The twin conditions
Can the presumption of innocence of an accused, which has been considered a human right and juxtaposed with the right to life guaranteed under Article 21 of the Constitution of India,1 be turned on its head by way of the Prevention of Money Laundering Act, 2002 (PMLA)?
The Supreme Court is currently considering a review2 of its decision in Vijay Madanlal Choudhary v. Union of India3 (Vijay Madanlal Choudhary) which had inter alia held Section 45 of the PMLA to be constitutional. Section 45 of the PMLA, which deals with conditions for bail pending trial, completely overlooks the general principle of criminal law i.e. an accused is presumed to be innocent until proven guilty. Section 45 however provides that a court may grant bail to an accused if the court is satisfied that: (i) there are reasonable grounds for believing that the accused is “not guilty of such offence”; and (ii) that the accused is “not likely to commit any offence while on bail” (commonly referred to as the “twin conditions”).
A perusal of the above makes it manifest that the first of these conditions reverses the burden on the accused to demonstrate that he is “not guilty”. As such, this burden placed on the accused is in direct conflict with the presumption of innocence.
It is the view of the authors that while provisions similar to Section 45 are contained in other criminal legislations, such as those pertaining to drug trafficking and terrorism — the constitutional validity of provisions that limit the presumption of innocence and impinge upon the constitutional right to life and liberty in each legislation has to be examined and tested independently. The present article is accordingly limited to considering whether the twin conditions can be constitutionally sustained for offences committed within the PMLA.
In Vijay Madanlal Choudhary case4, the Supreme Court upheld the constitutional validity of Section 45 by, inter alia, placing reliance on “purposes and objects of the PMLA” and India’s “commitments” made to international bodies and their recommendations.
With respect, such reliance, in specific relation to Section 45, requires reconsideration by the Supreme Court. No useful evidence of the rationale for the twin conditions for bail is found in the purposes and object of the PMLA. The twin conditions also do not find any mention in the recommendations of international bodies relevant to the issue of money laundering, such as the financial action task force (FATF), which had been relied on by the Union of India in its submissions in Vijay Madanlal Choudhary case5.
To the contrary, the FATF itself acknowledges the presumption of innocence as a fundamental principle of domestic law and has acknowledged that its recommendations and standards are misapplied by jurisdictions, adversely impacting the right to a fair trial in money laundering cases.
The 2017 decision of the Supreme Court in Nikesh Tarachand Shah v. Union of India
The constitutionality of the said twin conditions fell for the consideration of the Supreme Court in Nikesh Tarachand Shah v. Union of India6 (Nikesh Tarachand Shah). In the said decision, the Supreme Court struck down Section 45 of the PMLA as being unconstitutional.
Section 45, as it then was, prior to legislative amendments made in 2018, required the accused to demonstrate that he/she was not guilty of the predicate/“scheduled offence”. This was held to be manifestly arbitrary by the Supreme Court, since in a proceeding under the PMLA for the offence of money laundering, the bail provision required an accused to prove he/she was not guilty of a completely different offence (i.e. the scheduled offence) and not the offence of money laundering under the PMLA.7
The Supreme Court further noted that Section 45 is a drastic provision that reverses the presumption of innocence of an accused, contrary to the fundamental right to life granted under Article 21 of the Constitution.8 The Supreme Court observed that while other statutes that contained provisions similar to Section 45 were shown to be furthering a compelling State interest for tackling serious crime — the Supreme Court was not convinced that the same compelling State interest existed with respect to offences under the PMLA.
Therefore, in 2017, the Supreme Court recognised the primacy of the general rule of presumption of innocence and held that, as a general principle, the legislature cannot turn this presumption on its head by casting the burden on the accused to prove innocence at the stage of bail. Pertinently, though the Supreme Court recognised the power of the legislature to restrict the applicability of the general rule, it was clarified that this could only be done by demonstrating a “compelling State interest”.
Subsequent to the decision in Nikesh Tarachand Shah case9, Parliament amended the PMLA in 2018 to remove certain specific defects noted by the Supreme Court. Section 45 no longer requires an accused to prove that he/she is not guilty of the “scheduled offence” and instead requires the accused to demonstrate that he is not guilty of the offence of money laundering under the PMLA.
