The bail stipulation found within the Prevention of Money Laundering Act, 2002 (Herein referred to as PMLA) is a central issue of legal and constitutional discourse in India today. The law aims at dealing with the serious socio-economic threat of money laundering with rigorous measures to stop exploitation of the financial system for unlawful profits. However, the stringent bail requirements, especially those under section 45, have raised many questions about the balance between the needs of effective law enforcement and the fundamental rights of individuals. This article explores the evolution, controversies, and judicial interpretations of these provisions, analysing their implications on the principles of justice and constitutional protections.
Understanding the reason for enactment
The Indian Parliament passed the Prevention of Money Laundering Act, 2002, with a view to check the accelerating act of concealment of origin of illegally obtained money and transforming them into seemingly legal and legitimate asset, technically by means of transfer, involving foreign banks or lawful business.
In the long run, laws related to money laundering might have a very significant role in regulating inflows and outflows of the money in the economy to pave the way for a stable and resilient financial system. With these objectives in view, the Indian parliament enacted PMLA Act, 2002, for confiscation of property derived from, or involved in money laundering and for matters connected therewith or incidental to. The Prevention of Money Laundering Act, 2002 (PMLA) is the central part of the legal framework India provided. The Prevention of Money Laundering Act (PMLA) and the corresponding rules were enacted starting July 1, 2005. Later in 2011, the PMLA was amended to bring itself in line with the standard set by the Financial Task Action Force (FTAF).
In this article, we shall look into the controversial bail provisions of the PMLA that have long been debated and scrutinized.
What is Money Laundering?
Before we delve in the bail provisions, we need to understand what money laundering is. Money Laundering is a process of disguising the funds obtained from illegal sources such as terrorist funding, drug trafficking or any such criminal enterprise to make them appear as though they come from a legitimate source.
These funds which usually comes from such sources is often referred as dirty and possession of such income is liable to be charged by the authority and confiscation of such funds. Money laundering has been addressed in the UN Vienna 1988 Convention Article 3.1 describing Money Laundering as “the conversion or transfer of property, knowing that such property is derived from any offense(s), for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in such offense(s) to evade the legal consequences of his actions 1.” Section 3 of the PMLA act, 2002 defines offence of money laundering as “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 the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering.” 2
The 3 stages of Money Laundering
There are briefly three stages of Money Laundering –
Placement
The first stage of money laundering involves introducing the illicit money gained from the illegal activities in the legitimate financial system, through a process known as Placement. During this stage large sum of illegal funds are broken down into money into smaller amounts to avoid detection. These smaller amounts are then deposited into various bank accounts either across multiple locations globally or within the same city. Such a strategy is employed to circumvent the financial limit set by most banks on cash deposits, as exceeding this limit often trigger scrutiny by regulatory authorities.
Layering
The second stage of money laundering known as layering, involves moving or transferring the illicit funds through a series of transactions to obscure its origin and make them difficult to trace. This process often includes transferring money between multiple bank accounts under the guise of legitimate activities, such as charitable donations or payments for goods and services. Additionally, shell companies and other intermediaries may be used to add layers of complexity, further concealing the true source of the funds.
Extraction
The third stage of money laundering know as extraction, marks the final stage of the process. The laundered money is reintroduced into the legitimate financial system, making it look as though it was legally earned. The primary objective is to integrate the funds while avoiding scrutiny from the regulatory authorities.
Bail provision under PMLA act, 2002
Section 45 of the Prevention of Money Laundering Act, 2002 prescribes severe requirements for granting bail in cases related to offenses where imprisonment is more than three years, as enlisted in part A of the schedule. It provides that no bail shall be granted unless an opportunity is given to the Public Prosecutor to raise an objection against the application. Further, after taking into consideration the submissions of the Public Prosecutor, the court should be satisfied with two important factors: firstly, that there is a reasonable cause to believe that the accused is innocent of the alleged crime, and secondly, that the accused is considered unlikely to commit any offense if he is allowed on bail.
The section further explains particular exclusions under which the court may exercise its discretion to grant bail. Such conditions include cases where the suspect is below 16 years of age, has an infirmity or illness, or is a female, depending on the court’s satisfaction and specific instructions. This provision ensures that those who are vulnerable are given some leniency within the legal system.
Further, Section 45 prohibits judicial authorities from recognizing any offenses which fall under the purview of Section 4 of the PMLA without a formal written complaint from the Director or an officer authorized in writing by either the Central or State Government for this purpose, based on a general or specific directive issued in this regard.
Twin pre- bail condition
Section 45 of the PMLA Act, 2002 provides for twin condition for bail, Firstly, Public Prosecutor must be given an opportunity to oppose the bail application. Secondly, the court must be satisfied that the accused is unlikely to commit any offense while on bail, these twin conditions have to be fulfilled in addition to provisions of Criminal Procedure Code, 1973 in order to get in case related to an offence under section 4 of the act. These conditions subsequently raise the threshold for granting bail particularly for offences punishable with 3 years of imprisonment under Part A of the schedule of the PMLA Act.
