Constitutional Law; Nikesh Tarachand Shah Vs. Union of India [Supreme Court of India, 23-11-2017]

Prevention of Money Laundering Act, 2002 –  Section 45 – Constitutional Validity of –  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 THE SUPREME COURT OF INDIA

CRIMINAL ORIGINAL/APPELLATE JURISDICTION

(R.F. Nariman) and (Sanjay Kishan Kaul) JJ.

November 23, 2017

WRIT PETITION (CRIMINAL) NO. 67 OF 2017

NIKESH TARACHAND SHAH …PETITIONER

VERSUS

UNION OF INDIA & ANR. …RESPONDENTS

WITH WRIT PETITION (CRIMINAL) NO.103 OF 2017 WITH WRIT PETITION (CRIMINAL) NO.144 OF 2017 WITH WRIT PETITION (CRIMINAL) NO.152 OF 2017 WITH CRIMINAL APPEAL NO. 2012 OF 2017 (ARISING OUT OF SLP (CRL) NO.7326 OF 2017) WITH CRIMINAL APPEAL NO. 2013 OF 2017 (ARISING OUT OF SLP (CRL) NO.7786 OF 2017) WITH CRIMINAL APPEAL NO. 2014 OF 2017 (ARISING OUT OF SLP (CRL) NO.7789 OF 2017)

J U D G M E N T

R.F. Nariman, J.

1. Leave granted.

2. The present writ petitions and appeals raise the question of the constitutional validity of Section 45 of the Prevention of Money Laundering Act, 2002. Section 45(1) imposes two conditions for grant of bail where an offence punishable for a term of imprisonment of more than 3 years under Part A of the Schedule to the Act is involved. The conditions are that the Public Prosecutor must be given an opportunity to oppose any application for release on bail and 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.

3. The Prevention of Money Laundering Act, 2002 was introduced, as its Statement of Objects and Reasons mentions, to make money laundering an offence, and to attach property involved in money laundering, so that this serious threat to the financial system of India is adequately dealt with. It is worth setting out the Statement of Objects and Reasons of the Act in full.

STATEMENT OF OBJECTS AND REASONS

It is being realised, world over, that moneylaundering poses a serious threat not only to the financial systems of countries, but also to their integrity and sovereignty. Some of the initiatives taken by the international community to obviate such threats are outlined below:—

(a) the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, to which India is a party, calls for prevention of laundering of proceeds of drug crimes and other connected activities and confiscation of proceeds derived from such offence.

(b) the Basle Statement of Principles, enunciated in 1989, outlined basic policies and procedures that banks should follow in order to assist the law enforcement agencies in tackling the problem of money-laundering.

(c) the Financial Action Task Force established at the summit of seven major industrial nations, held in Paris from 14th to 16th July, 1989, to examine the problem of money-laundering has made forty recommendations, which provide the foundation material for comprehensive legislation to combat the problem of money-laundering. The recommendations were classified under various heads. Some of the important heads are—

(i) declaration of laundering of monies carried through serious crimes a criminal offence;

(ii) to work out modalities of disclosure by financial institutions regarding reportable transactions;

(iii) confiscation of the proceeds of crime;

(iv) declaring money-laundering to be an extraditable offence; and (v) promoting international co-operation in investigation of money-laundering.

(d) the Political Declaration and Global Programme of Action adopted by United Nations General Assembly by its Resolution No. S-17/2 of 23rd February, 1990, inter alia, calls upon the member States to develop mechanism to prevent financial institutions from being used for laundering of drug related money and enactment of legislation to prevent such laundering.

(e) the United Nations in the Special Session on Countering World Drug Problem Together concluded on the 8th to the 10th June, 1998 has made another declaration regarding the need to combat money-laundering. India is a signatory to this declaration.

