Nikesh Tarachand Shah v. Union of India: how the Supreme Court struck down the Section 45 PMLA twin bail conditions

The Supreme Court's judgment of 23 November 2017 in Nikesh Tarachand Shah v. Union of India — reported as (2018) 11 SCC 1 and 2017 SCC OnLine SC 1355 — is the doctrinal origin of the entire twin-conditions saga under the Prevention of Money Laundering Act, 2002. A two-judge bench of Justices R.F. Nariman and Sanjay Kishan Kaul, in a judgment authored by Nariman, J., struck down the bail fetter in Section 45(1) as unconstitutional. Everything that has happened since — the 2018 amendment that recast the provision, the 2022 architectural ruling in Vijay Madanlal Choudhary that upheld the revived form, and the post-2024 line moderating its operation — is measured against this strike-down.

The provision before the Court

Section 45(1) of the PMLA, in the form that came before the Bench, imposed two conditions on the grant of bail where the offence involved was one punishable with imprisonment for more than three years under Part A of the Schedule to the Act. The first condition was procedural: the public prosecutor had to be given an opportunity to oppose the bail application. The second was substantive: where the prosecutor opposed, the court could grant bail only if it was satisfied that there were reasonable grounds for believing that the accused was not guilty of the offence, and that he was not likely to commit any offence while on bail.

The effect was to invert the ordinary posture of a bail court. Rather than asking whether there was reason to keep the accused in custody, the court was required, at the threshold, to form a view that the accused was probably innocent — a standard that few applicants could meet before trial, on an incomplete record.

The classification the Court could not sustain

The core of the challenge, and of the Court's reasoning, was the trigger for the twin conditions. The fetter did not attach to the offence of money laundering under Section 3 of the PMLA. It attached instead to the punishment prescribed for the scheduled offence — the predicate offence listed in Part A of the Schedule and punishable with more than three years' imprisonment.

The Court held that this classification was arbitrary. A person could be charged with the same money-laundering offence, arising from the same proceeds of crime, and yet fall inside or outside the bail fetter depending entirely on the punishment attaching to the underlying predicate — a variable with no bearing on the gravity or character of the laundering itself. As the Court put it, a classification based on sentencing for the scheduled offence had no rational relation with the grant of bail for the offence of money laundering; the twin conditions therefore had to be annulled on the equal-protection clause.

Article 14 and Article 21

The Court located the infirmity in both Article 14 and Article 21. Under Article 14, the classification failed the twin test of intelligible differentia and rational nexus: the differentia the provision used (the punishment for the scheduled offence) bore no rational relation to the object it purported to serve (regulating bail for money laundering). Under Article 21, the condition requiring the court to be satisfied of probable innocence before granting bail imposed a drastic restraint on personal liberty that could not be justified as a fair, just and reasonable procedure.

The Court's characterisation of the second condition is the most-cited passage of the judgment. Section 45, the Court held, was a drastic provision that inverted the ordinary presumption of innocence — casting on the accused the burden of establishing, at the bail stage, that he was probably not guilty.

Read together, the two limbs of the reasoning were mutually reinforcing: the Article 14 defect (an arbitrary classifier) and the Article 21 defect (an unreasonable restraint on liberty through an inverted presumption) each independently rendered the twin conditions unsustainable.

What the judgment did — and did not — strike down

The declaration was targeted. The Court struck down Section 45(1), insofar as it imposed the two conditions for the grant of bail, as unconstitutional. It did not strike down the offence of money laundering, the attachment architecture, the arrest power, or the investigative framework of the PMLA. The ruling was a bail ruling: it removed the special statutory fetter and returned bail in these matters, for the period it was in force, to the ordinary criminal-procedure standard.

That precision matters for reading the case today. Nikesh Tarachand Shah is authority for the proposition that a bail fetter must be rationally connected to the offence for which bail is sought — not for any broader proposition about the constitutionality of the PMLA's substantive machinery, which was addressed only later.

The revival: a separate, later story

The strike-down did not settle the law. Parliament responded through the Finance Act, 2018, which recast Section 45(1): it deleted the words that had tied the trigger to offences "punishable for a term of imprisonment of more than three years under Part A of the Schedule" and substituted the words "under this Act." The amendment thereby detached the fetter from the punishment threshold of the predicate offence — the specific defect the Court had identified — and reattached it to the PMLA offence itself.

The constitutionality of the amended, revived provision then fell to be decided afresh. In Vijay Madanlal Choudhary v. Union of India (2022), a three-judge bench held that the 2018 amendment had cured the infirmity Nikesh Tarachand Shah had identified, and upheld the twin conditions in their revived form. It is important not to overstate the effect of the 2017 strike-down on the current law: the twin conditions are, as matters stand, operative — but they operate under the amended provision and the Vijay Madanlal imprimatur, not under the provision Nikesh Tarachand Shah struck down.

What survives from Nikesh Tarachand Shah, doctrinally, is the standard of scrutiny. The case remains the reference point against which every later development in the PMLA bail line is read: the demand that a bail fetter answer to Articles 14 and 21, and the reminder that a special-statute restraint on liberty must be rationally connected to the offence it governs.

Where the bail line stands now

The arc since 2017 has run in two stages. First, revival: the 2018 amendment and Vijay Madanlal (2022) restored and legitimated the twin conditions. Second, moderation: a post-2024 line of decisions — including Prem Prakash v. Directorate of Enforcement — has read the revived conditions in light of the constitutional protection of liberty, holding that prolonged pre-trial custody without trial progress can justify bail even within the Section 45 framework. In Hemant Soren v. Directorate of Enforcement, the interplay of the twin conditions with the facts of a sitting Chief Minister's arrest tested the same architecture.

The through-line across all of it is the demand Nikesh Tarachand Shah first articulated: that a statutory bail fetter must be constitutionally justified, and that the presumption of innocence is not lightly to be inverted. The provision the case struck down is gone; the standard it set is not.

Related editorial pieces

• Vijay Madanlal Choudhary v. Union of India: the PMLA architectural ruling that upheld the revived twin conditions
• Prem Prakash v. Directorate of Enforcement: 'bail is the rule' under the PMLA
• Hemant Soren v. Directorate of Enforcement: PMLA arrest and bail

Sources

• Supreme Court of India, Nikesh Tarachand Shah v. Union of India, Judgment of 23 November 2017 — api.sci.gov.in
• SCC Times, "Twin conditions for grant of bail under Section 45(1) of Prevention of Money Laundering Act, 2002 held unconstitutional" — scconline.com
• LiveLaw, "Twin Conditions For Bail U/S 45 PMLA Declared Unconstitutional By SC, Restored By 2018 Amendment" — livelaw.in
• LiveLaw, "Money-Laundering A Heinous Crime; Twin Conditions For Bail Not Unreasonable: Supreme Court Upholds Section 45(1) PMLA" (Vijay Madanlal Choudhary) — livelaw.in
• Supreme Court Observer, "Challenges to the Prevention of Money Laundering Act: Judgement Summary" — scobserver.in