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The observation of the Allahabad High Court, as it then was, in Emperor v. HL Hutchinson, that grant of bail is the rule and refusal is the exception, has stood the test of time and was recently reiterated in Dataram Singh v. State of UP.
The reason for this is simple. The presumption of innocence is the fundamental bedrock on which criminal law is based. An accused person is presumed under the law to be innocent till his guilt is proved through the process of a fair trial. Thus, the primary purpose of bail is to secure the attendance of an accused person at trial.
There can be no dispute that it would be a travesty of justice if a man is kept under custody indefinitely pending trial and eventually ends up being acquitted of the allegations. A recent judgment of the Delhi High Court reminded us that,
"…prison is primarily for punishing convicts; not for detaining undertrials in order to send any ‘message’ to society...It is this sentiment, whereby the State demands that undertrials be kept in prison inordinately without any purpose, that leads to overcrowding of jails; and leaves undertrials with the inevitable impression that they are being punished even before trial and therefore being treated unfairly by the system. If at the end of a protracted trial, the prosecution is unable to bring home guilt, the State cannot give back to the accused the years of valuable life lost in prison...”
In this background, I attempt to highlight the precarious situation created by Section 212(6) of the Companies Act, 2013 for persons accused of an offence punishable under Section 447 of the Companies Act (punishment for fraud).
The provision mandates that an arrested person will have to satisfy the Court that
(a) There are reasonable grounds to show that he is not guilty of the offence under Section 447 Companies Act and
(b) He is not likely to commit any offence if granted bail.
Before endeavoring to show why these ‘twin conditions’ are prima facie unconstitutional, it is necessary to examine similar/identical provisions in other legislations, whose constitutionality and interpretation has been considered by the Supreme Court of India.
1. Section 20(8) of the Terrorist and Disruptive Activities (Prevention) Act, 1987
In Kartar Singh v. State of Punjab, the constitutional validity of Section 20(8) of TADA came to be challenged. It was submitted that the Section infringes the underlying principle of Articles 21 and 14 of the Constitution it makes it impossible for even an innocent person to get bail when he is falsely charged with an offence under the TADA Act. The Court upheld the provision and observed that in cases under the TADA Act, the interest of the victim and above all the collective interest of the community and the safety of the nation are to be kept in mind so that the public may not lose faith in the system of judicial administration.
2. Section 21(4) of the Maharashtra Control of Organised Crime Act, 1999
In Ranjitsing Brahmajeetsing Sharma v. State of Maharashtra, the Court, while considering an appeal against the rejection of bail, was called upon to interpret Section 21(4) of the MCOCA. The Court went on to set aside the order rejecting bail and read down the twin conditions, holding that if a literal construction is placed on the Section, it would be impossible to obtain a judgment of conviction for such a person.
The Court went on to hold that the second condition - the requirement to predict the future conduct of the accused - must have reference to his antecedents and the nature of the offence to ascertain the propensity to commit an offence under the Act.
3. Section 45 of the Prevention of Money Laundering Act, 2002
In Nikesh Tarachand Shah v. Union of India, the Supreme Court struck down Section 45 of the PMLA as being manifestly arbitrary, unconstitutional and in violation of Article 14 and 21 of the Constitution of India. The Court also considered the existence of these twin conditions in the afore-mentioned legislations as well as Section 37 of the Narcotics Drugs and Psychotropic Substances Act, 1985 and observed that:
“46. We must not forget that Section 45 is a drastic provision which turns on its head the presumption of innocence which is fundamental to a person accused of any offence...we must be doubly sure that such provision furthers a compelling State interest for tackling serious crime. Absent any such compelling State interest, the indiscriminate application of the provisions of Section 45 will certainly violate Article 21 of the Constitution. Provisions akin to Section 45 have only been upheld on the ground that there is a compelling State interest in tackling crimes of an extremely heinous nature.”
The Court recognized that similar provisions were only previously upheld ‘somewhat grudgingly’ in order to tackle the vice of terrorism and the menace of organized crime. They were found in legislations dealing with heinous offences, which posed a threat to security and integrity of the country. The logical corollary being that the Supreme Court did not consider economic offences under the PMLA to be equivalent to heinous offences covered under TADA, MCOCA, NDPS etc.
Interestingly, after the Judgment in Nikesh Tarachand Shah, vide the Finance Act, 2018, amendments were made in Section 45 of PMLA seeking to revive the twin conditions for grant of bail. However, at least three High Courts have categorically held that the amendment to Section 45 (1) of PMLA, does not revive or resurrect the twin conditions.