2. In view of an urgent need for the enactment or a comprehensive legislation inter alia for preventing money-laundering and connected activities confiscation of proceeds of crime, setting up of agencies and mechanisms for coordinating measures for combating money-laundering, etc., the Prevention of Money-Laundering Bill, 1998 was introduced in the Lok Sabha on the 4th August, 1998. The Bill was referred to the Standing Committee on Finance, which presented its report on the 4th March, 1999 to the Lok Sabha. The recommendations of the Standing Committee accepted by the Central Government are that (a) the expressions “banking company” and “person” may be defined; (b) in Part I of the Schedule under Indian Penal Code the word offence under section 477A relating to falsification of accounts should be omitted; (c) ‘knowingly’ be inserted in clause 3(b) relating to the definition of money-laundering; (d) the banking companies, financial institutions and intermediaries should be required to furnish information of transactions to the Director instead of Commissioner of Income-tax (e) the banking companies should also be brought within the ambit of clause II relating to obligations of financial institutions and intermediaries; (f) a definite timelimit of 24 hours should be provided for producing a person about to be searched or arrested person before the Gazetted Officer or Magistrate; (g) the words “unless otherwise proved to the satisfaction of the authority concerned” may be inserted in clause 22 relating to presumption on interconnected transactions; (h) vacancy in the office of the Chairperson of an Appellate Tribunal, by reason of his death, resignation or otherwise, the seniormost member shall act as the Chairperson till the date on which a new Chairperson appointed in accordance with the provisions of this Act to fill the vacancy, enters upon his office; (i) the appellant before the Appellate Tribunal may be authorised to engage any authorised representative as defined under section 288 of the Income-tax Act, 1961, (j) the punishment for vexatious search and for false information may be enhanced from three months imprisonment to two years imprisonment, or fine of rupees ten thousand to fine of rupees fifty thousand or both; (k) the word ‘good faith’ may be incorporated in the clause relating to Bar of legal proceedings. The Central Government have broadly accepted the above recommendations and made provisions of the said recommendations in the Bill.

3. In addition to above recommendations of the standing committee the Central Government proposes to (a) relax the conditions prescribed for grant of bail so that the Court may grant bail to a person who is below sixteen years of age, or woman, or sick or infirm, (b) levy of fine for default of non-compliance of the issue of summons, etc. (c) make provisions for having reciprocal arrangement for assistance in certain matters and procedure for attachment and confiscation of property so as to facilitate the transfer of funds involved in moneylaundering kept outside the country and extradition of the accused persons from abroad.

4. The Bill seeks to achieve the above objects.”

4. Though the Act was passed by Parliament in the year 2002, it was brought into force only on 1.7.2005. Some of the important provisions, with which we are directly concerned, are set out hereinbelow:

Section 2. Definitions.—(1) In this Act, unless the context otherwise requires,— (p) “money-laundering” has the meaning assigned to it in section 3;

(u) “proceeds of crime” means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country;

(x) “Schedule” means the Schedule to this Act;

(y) “scheduled offence” means—

(i) the offences specified under Part A of the Schedule; or

(ii) the offences specified under Part B of the Schedule if the total value involved in such offences is one crore rupees or more; or

(iii) the offences specified under Part C of the Schedule.

Section 3. Offence of money-laundering.— Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.

Section 4. Punishment for money-laundering.— Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine: Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words “which may extend to seven years”, the words “which may extend to ten years” had been substituted.

Section 5. Attachment of property involved in money-laundering.

(1) Where the Director or any other officer not below the rank of Deputy Director authorised by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that—

(a) any person is in possession of any proceeds of crime; and

(b) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed:

Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report or complaint has been made or filed under the corresponding law of any other country:

Provided further that, notwithstanding anything contained in first proviso, any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the nonattachment of the property is likely to frustrate any proceeding under this Act.

(2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed.

(3) Every order of attachment made under subsection (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under sub-section (2) of section 8, whichever is earlier.

(4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment.

Explanation.— For the purposes of this sub-section, “person interested”, in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property.

(5) The Director or any other officer who provisionally attaches any property under subsection (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority.

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Section 43. Special Courts.— (1) The Central Government, in consultation with the Chief Justice of the High Court, shall, for trial of offence punishable under section 4, by notification, designate one or more Courts of Session as Special Court or Special Courts or such area or areas or for such case or class or group of cases as may be specified in the notification.

Explanation.— In this sub-section, “High Court” means the High Court of the State in which a Sessions Court designated as Special Court was functioning immediately before such designation.

(2) While trying an offence under this Act, a Special Court shall also try an offence, other than an offence referred to in sub-section (1), with which the accused may, under the Code of Criminal Procedure, 1973 (2 of 1974), be charged at the same trial.

Section 44. Offences triable by Special Courts.—

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),—

(a) an offence punishable under section 4 and any scheduled offence connected to the offence under that section shall be triable by the Special Court constituted for the area in which the offence has been committed:

Provided that the Special Court, trying a scheduled offence before the commencement of this Act, shall continue to try such scheduled offence; or

(b) a Special Court may, upon perusal of police report of the facts which constitute an offence under this Act or upon a complaint made by an authority authorised in this behalf under this Act take cognizance of offence under section 3, without the accused being committed to it for trial;

(c) if the court which has taken cognizance of the scheduled offence is other than the Special Court which has taken cognizance of the complaint of the offence of money-laundering under sub-clause (b), it shall, on an application by the authority authorised to file a complaint under this Act, commit the case relating to the scheduled offence to the Special Court and the Special Court shall, on receipt of such case proceed to deal with it from the stage at which it is committed.