The 2022 decision of the Supreme Court in Vijay Madanlal Choudhary v. Union of India
The constitutionality of the provisions of Section 45 of the PMLA was once again challenged before the Supreme Court in Vijay Madanlal Choudhary case10. In the said decision, a Bench of 3 Judges, held that Parliament had removed the defects noted in Nikesh Tarachand Shah case11 decision by way of amendments in 2018 and 2019.12
Submissions against the constitutional validity of the twin conditions
In Vijay Madanlal Choudhary case13, it was argued by the petitioners that even after the amendments, the reversal of the presumption of innocence under Section 45 of the PMLA was arbitrary and in violation of various fundamental rights guaranteed under the Constitution of India, particularly the right to life and liberty under Article 21.14 It was further argued that the twin conditions under the PMLA can never be satisfied since an accused at the pre-trial stage of bail can never show that he is not guilty, thus amounting to disproportionate and excessive conditions for bail.15
The decision in Nikesh Tarachand Shah case16 was relied upon to submit that, apart from the two defects noticed in the said decision (which were held to be cured by subsequent amendments), the Supreme Court had also held that Section 45 had turned the presumption of innocence on its head, in violation of Article 21 of the Constitution.17 It was thus argued that Section 45 continued to remain unconstitutional on this ground even after the amendments.
Submissions by the Union of India
Defending the constitutionality of the provisions of the PMLA, the Union of India argued that the Supreme Court must adjudge the constitutionality of various provisions of the PMLA “from the standpoint of the country’s obligations and evolving responsibilities internationally”.18 In this context, the Union of India relied on the international commitments and recommendations of international bodies, including those made by the Financial Action Task Force (‘FATF, an international body that reviews money laundering prevention measures in various countries.19 It was submitted that the provisions in the PMLA had been made in compliance with the “mandate of FATF” and the Constitution.20
In specific relation to Section 45, the Union of India argued that the “stringent bail conditions” under Section 45 were necessary “to give effect to the international standards of preventing money laundering prescribed by FATF and other international treaties”.21
Apart from the aforementioned arguments, there was no specific “compelling State interest” justifying the existence of Section 45, that was demonstrated by the Union of India.22
Conclusions of the Supreme Court
The Supreme Court, disagreed with the observations in the decision in Nikesh Tarachand Shah case23 to the effect that the offences under the PMLA were not shown to be furthering a compelling State interest in tackling serious crime. In this regard, in its conclusions regarding the constitutional validity of Section 45, the Supreme Court observed that:
395. … we do not agree with the observations suggestive of that (sic) the offence of money laundering is less heinous offence than the offence of terrorism sought to be tackled under the TADA Act [Terrorist and Disruptive Activities (Prevention) Act, 1987] or that there is no compelling State interest in tackling offence of money laundering. The international bodies have been discussing the menace of money laundering on regular basis for quite some time; and strongly recommended enactment of stringent legislation for prevention of money laundering and combating with the menace thereof including to prosecute the offenders and for attachment and confiscation of the proceeds of crime having direct impact on the financial systems and sovereignty and integrity of the countries. That concern has been duly noted even in the opening part of the introduction and Statement of Objects and Reasons, for which the 2002 Act came into being.24 (emphasis supplied)
Further to the above, the Supreme Court in upholding the constitutional validity of the “twin conditions” placed substantial reliance on the purposes and objects of the PMLA and recommendations of the FATF and India’s international obligations. In this regard, the Supreme Court held as follows:
387. … The twin conditions are that there are reasonable grounds for believing that the accused is not guilty of offence of money laundering and that he is notlikely to commit any offence while on bail. Considering the purposes and objects of the legislation in the form of 2002 Act and the background in which it had been enacted owing to the commitment made to the international bodies and on their recommendations, it is plainly clear that it is a special legislation to deal with the subject of money-laundering activities having transnational impact on the financial systems including sovereignty and integrity of the countries. This is not an ordinary offence….
405. … Instead, we hold that the provision in the form of Section 45 of the 2002 Act, as applicable post-amendment of 2018, is reasonable and has direct nexus with the purposes and objects sought to be achieved by the 2002 Act to combat the menace of money laundering having transnational consequences including impacting the financial systems and sovereignty and integrity of the countries.25 (emphasis supplied)
No basis to justify the reversal of presumption of innocence
A perusal of Preamble to the PMLA, the Statement of Objects and Reasons to the PMLA, the legislative assembly debates, as well as the FATF recommendations extracted in the decision in Vijay Madanlal case26, make it apparent that there were no comments or observations in specific relation to the harsh bail conditions imposed under Section 45 of the PMLA.
