexus between the predicate offence and the onerous bail provision in Section 45. The Court further found the distinct bail conditions for offences punishable with different sentences to be arbitrary. Mr. Mehta argued that both these defects had been cured through amendments in 2018.. 

Mr. Mehta argued that the petitioners were incorrect to say that the legislature had attempted to bring back provisions held unconstitutional by the SC through the amendment. The legislature had changed the basis on which the provision was found to be unconstitutional. In its amended form, Mr. Mehta argued that Section 45 of the PMLA in its current form is not in contravention of Nikesh Tarachand Shah.

Mr. Mehta briefly made an alternative submission in case the Court found that Nikesh Tarachand Shah held Section 45 to be ‘manifestly arbitrary’ and unconstitutional in its entirety, even beyond the amended parts. In this case, Mr. Mehta asked the Court to consider that the Nikesh Bench was not informed of the larger context in which the PMLA was promulgated. The Judgment understood money laundering to be a non-serious offence and did not account for India’s international obligation to deal with the crime in the strictest possible way. Therefore, the Bench did not have the  opportunity to consider that the onerous bail conditions had been created for the separate class of money laundering offences to address a legitimate State interest.  

SG Mehta: Section 45 Must Apply To Pre-Arrest Bail as Well

Mr. Mehta implored the Bench to reconsider Nikesh Tarachand’s observation that the conditions for bail in Section 45 of the PMLA would only apply to bail after arrest. Anticipatory bail would be governed by the CrPC, according to the Judgment. Mr. Mehta argued that this distinction between pre-arrest and post-arrest bail was artificial—Section 45 did not contemplate any difference. 

Justice Khanwilkar expressed agreement with Mr. Mehta. He stated that the Nikesh Tarachand Shah observations about pre-arrest bail were obiter dicta (not binding). The Bench stated that the SC had ruled that Section 45 would apply to anticipatory bail in three Orders after Nikesh Tarachand Shah. 

Mr. Mehta will conclude his arguments in defense of the PMLA on March 9th, 2022. Additional Solicitor General S.V.  Raju will present the remaining arguments against the petitioners after Mr. Mehta concludes. 

 

To access court documents, and to read more of SCO’s incisive journalism on past hearings of the PMLA case, click here.