(d) a Special Court while trying the scheduled offence or the offence of money-laundering shall hold trial in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) as it applies to a trial before a Court of Session.

(2) Nothing contained in this section shall be deemed to affect the special powers of the High Court regarding bail under section 439 of the Code of Criminal Procedure, 1973 (2 of 1974) and the High Court may exercise such powers including the power under clause (b) of sub-section (1) of that section as if the reference to “Magistrate” in that section includes also a reference to a “Special Court” designated under section 43.

Section 45. Offences to be cognizable and nonbailable.—

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), 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—

(i) the Public Prosecutor has been given a 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:

Provided that a person, who, is under the age of sixteen years, or is a woman or is sick or infirm, may be released on bail, if the Special Court so directs:

Provided further that the Special Court shall not take cognizance of any offence punishable under section 4 except upon a complaint in writing made by—

(i) the Director; or

(ii) any officer of the Central Government or a State Government authorised in writing in this behalf by the Central Government by a general or special order made in this behalf by that Government.

(1A) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), or any other provision of this Act, no police officer shall investigate into an offence under this Act unless specifically authorised, by the Central Government by a general or special order, and, subject to such conditions as may be prescribed.

(2) 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.

Section 46. Application of Code of Criminal Procedure, 1973 to proceedings before Special Court.—

(1) Save as otherwise provided in this Act, the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) (including the provisions as to bails or bonds), shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session and the persons conducting the prosecution before the Special Court, shall be deemed to be a Public Prosecutor:

Provided that the Central Government may also appoint for any case or class or group of cases a Special Public Prosecutor.

(2) A person shall not be qualified to be appointed as a Public Prosecutor or a Special Public Prosecutor under this section unless he has been in practice as an advocate for not less than seven years, under the Union or a State, requiring special knowledge of law.

(3) Every person appointed as a Public Prosecutor or a Special Public Prosecutor under this section shall be deemed to be a Public Prosecutor within the meaning of clause (u) of section 2 of the Code of Criminal Procedure, 1973 (2 of 1974) and the provisions of that Code shall have effect accordingly.

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Section 65. Code of Criminal Procedure, 1973 to apply.— The provisions of the Code of Criminal Procedure, 1973 (2 of 1974) shall apply, in so far as they are not inconsistent with the provisions of this Act, to arrest, search and seizure, attachment, confiscation investigation, prosecution and all other proceedings under this Act.

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Section 71. Act to have overriding effect.—The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.”