Tracing the Evolution of Bail Provisions in PMLA
Over the years there have been a lot of debates on the stringent conditions of the bail provisions and change of opinion in the law. The provisions of PMLA were challenged before the Supreme Court in a number of cases.
The twin conditions for the bail were challenged in Nikesh Tarachand vs. Union of India, wherein the apex court struck down section 45(1) of the PMLA Act. The court held that the classification made had no rationale relation with objects of the Act. The apex court held that the application of section 45(1) led to situations where the same offenders tried under different cases which end up with different result depending on whether section 45(1) is applied or not.
It is to be noted that the grant or rejection of bail had no connection with the schedule offences but the twin conditions will apply if the accused is tried for an offence under Section 3 along with Part A of the scheduled offences. Therefore, if a person is being tried only for the offences under Part A of the scheduled offences such a scenario will not invite the application of the provision of the section 45 of the Act. The Apex court pointed out that these conditions are arbitrary and discriminatory and should be struck down.
Further, the court held that the provision of section 45 is a drastic provision and unless there are compelling state interest these bail conditions violate the right of life and personal liberty enshrined under article 21 of the Constitution. The court however did not exactly point out as to what could be considered as the compelling state interest but pointed out that the reason for which the section had been upheld for years on the ground that it has compelling state interest in tackling heinous crimes. 3
Constitutional Concerns and Infringement of Fundamental Rights under Section 45 PMLA
It is important to highlight that this provision has been extensively examined by the judiciary, particularly with regard to its alignment with fundamental rights and procedural fairness, sparking significant debates over its constitutional validity.
Presumption of innocence
A fundamental principle of criminal jurisprudence is that “a person is presumed innocent unless proven guilty.”. This presumption of innocence puts the burden of proof on the person asserting the accusation. However, the provision of section 45 reverses this principle by the mechanism of the legislature and binds the forum to put the burden on the accused from the very outset. The issue with this provision is that most accused do not have the access to necessary evidence to disprove accusations.
In contrast, the State, with its investigative resources, is better positioned to prove guilt. Reversing the burden forces the accused to mount a defence without adequate means, resulting in an unequal playing field. It is also important to note that the courts have consistently held that the presumption of innocence extends to bail proceedings. Reversing this presumption compels the accused to bear the burden of disproving allegations, effectively tilting the balance against them and compromising their right to a fair trial under Article 21 of the Indian Constitution.
Discrimination between classes of offence (Violation of Article 14)
Section 45 creates a discriminatory regime where the accused under PMLA faces harsher bail condition compared to those accused of equally serious offenses under other laws. Economic offences such as fraud, embezzlement, tax evasion etc. under the other laws (Indian penal code or the companies act) does not have such stringent bail provisions. This creates an artificial difference between these offences even though their impact on the society may be the same. Section 4 of the PMLA states that the maximum punishment under the act is 7 years and the accused have to satisfy the stringent condition of bails.
Whereas, under Indian penal code even heinous crimes like murder, rape etc. with harsh punishment such as death penalty and life imprisonment does not have to satisfy any such stringent conditions for bail. This places money laundering which may involve financial misconduct without immediate physical harm, in an unnecessarily harsher framework and puts them both on a different footing making it easier for the person booked under other act to get bail easily. Such differential treatment violates Article 14 of the Constitution, as it is arbitrary, lacks proportionality, and fails the test of reasonable classification. Therefore, the court struck down the whole clause holding the provision unconstitutional.
The Revival of the Twin Bail Conditions: Constitutional Implications and Fairness Concerns
The Parliament in 2018 in an attempt to revive and solve this problem amended the act vide the finance Act of 2018 to do away with the problem arising under this act – now after the amendment the twin bail condition will apply to all the offences/ cases under this act. The amendment substituted the word “”punishable for a term of imprisonment of more than 3 years under Part A of the Schedule” with “under this Act”. However, once again this amendment was challenged as unconstitutional before the apex court in Vijay Madan Lal case. The defence arguments were relied on the fact that economic offences stand on a different footing and was class apart as they possessed a very serious threat to the economic stability of the country and as such it should be made conditioned to such harsh bail provisions.
Safeguard under Section 19
It has been argued that section 19 provides for the inherent safeguard. This section lays down that arrest can be affected only by officers of a certain rank. Furthermore, the arrest can be made only when there is “material in possession”, The court held that twin condition does not violate the articles 14 and 21 because of the safeguard under section 19 i.e. the arrest must be preceded by record in writing ensuring the accountability and reducing risk of arbitrary action.
This provision mandates the accountability on the part of the officers to justify the arrest. Further, the documented report can be scrutinized by the judicial authority furthering the transparency.4
Serious Economic Crime
The crime of money laundering is a class apart and needed to be dealt in with a different approach in the matter of bail. It is submitted that the Court while granting bail must keep in mind the severity of the punishment which conviction will entail. The people involved in money laundering the usually influential and resourceful which ensures that the offence is not detected and even if it is detected it cannot be traced effectively.
The accused can remove the trace of the crime making it difficult for the investigation agency to reveal that any crime was ever committed furthermore, this crime can be of transborder nature making it difficult for the authority to detain the person. These conditions make the twin bail condition justified. PMLA Act, itself is a complete act which provides mechanism and procedures to tackle the difficulties and provide adequate safeguard. In the view of the above there is no reason why the act cannot provide for a stringent bail condition.