In fact, in parliamentary debates, questions regarding the harshness of Section 45 were raised and appear to have remained unanswered.27
It is true that Parliament did consider the FATF recommendations while making amendments to the PMLA.28 However, the FATF recommendations extracted in Vijay Madanlal judgment29 did not contain any specific recommendations by the FATF in relation to (i) twin conditions; (ii) requirements for harsh bail conditions pending trial; or (iii) dilution of the general presumption of innocence. In the absence of any such recommendations, it cannot be said that any specific international commitments have been made by India that justify the twin conditions introduced in Section 45 of the PMLA.
FATF comments and other international obligations reiterating the presumption of innocence
On the other hand, India is party to the Universal Declaration of Human Rights (UDHR)30 and international treaties such as the International Covenant on Civil and Political Rights (ICCPR)31, which specifically contain protections for persons being prosecuted in criminal proceedings. Article 14 of the ICCPR (similar to Article 11 of the UDHR) clearly provides that any accused person in a criminal offence “shall have the right to be presumed innocent until proved guilty according to law”.
Pertinently, while India ratified the ICCPR in 1979, it raised certain reservations on certain articles contained in the ICCPR but did not make any such reservation under Article 14, which guarantees a right to presumption of innocence to accused persons.32
In the context of obligations under international human rights treaties, the FATF has itself noted that “… as a matter of principle, complying with the FATF Recommendations should not contravene a country’s obligations under … international human rights law….”33
Moreover, in a note titled the “Unintended Consequences of the FATF Standards”, the FATF has in fact admitted that it has “not systematically studied” the curtailment of human rights, especially due process and procedural rights such as the right to a fair trial. It has further acknowledged that countries have misapplied FATF Standards.34
Most importantly, the FATF has itself acknowledged misapplication of FATF Standards by some States contrary to the “presumption of innocence and a person’s right to effective protection by the courts”.35
Evidently, far from having made any recommendation supporting the application of harsh conditions for bail under Section 45 reversing the presumption of innocence, the FATF has categorically stated that: (i) neither has it systematically studied the curtailment of human rights as a result of its recommendations; and (ii) nor do the FATF Standards require any departure from human rights obligations such as the presumption of innocence.36 Pertinently, legislations dealing with money laundering in other jurisdictions that are treated as FATF compliant countries, such as the United Kingdom and the United States of America, also does not appear to contain a harsh bail provision reversing the presumption of innocence, such as that provided under Section 45 of the PMLA.
Therefore, no useful reliance could have been placed on the FATF Recommendations to specifically justify the stringent twin conditions for bail under Section 45.
In the respectful view of the authors, neither do the “purposes and objects” of the PMLA, nor do the international commitments of India, mandate such excessively rigorous conditions as provided in the twin conditions. As such the rationale for upholding the constitutionality of Section 45 as stated in the decision in Vijay Madanlal Choudhary case37 may require reconsideration by the Supreme Court.
†Partner. Shardul Amarchand Mangaldas & Co.
††Partner. Shardul Amarchand Mangaldas & Co.
†††Senior Associate. Shardul Amarchand Mangaldas & Co.
1. Ranjitsing Brahmajeetsing Sharma v. State of Maharashtra, (2005) 5 SCC 294: “Presumption of innocence is a human right. Art. 21 in view of its expansive meaning not only protects life and liberty, but also envisages a fair procedure.”
2. Order dated 25-08-2022 in R.P(Crl.) No. 219 of 2022.
8. Nikesh Tarachand Shah case, (2018) 11 SCC 1, para 46: “We must not forget that S. 45 is a drastic provision which turns on its head the presumption of innocence which is fundamental to a person accused of any offence. Before application of a section which makes drastic inroads into the fundamental right of personal liberty guaranteed by Art. 21 of the Constitution of India, we must be doubly sure that such provision furthers a compelling State interest for tackling serious crime.”
22. In Bachan Singh v. State of Punjab, (1982) 3 SCC 24, para 34, the Supreme Court held that the burden to demonstrate the existence of such interest lies on the State. J. Chellameswar, in his concurring opinion in K.S. Puttaswamy v. Union of India, (2017) 10 SCC 1, at para 378, described the test of “compelling State interest” as an “amorphous standard” which involves the highest level of scrutiny that a court can adopt i.e. “depending on the graveness of the right at stake, the court adopts a correspondingly rigorous standard of scrutiny”.