5. Shri Mukul Rohatgi, learned senior advocate appearing on behalf of the petitioners, has argued before us that Section 45 of the said Act, when it imposes two further conditions before grant of bail is manifestly arbitrary, discriminatory and violative of the petitioner’s fundamental rights under Article 14 read with Article 21 of the Constitution. According to learned senior counsel, at the stage that the said Act was a Bill (which was referred to a Standing Committee on Finance of the Parliament, and which presented its report on 4.3.1999 to the Lok Sabha), the Central Government broadly accepted the recommendations of the Standing Committee, which were then incorporated in the said Bill along with some other changes. At this stage, argued Shri Rohatgi, it is interesting to note that Clauses 43 and 44 of the Bill, which correspond to Sections 44 and 45 of the present Act, were very differently worded and dealt only with offences under the 2002 Act. The twin conditions laid down as additional conditions for grant of bail were, at this stage, only qua offences under the 2002 Act. When Parliament enacted the 2002 Act, this scheme was completely changed in that Section 45 of the Act now spoke only of the predicate/scheduled offence and not the offence under the 2002 Act. In the present Act, a scheduled offence, which is an offence under other penal laws contained in Part A of the Schedule, that is tried with offences under the Act, bail would be granted only after satisfying the twin conditions laid down in the Section. Also, when the Act was originally enacted, according to learned senior counsel, part A of the Schedule was very sparsely populated, in that it comprised of two paragraphs only consisting of two offences under the Indian Penal Code, 1860 and 9 offences under the Narcotic Drugs and Psychotropic Substances Act, 1985. These offences were considered extremely heinous by the legislature and were, therefore, classified apart from offences under Part B, which dealt with certain other offences under the Indian Penal Code and offences under the Arms Act 1959, Wildlife (Protection) Act 1972, Immoral Traffic (Prevention) Act, 1956 and the Prevention of Corruption Act, 1988. According to learned senior counsel, this classification was maintained right until the Amendment Act of 2012, which then incorporated Part B offences into Part A of the Schedule, resulting in offences under 26 Acts, together with many more offences under the Indian Penal Code, all being put under Part A. This, according to learned senior counsel, was done because the definition of “scheduled offence” in Section 2(y) of the Act made it clear that, if offences are specified under Part B of the Schedule at the relevant time, the total value involved for such offences should be Rs.30 lakhs or more. The idea behind the 2012 Amendment, as the Statement of Objects of the said Amendment discloses, is that this limit of Rs.30 lakhs be removed, which is why the entire Part B of the Schedule was subsumed in Part A. He further argued that the object was not to deny bail to those charged with offences under the erstwhile Part B, and that putting Part B offences together with heinous offences in Part A would amount to treating unequals equally and would be discriminatory and violative of Article 14 of the Constitution. In addition, such lumping together of disparate offences would have no rational relation to the object sought to be achieved by the Amendment Act of 2012, that is to obviate the Rs.30 lakh limit qua Part B offences, and it would violate Article 14 on this ground as well. According to learned senior counsel, the change from the original scheme of the Bill to introducing offences outside the 2002 Act dependent upon which bail would be granted, with the twin conditions as aforestated first having to be satisfied, is itself manifestly arbitrary, in that the predicate offence, which is the scheduled offence, and the classification of such offence as being punishable with three years or more would again be wholly irrelevant and would have absolutely no rational relation to the object of granting bail insofar as offences under the 2002 Act are concerned. Learned senior counsel also referred to Article 21 of the Constitution and stated that the aforesaid procedure would be unfair, unjust and would fall foul of Article 21 inasmuch as it would certainly fall foul of the US Constitution’s Eighth Amendment which interdicts excessive bails. Since this Court has recognized that this feature of the Eighth Amendment would fall within Article 21, it would be a direct infraction thereof. He also argued that a person will be punished for an offence contained under the 2002 Act, but will be denied bail because of a predicate offence which is contained in Part A of the Schedule, which would again render Section 45(1) as manifestly arbitrary and unreasonable. He referred to Nikesh Tarachand Shah’s case, which is Writ Petition (criminal) No.67 of 2017, in which the scheduled offences were Sections 120B, 409, 420, 471 and 477A of the Indian Penal Code read with Section 13 of the Prevention of Corruption Act. These offences were being investigated by the CBI in CBI Special Case No.91/2009 in which the petitioner was granted bail by the Sessions Court by an order dated 10.12.2015. When the offence under the 2002 Act was added to the aforesaid offences, thanks to the applicability of the twin conditions in Section 45(1), he was denied bail with effect from 27.11.2015, which itself shows that Section 45(1) is being used in an extremely manifestly arbitrary fashion to deny bail for offences which extend only to seven years under the 2002 Act, as opposed to predicate offences which may extend even to life imprisonment. Also, according to learned senior counsel, the threshold of three years and above contained in Section 45 of the 2002 Act is itself manifestly arbitrary in that it has no reference to the offence of money laundering under the 2002 Act, but only to three years and more of the predicate offence. There is no condition, so far as the 2002 Act is concerned, of classification based on the amount of money that is laundered, which perhaps may be a valid basis for classification. Also, according to learned senior counsel, if the twin conditions of Section 45(1) are to be satisfied at the stage of bail, the defendants will have to disclose their defence at a point in time when they are unable to do so, having been arrested and not being granted bail at the inception itself. Another conundrum raised by Section 45 is the fact that, there being no interdict against anticipatory bail in the 2002 Act, and the Code of Criminal Procedure applying to offences under the 2002 Act, it would be clear that anticipatory bail could be granted for both offences under the 2002 Act and predicate offences. This being so, unlike the Terrorist and Disruptive Activities (Prevention) Act 1987, where anticipatory bail expressly cannot be granted, the twin conditions of Section 45 would not apply at the anticipatory bail stage, which would mean that a person charged of money laundering and a predicate offence could continue on anticipatory bail throughout the trial without satisfying any of the twin conditions, as opposed to a person who applies for regular bail, who would have to satisfy the twin conditions, which in practice would mean denial of bail. For all these reasons, according to learned senior counsel, Section 45 needs to be struck down. Also, according to learned senior counsel, it is not possible to read down the provision to make it constitutional as the very scheme of Section 45 is manifestly arbitrary and irrational. Shri Rohatgi cited various judgments to buttress his submissions which will be referred to by us in the course of this judgment.

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