Court’s Decision
The Supreme Court set aside the Bombay High Court’s order granting bail to Kapil Wadhawan, accused in a massive ₹34,000 crore fraud investigated by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act, 2002. The Court held that the High Court had committed a “serious error of law” and exercised its discretion “in a wholly perverse manner,” necessitating interference under Article 136 of the Constitution. The Apex Court ruled that the grant of bail suffered from “non-application of mind” and violated principles laid down in several precedents.
Facts
Kapil Wadhawan was arrested by the ED in connection with the alleged siphoning of public funds through Dewan Housing Finance Corporation Ltd (DHFL), which was linked to Yes Bank. He was accused of playing a central role in a complex money laundering scheme involving loans from Yes Bank routed to various companies, ultimately benefiting DHFL and Wadhawan-linked entities.
The Bombay High Court granted bail to Wadhawan on the ground that he had undergone considerable incarceration and that the twin conditions under Section 45 of the PMLA were struck down in Nikesh Tarachand Shah. The ED challenged this bail order before the Supreme Court.
Issues
- Whether the Bombay High Court’s decision to grant bail to Kapil Wadhawan was legally sustainable?
- Whether the High Court had failed to consider the re-enacted twin conditions under Section 45 of the PMLA after the 2018 amendments?
- Whether the accused’s conduct, seriousness of offence, and material evidence warranted cancellation of bail?
Petitioner’s (ED’s) Arguments
The ED argued that the High Court did not apply the law correctly while granting bail. The central grievance was that the twin conditions under Section 45 of the PMLA—especially the requirement of the court being satisfied that there are reasonable grounds for believing that the accused is not guilty—were completely ignored.
The ED submitted that the High Court failed to evaluate the gravity of the offence and the material collected, and instead relied heavily on Wadhawan’s period of incarceration. It contended that the High Court took into account irrelevant considerations and did not even record a finding on whether the accused was guilty or not.
The ED also pointed out that the High Court overlooked the Supreme Court’s judgment in Vijay Madanlal Choudhary v. Union of India which restored the rigor of the twin conditions under PMLA, after the 2018 amendment.
Respondent’s Arguments
Wadhawan argued that he had already undergone a substantial period of custody without trial. He submitted that he had cooperated with the investigation and that no custodial interrogation was required. The respondent stressed that the High Court had exercised its discretion, and the Apex Court should not ordinarily interfere unless there is gross illegality.
He further argued that bail once granted should not be cancelled lightly unless there are supervening circumstances or misrepresentation of facts at the time of bail. He also attempted to distinguish Vijay Madanlal Choudhary by claiming that it was rendered after his bail was granted.
Analysis of the Law
The Court underscored the legislative evolution of Section 45 of the PMLA. While the twin conditions were struck down in Nikesh Tarachand Shah, Parliament subsequently amended Section 45 to cure the defect, and this amended provision was upheld in Vijay Madanlal Choudhary. The Court emphasized that the High Court was bound to consider the amended twin conditions.
The Apex Court held that the High Court had misapplied Nikesh Tarachand Shah and failed to account for the applicable binding precedents. It reiterated that serious offences such as money laundering, especially involving large public funds, require strict judicial scrutiny even at the stage of bail.
Precedent Analysis
- Vijay Madanlal Choudhary v. Union of India
- The Court reaffirmed that the amended Section 45 of the PMLA is valid and binding. The High Court’s failure to consider this decision was held as a serious legal error.
- Y.S. Jagan Mohan Reddy v. CBI
- The Court referred to this case to underline that economic offences are grave and affect the country’s economy and financial integrity.
- Kalyan Chandra Sarkar v. Rajesh Ranjan
- The principles regarding cancellation of bail and interference by appellate courts were reiterated.
- State v. Captain Jagjit Singh
- The court reaffirmed that while granting bail, the nature and gravity of the offence and role of the accused must be carefully examined.
Court’s Reasoning
The Court held that the High Court’s order was “manifestly perverse and legally unsustainable.” It did not assess whether the twin conditions under Section 45 were satisfied and ignored the vast amount of incriminating material indicating Wadhawan’s pivotal role in a massive fraud.
Further, the Supreme Court observed that bail should not be treated as a matter of course, especially in offences of grave economic impact. It also noted that Wadhawan was not a mere peripheral player but a central figure orchestrating the entire conspiracy, involving use of public funds and shell companies.
Conclusion
The Supreme Court allowed the appeal and set aside the Bombay High Court’s bail order. It directed Wadhawan to surrender immediately. The Court emphasized that “liberty of the individual cannot be used as a shield to defeat the administration of criminal justice in cases of economic crime.”
Implications
This judgment reaffirms the rigorous application of the twin conditions under Section 45 of the PMLA post-amendment and signals the Court’s strong stance on economic offences. It sets a precedent that courts must strictly adhere to statutory requirements and binding precedents when granting bail in such serious matters.
Notable Judgments Referred and Their Role
- Vijay Madanlal Choudhary v. Union of India: Upheld the amended twin conditions under PMLA, forming the core basis for reversal.
- Y.S. Jagan Mohan Reddy v. CBI: Cited for emphasizing the impact of economic offences on national integrity.
- Kalyan Chandra Sarkar: Cited for judicial principles on cancellation of bail.
- Captain Jagjit Singh: Cited for reinforcing that bail is not an automatic right in serious crimes.
FAQs
Q1. What are the twin conditions under Section 45 of the PMLA?
The twin conditions require that (a) the court must be satisfied there are reasonable grounds to believe the accused is not guilty, and (b) the accused is not likely to commit any offence while on bail.
Q2. Can the Supreme Court cancel bail already granted by a High Court?
Yes. If the High Court’s order is found to be perverse, suffers from non-application of mind, or ignores binding precedent, the Supreme Court can cancel bail.
Q3. Why is this judgment significant in money laundering cases?
It reinforces that serious economic offences involving public funds must be treated with gravity and bail cannot be granted without following statutory safeguards.