27. Statement dated 25-7-2002 of Mr H.K.J. Gowda, Member of the Rajya Sabha in parliamentary debates on the Prevention of Money Laundering Bill, 1999: “As far as Cl. 45, for bail, is concerned, yes, much discussion is going on POTA. The application of POTA in a particular case has been interpreted by a number of people in their own way. But, the Home Minister of this country has not interpreted it, not interfered with it, because, it appears, after seeing all the aspects of the matter involved in it and the definition of the sections in it, he has, not at all, opened his lips.” (Available at <https://rsdebate.nic.in/bitstream/123456789/100942/1/PD_196_25072002_9_p237_p288_21.pdf>.)
See also statement dated 25-7-2002 of Mr Kapil Sibal, Member of the Rajya Sabha in parliamentary debates on the Prevention of Money Laundering Bill, 1999: “Now under the Prevention of Corruption Act, I can get bail, under the normal law. If both these Acts are taken together, then, under S. 45, I won’t even get bail. This is why when the Government is in opposition, it opposes such laws, and when opposition is in Government, it wants such laws, because, ultimately, these very laws are used for certain other purposes, and we have seen it, time and again, that in this country it happens.” (Available at <https://rsdebate.nic.in/bitstream/123456789/100942/1/PD_196_25072002_9_p237_p288_21.pdf >.)
28. Vijay Madanlal Choudhary case, 2022 SCC OnLine SC 929, para 257: “Today, as we will see, many of the amendments in the 2002 Act are in response to the recommendations of the FATF. Thereafter, forty recommendations dated 20-6-2003, were made by the FATF which had led to much deliberations go on to show that all endeavours were to be Vienna and Palermo Conventions compliant. During the evolution of the jurisprudence on money laundering, it was found that India was in fact lacking in some aspects of curbing money laundering. Hence, the recommendations were made to India time and again.”
30. Universal Declaration of Human Rights <https://www.un.org/sites/un2.un.org/files/2021/03/udhr.pdf>.
31. International Covenant on Civil and Political Rights <https://www.ohchr.org/sites/default/files/ccpr.pdf>.
33. FATF, Best Practices Paper on Combating the Abuse of Non-Profit Organisations — Recommendation 8, Para 22 (June 2015) Available at <https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/BPP-combating-abuse-non-profit-organisations.pdf >.
34. FATF, High-Level Synopsis of the Stocktake of the Unintended Consequences of the FATF Standards, (October 2021) p. 5: “The FATF has not previously systematically studied this issue. Situations have arisen in the course of FATF evaluations concerning the interaction between the FATF Recommendations on combating TF (particularly R.5 and R.6) and due process and procedural rights (e.g. to legal representation, fair trial, and to challenge designations, etc.), which have been considered on a case-by-case approach as they arise in specific country contexts. In addition, the FATF has also been made aware of instances of the misapplication of the FATF Standards, which are allegedly introduced by jurisdictions to address AML/CFT deficiencies identified through the FATF’s mutual evaluation or ICRG process, potentially as an excuse measures with another motivation.” Available at <https://www.fatf-gafi.org/content/dam/fatf-gafi/reports/Unintended-Consequences.pdf >.
35. FATF, High-Level Synopsis of the Stocktake of the Unintended Consequences of the FATF Standards, (October 2021) p. 6, Available at <https://www.fatf-gafi.org/content/dam/fatf-gafi/reports/Unintended-Consequences.pdf>.
36. FATF, Guidance on Criminalising Terrorist Financing (October 2016) p. 23: Even in its guidance note on Criminalising Terrorist Financing, the FATF recognises that “Fundamental principles of domestic law” may even allow countries to avoid subjecting “legal persons” to criminal prosecution for terrorist financing. Available at <https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Criminalising-terrorist-financing.html>.
The FATF standards define the “presumption of innocence” as one such “fundamental principle of domestic law”: The FATF Recommendations “International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation” (2012), Glossary, p. 128, Available at <https://www.fatf-gafi.org/content/dam/fatf-gafi/recommendations/FATF%20Recommendations%202012.pdf.coredownload.inline.pdf>.