Why is it in the news?

• A day after a trial court granted bail to Delhi Chief Minister Arvind Kejriwal who is in jail on charges under the Prevention of Money Laundering Act (PMLA), the Delhi High Court stayed the order.
• A Bench heard an urgent plea by the Enforcement Directorate (ED) seeking a stay on the bail, and reserved its order until next week.
• The ED challenged the trial court’s order on the ground that the court had failed to apply the ‘twin test’ for granting bail under PMLA.

What is the twin test, and why is bail under PMLA so contentious?

• Section 45 of the PMLA, which deals with bail, initially states that no court can grant bail for offences under this law, and then outlines a few exceptions. The provision’s negative tone suggests that bail is the exception rather than the rule under PMLA.
• The provision mandates the public prosecutor’s input in all bail applications, and if the prosecutor opposes bail, the court must apply a twin test. These two conditions are:

(i) that there are “reasonable grounds for believing that the accused is not guilty of such offence”; and (ii) that “he is not likely to commit any offence while on bail”.

• Similar provisions exist in various other laws addressing serious offences—such as Section 36AC of The Drugs and Cosmetics Act, 1940, Section 37 of The Narcotic Drugs and Psychotropic Substances Act, 1985, and Section 43 D (5) of The Unlawful Activities Prevention Act, 1967.

Legal challenges to twin test

• The twin test’s constitutional validity faced its first challenge in a 2017 ruling, Nikesh Tarachand Shah v Union of India.
• A two-judge Bench declared the bail provision unconstitutional, citing the onerous conditions as an unreasonable classification. ‘Reasonable classification’ is a component of the right to equality, a fundamental right.
• Despite this, Parliament reintroduced these provisions through the Finance Act, 2018, following an amendment. This reinstatement was met with challenges in various High Courts and eventually reached the Supreme Court, leading to a series of petitions heard in 2022 as Vijay Madanlal Choudhary v Union of India.
• The petitioners contended that the rationale behind the Nikesh Tarachand Shah verdict remained valid even after Parliament’s reinstatement of the law. Nonetheless, a three-judge Bench presided over by Justice A M Khanwilkar (now retired) declined to uphold the earlier ruling.
• Legal experts have raised concerns about equating money laundering with stringent anti-terror and narcotics laws, despite the offense of money laundering, though severe, carrying a maximum sentence of only seven years. The maximum sentence is extended to 10 years only in money laundering cases involving narcotics.
• In court, the government argued that individuals involved in money laundering are “influential, intelligent, and resourceful, and the crime is committed with full pre-meditation, ensuring that the offense remains undetected and even if discovered, the investigating agency struggles to trace evidence”.
• Further, the government defended the stringent bail conditions by highlighting that the offense is executed “with the help of advanced technology to conceal the transaction”.

Current position in law

• One significant aspect of the challenge to the amendment concerning bail conditions remains unresolved even after the Vijay Madanlal Choudhary ruling: the passage of these amendments through the Money Bill route.
• A distinct larger Bench challenge regarding whether certain laws, such as the Aadhaar Act, service conditions of Tribunal members, etc., can be passed as a Money Bill is pending before the SC. A Bench is yet to be constituted to address this issue.
• Although the Supreme Court has agreed to review its ruling in Vijay Madanlal Choudhary, the ruling remains in force as no stay has been imposed on it.
• As per the ruling, the twin test must be rigorously applied by all courts—special courts handling money laundering offenses as well as constitutional courts. This standard also applies to both regular bail and anticipatory bail.
• Despite this, an accused can still benefit from Section 436A of the Code of Criminal Procedure (CrPC), allowing bail after serving half of the maximum sentence as an undertrial.
• Consequently, in most money laundering cases, if the Enforcement Directorate fails to conclude the trial within three and a half years, the accused is entitled to bail, regardless of the twin test.