Moreover, the legislatures have departed from the ordinary penal provision and legal procedures on many occasions and the classification of offence on the basis of public policy and for fulfilling and delivering on the underlying object of the act cannot be said to be arbitrary and unreasonable. Further, the principle of equality does not mean that every law must have universal application for all persons who are not by nature, attainment or circumstances in the same position and the varying needs of different classes of persons often require separate treatment. Therefore, the State has power to classify persons on the basis of intelligible differentia and therefore they cannot be said to be against Article 21 and 14 of the Indian Constitution.5
Re-evaluating the Constitutionality of Section 45: The Need for a More Balanced Approach
The above discussion raises an important question: could the Court in the Nikesh Tarachand Shah case have taken an alternative approach instead of declaring the entire provision unconstitutional? On reading the judgment, it appears the Court viewed the PMLA framework as so fundamentally flawed that it chose to tackle multiple issues at once rather than address them incrementally. The Court granted affirmatively, but left the court of appeal with some ambiguity over whether one dispositive argument is sufficient or whether such reasoning must occur in every case.
Instead of going down the road of justification as to why the classification falls within PMLA, perhaps the Court would have better served its purpose by limiting its inquiry to whether there was a rational basis in distinguishing between (i) PMLA cases based on specific Schedule A offenses and (ii) all other PMLA cases. With enough evidence to suggest that the original intent of Section 45 had been lost in the 2013 amendments to the Schedules, the Court could have stopped there and invalidated this classification. But did this misalignment justify invalidating the entire clause?
After reading the arguments justifying the re-emergence of Section 45 of the PMLA based on the safeguards under Section 19 and the categorization of money laundering as a “serious economic crime,” I remain unconvinced that these reasons adequately justify the stringent twin bail conditions. True, Section 19 provides some procedural safeguards. It requires high-ranking officers to record written reasons for arrest, among other things. Does that really mitigate the constitutional concerns Section 45 raises? I’m not so sure. Nor am I persuaded by the reasoning that procedural transparency after arrest resolves the inherent imbalance caused by reversing the presumption of innocence. Judicial scrutiny of a post-arrest written record is hardly a safeguard when the accused may already face prolonged detention because of the stringent condition under section 45.
The assertion that money laundering is a “class apart” and deserves stricter bail provisions is equally questionable. Economic crimes can have serious societal impacts, but are they uniquely dangerous? Crimes such as terrorism, human trafficking, and organized crime also carry with them serious threats, yet money laundering is isolated and dealt with more severely. This seems more of an international influence through pressures like the FATF recommendations to take strict anti-money laundering measures. It appears that the Court just went along with the said reasoning without much scrutiny of the facts.
This brings us to the larger question of whether the safeguards under Section 19 effectively balance the harshness of Section 45. Even if Section 19 requires accountability through written records, it does little to prevent the misuse of arrest powers in practice. The Court’s reliance on these safeguards assumes a high level of institutional integrity, but in reality, the lack of pre-arrest judicial oversight dilutes their effectiveness. Moreover, the justification that money laundering involves influential individuals who may impede investigations or evade detection—while relevant—cannot serve as a blanket rationale for imposing such stringent bail conditions across all cases. The law’s sweeping application ignores the principle of proportionality, treating small-scale offenders and major criminals alike.
Another question arises regarding the argument that economic crimes justify separate treatment under Article 14. Classifications based on intelligible criteria are permissible, but is this distinction rationally connected to the law’s purpose? The Court seems to have dodged this issue by concentrating on the safeguards of Section 19. But these safeguards cannot cure the larger infirmities in Section 45, which destroys the presumption of innocence and places an inordinate burden on the accused. In the wake of these concerns, it is pertinent to ask whether the approach of the legislature towards money laundering through Section 45 and Section 19 actually aligns with constitutional principles.
It seems more plausible that the harsh provisions of the PMLA have been shaped by international pressures rather than a balanced consideration of domestic needs and constitutional guarantees. The result is a legal framework that gives the centre’s desire for enforcement much precedence over individual rights, leading to an inquiry whether this is something worthwhile to be compromised over. Instead of treating Section 19 as a cure-all for the infirmities of Section 45, the Court should have instead examined whether the two conditions are, per se disproportionate and whether the safeguards under Section 19 do anything actually to alleviate these constitutional concerns?
Conclusion
From a constitutional point of view, the section 45 analysis reflects the critical balance between law enforcement efficiency and protection of rights. While the stated purpose of the provision of the Act is to suppress serious crime which may disrupt the economic equilibrium, judicial decisions have created significant anxieties related to proportionality, fair treatment, and constitutional safeguards.
There is a change in the presumption of innocence, an arbitrary distinction between economic crimes, and reliance on procedural safeguards spelled out in Section 19, so that the effects of law on individual rights need a more detailed assessment. From now on, the need for a holistic approach that will harmonize the enforcement of the law with constitutional principles is crucial to avoid compromising justice and fairness in the fight against money laundering.
Author: Aryan Mishra, student at Heritage Law College
