Supreme Court Reinforces Strict Bail Provisions Under PMLA: Strengthening Judicial Scrutiny & Statutory Compliance

Introduction

The Hon’ble Supreme Court of India, in Union of India v. Kanhaiya Prasad[i], addressed a significant issue concerning the applicability of bail conditions under s. 45 of the Prevention of Money Laundering Act, 2002 (‘PMLA’). The appellant challenged the legality of the impugned order dated 06.05.2024 passed by the Hon’ble High Court of Judicature at Patna, where the High Court had granted bail in an alleged offence of money laundering linked to illegal sand mining operations. Such bail was allegedly granted without considering the mandatory twin conditions prescribed under s. 45 of the PMLA.

This ruling is particularly significant in the context of judicial scrutiny of bail jurisprudence under PMLA. It reinforces the mandatory twin conditions under s. 45 as a prerequisite for granting bail wherein the alleged offence of money laundering is committed. The judgment also revisits the scope of s. 50 of PMLA, specifically addressing whether statements recorded thereunder should be treated as admissible evidence – even if the accused contends that such statements were obtained through procedural coercion. Additionally, the Supreme Court examined whether the absence of prosecution for the predicate offence precludes a money laundering charge, reaffirming that money laundering is an independent offence under PMLA.

Brief Facts

Subsequent to the registration of certain first information reports (FIRs), registered under ss. ss. 38, 120B, 378, 379, 406, 409, 411, 420, 467, 468 and 471 of the Indian Penal Code, 1860 (‘IPC’) along with s. 39(3) of the Bihar Mineral (Concession, Prevention of Illegal Mining, Transport & Storage) Rules, 2019, which alleged the involvement of M/s Broad Son Commodities (‘Company’)in illegal sand mining and financial irregularities, due to which, the state exchequer had incurred an apparent loss of approximately Rs. 161 crores, the Enforcement Directorate (‘ED’) registered an Enforcement Case Information Report (‘ECIR’) to investigate the commission of the alleged scheduled offence under PMLA.
After the registration of the ECIR, the ED proceeded to investigate the matter. Consequently, search and seizure operations under s. 17 of the PMLA were conducted at various premises associated with the company and its directors, including four premises linked to Kanhaiya Prasad’s (‘Respondent’) father, Radha Charan Sah.
During the investigation, the Respondent’s statements were recorded under s. 50 of the PMLA on two dates. The Respondent was subsequently summoned again; however, he failed to appear before the ED. Consequently, the Respondent was arrested on 18.09.2023 and placed in custody on 22.09.2023. The ED thereafter filed a prosecution complaint on 10.11.2023 before the Special PMLA Court, and cognizance was taken.
The ED alleged that the respondent played an active role in laundering proceeds of crime amounting to Rs. 17.26 crores, which were thereafter used for renovating and constructing properties owned by the Respondent’s family trust. The proceeds of crime were further layered and integrated through hawala networks by the Respondent to disguise their true origin.
The Respondent filed for regular bail before the High Court, contending that the evidence against him was inadmissible as it was based on statements recorded under s. 50 of the PMLA, which violated a. 20(3) of the Constitution of India (‘Constitution’). Based on the submissions made by the Respondent, the High Court enlarged his bail, citing procedural lapses and constitutional protections.
Aggrieved by the aforementioned decision of the High Court, the Union of India – through ED (‘Appellant’), challenged the impugned order, stating that the High Court had failed to satisfy the mandatory twin conditions envisaged under s. 45 of the PMLA while enlarging the Respondent on bail.

Held

The Supreme Court held that the High Court’s order was legally unsustainable as it failed to apply the twin conditions under s. 45, which essentially required that firstly, the Public Prosecutor is given an opportunity to oppose bail, and secondly, the Court must, in writing, record the reasons that it is satisfied that the accused is not guilty and is unlikely to commit any offence while on bail. The enlargement of the Respondent on bail had been done without recording any finding on such mandatory twin conditions, thereby violating the strict statutory framework governing bail in money laundering cases.
The Supreme Court relied upon various judicial precedents, including Vijay Madanlal Choudhary v. Union of India[ii], Gautam Kundu v. Directorate of Enforcement[iii], Rohit Tandon v. Directorate of Enforcement[iv], and Tarun Kumar v. Assistant Director, Directorate of Enforcement[v], through which, it reaffirmed that money laundering is a serious economic offence that necessitates strict compliance with bail conditions under s. 45 of the PMLA. Further, the Supreme Court also reiterated that the burden of proving innocence in money laundering cases lies on the accused, and bail could not be granted on mere procedural grounds.
Further, The Supreme Court rejected the respondent’s argument that s. 50 statements violated a. 20(3) of the Constitution, holding that such statements are valid under PMLA proceedings, provided they are not obtained through coercion. It also clarified that a person could be prosecuted for money laundering even if they were not named in the predicate offence, as the offence of money laundering is distinct and independent under the PMLA.
Accordingly, the Supreme Court set aside the High Court’s order. It directed the Respondent to surrender before the Special Court within one week, remanding the matter to the High Court for fresh adjudication in compliance with s. 45 of the PMLA.

Our Analysis

An exceptional case, the present matter is strikingly dissimilar to the plethora of ED/money laundering cases, wherein the Supreme Court has previously demonstrated a more lenient approach in granting relief. However, this case stands apart, particularly given the magnitude of the alleged money laundering involving a substantial sum, despite which bail was granted on legally unsustainable grounds.

A significant ruling, we must say (and appreciate), especially considering that the High Court’s decision could have possibly set the wrong precedent by interpreting a law as stringent as money laundering in such a loose and looped manner. While fundamental rights take precedence over statutory provisions that infringe upon life and liberty, their interpretation should not dilute the PMLA's legislative intent or render its provisions ineffective.

Granting bail in this case undermined the legislative intent of the PMLA, weakening its deterrent effect against financial crimes. The Supreme Court’s decision reinforces and emphatically reinstates the legislative intent that mandatorily requires that the twin conditions are satisfied to the T and that accused persons do not exploit procedural lapses to secure bail.

The decision aligns with the Supreme Court’s previous rulings, particularly in Vijay Madanlal Choudhary v. Union of India (supra), where the Supreme Court upheld the constitutional validity of s. 45 and emphasised its mandatory nature, thus strengthening the judiciary’s stance against economic offences and recognising the transnational impact of money laundering on financial integrity. It reinforces the principle that offences under PMLA are not ordinary crimes but require a higher threshold for granting bail. By remanding the case back to the High Court for fresh consideration, the Supreme Court ensures that lower courts exercise caution and strictly adhere to statutory requirements while granting bail in PMLA cases.

End Notes

[i] 2025 SCC OnLine SC 306.

[ii] (2022 SCC OnLine SC 929).

[iii] (2015) 16 SCC 1.

[iv] (2018) 11 SCC 46.

[v] (2023 SCC OnLine SC 1486).

Authored by Onam Singhal, Chartered Accountant at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.