Analysis of the twin conditions in re: Companies Act
The Serious Fraud Investigation Office (SFIO), is an investigation agency created under Section 211 of the Companies Act, 2013, to investigate into the affairs of a company upon orders of the Central government. The SFIO has been armed with the power to arrest, and upon conclusion of investigation, files a complaint along with an Investigation Report (deemed chargesheet).
Prosecutions under the Companies Act have shown that the complaint and deemed chargesheet filed by the SFIO have generally been voluminous, running into thousands of pages, as is likely to be expected when one is scrutinizing and examining the dealings of large scale business houses.
In this background and context, I submit that in complex cases involving allegations of corporate fraud, which are usually based on documentary evidence and paper trails, an accused person will only be able to demonstrate his innocence during the course of trial since the evidentiary value of the material relied upon by the prosecution can only be tested by conducting cross-examination of prosecution witnesses and adducing defence evidence.
A literal interpretation of Section 212(6) would lead to absurdity, inasmuch as keeping a presumably innocent person in indefinite custody would defeat the purpose of trial, which would take years to complete.
Secondly, the Section appears to be prima facie discriminatory insofar as it only comes into play upon the sole discretion of the Public Prosecutor. In the event a Public Prosecutor does not oppose the bail, a court is not required to record a satisfaction and belief as required under Section 212(6)(ii). This arbitrary power vested in the Public Prosecutor alone makes the Section violative of Article 14 of the Constitution.
Thirdly, in the event a Court reaches a conclusion that there are reasonable grounds for believing that an accused person is not guilty of such offence, it would be impossible for charges to be framed against such a person, as the test at the stage of framing of charge is whether or not a prima facie case against the accused has been made out. Both these stages would contemplate examination of the very same material on record and application of the similar legal principles.
Fourthly, no court can be ‘reasonably’ satisfied that a person would not commit any offence after being released on bail and speculate on the mens rea of any person in advance. All that can be done and is usually done, is to check whether there is any previous conviction or involvement in criminal cases.
Fifthly, despite not having been arrested during the course of investigation and having fully co-operated with the investigating agency, a person accused of an offence under Section 447 of the Companies Act is likely to be taken into custody with the aid of Section 212(6) upon entering appearance before the concerned court pursuant to summons issued by it. In such cases, where the Investigation Agency in its wisdom has chosen not to arrest an accused during the investigation, when the evidence is most likely to be tampered with or there is apprehension of the accused being a flight risk, there should be no occasion for an accused to be taken into custody especially when he/she has submitted themselves to the jurisdiction of the court and is ready and willing to face the trial.
Application of Section 212(6) as it stands
Despite the judgment in Nikesh Tarachand Shah, which dealt with economic offences, courts dealing with applications for bail under Section 212(6) have resorted to placing reliance on judgments passed under Section 37 of NDPS Act to observe that the twin conditions have to be interpreted strictly.
There are some basic flaws in equating offences under the NDPS Act with Section 447 of the Companies Act. Those offences are not only heinous, and involve a compelling state interest as held in Nikesh Tarachand Shah, but also apply to persons accused of possessing, cultivating, trading etc. ‘commercial quantities’ of drugs. One must not lose sight of the fact that due to the nature of offences under the NDPS Act, an accused is mostly charged with having been in possession of the banned substance and thus has to explain whether the possession was conscious or not in order to make out a case for bail.
Additionally, a trial under the NDPS Act does not entail navigating through voluminous records and hinges upon possession/nature of search and seizure and the compliance of procedural safeguards in relation thereto. Such offences cannot be compared to instances of alleged corporate fraud which involve complex decision processes, going through various layers in a company.
A Single Judge of the Punjab and Haryana High Court, in Ankush v. State of Punjab and Vivek Harivyasi v. SFIO, has expertly elaborated the problems that arise with the applicability of the twin conditions in Section 37 of the NDPS Act as well as Section 212 of the Companies Act, and has even held that the rigors of Section 212 are not mandatory.
In conclusion, these twin conditions not only erode the fundamental right of personal liberty guaranteed by Article 21 of the Constitution of India, but also invert the burden of proof required for every fair trial – the presumption of innocence.
As of today, petitions challenging the vires Section 212(6) are pending before the Supreme Court. The continuation of the twin conditions in Section 212(6) as it stands not only violates the rights of many accused persons, but also gives sanctity to a practice which has already been held be unconstitutional by the Supreme Court, save where the security of the nation is at stake.
The author is an Advocate.