Supreme Court Quashes Bank Guarantee Requirement for Bail as Onerous and Legally Unsustainable.

The Dispute: “Reasonable Bail” vs. Financial Hardship

The Conflict: The appellant was arrested under Section 69 for allegedly claiming a wrongful Input Tax Credit (ITC) of ₹17.64 crores.

The Trial Court’s Conditions: To get out on bail, the appellant was ordered to provide:
1. A personal bond of ₹1 crore.
2. Two sureties of ₹1 crore each.
3. A Bank Guarantee (BG) of ₹50 lakh.
The Problem: After a few years, the guarantor for the ₹50 lakh BG withdrew their support. The appellant argued that since he had already provided bonds/sureties totaling ₹3 crores, the additional demand for a “liquid” bank guarantee was excessive and illegal.

The Judicial Verdict: Liberty Cannot Be “Sold”

The Supreme Court ruled in favour of the Assessee, setting aside the Bank Guarantee requirement based on the following constitutional and legal principles:

1. Bail Conditions Must Not Be Onerous

The Court relied on the precedent in Saravanan v. State (2020), which held that courts cannot impose “unreasonable” or “impossible” conditions that effectively deny bail. A bank guarantee requires the accused to park a large sum of cash with a bank, which is often impossible for an individual whose business is under investigation.

2. Sufficiency of Personal Bonds and Sureties

The Court noted that the appellant had already furnished a personal bond of ₹1 crore and two sureties. This was deemed sufficient to ensure the appellant’s presence during the trial. Adding a ₹50 lakh bank guarantee on top of a ₹3 crore bond was seen as a “collection exercise” by the court, which is not the purpose of bail.

3. Distinction Between Tax Recovery and Bail

The ruling reinforces that Bail Proceedings are not Recovery Proceedings. The Revenue cannot use bail conditions to “secure” the disputed tax amount before the fraud is even proven in a trial.

Key Takeaways for Taxpayers in 2026

Challenge Onerous Conditions: If a magistrate or High Court demands a “cash deposit” or “bank guarantee” as a condition for bail in a GST case, you can challenge it. The Supreme Court has consistently held that such conditions are generally unsustainable if bonds and sureties are already provided.
Sureties over Cash: Always prioritize offering high-value Sureties (property or third-party guarantees) over Bank Guarantees. Sureties demonstrate a “tie to the community” without requiring the immediate liquidation of cash.
The “Saravanan” Precedent: Use this judgment along with the Saravanan case to argue that GST offenses—while serious—do not justify “buying” your freedom.
Section 132 Offenses: While the Department can arrest you for ITC fraud exceeding ₹5 crores (Section 132), your right to bail is governed by the Code of Criminal Procedure (CrPC/BNSS 2023), which emphasizes that conditions must be “just and reasonable.”

SUPREME COURT OF INDIA

Sahil Jain

Superintendent (Anti Evasion)^*

Rajesh Bindal and ATUL S. CHANDURKAR, JJ.

Crl. Appeal No. 968 of 2026

FEBRUARY 18, 2026

Akhil Krishan Maggu, Deepak Gupta, Ms. Oshin Maggu and Sujeet Kumar, Advs. for the Petitioner. Raja Thakare, A.S.G., Rishikesh Hariom, Rohit Khare, Kartikeya Asthana, Gaurang Bhushan, Ishaan Sharma, Advs. and Gurmeet Singh Makker, AOR for the Respondent.

ORDER

1. Leave granted.

2. The appellant is aggrieved against the order dated 29.08.2025 passed by the High Court whereby he has been directed to furnish bank guarantee of Rs. 50 lakhs as a condition of bail.

3. The appellant is an accused with the allegation by the GST Department of claiming wrongful Input Tax Credit to the tune of Rs. 17.64 crores. At the time of initial grant of bail to the appellant, a condition for furnishing personal bond of Rs. 1 crore with two sureties of like amount was imposed. In addition to that, the appellant was directed to furnish bank guarantee of Rs. 50 lakhs. The needful was done. Subsequently, the person who had given the bank guarantee of Rs. 50 lakhs has withdrawn the same.

4. The person who had given the bank guarantee was permitted to withdraw the same by the Chief Judicial Magistrate vide order dated 26.05.2025 and the appellant was given time to furnish fresh bank guarantee.

5. While recording the fact that the condition for furnishing bank guarantee was challenged by the appellant earlier before the High Court and the same was upheld vide order dated 03.03.2021 passed in CRM-M-4374/2021, the High Court dismissed the petition filed by the appellant to waive of that condition.

6. The argument raised by learned counsel for the appellant is that as per the condition imposed by the trial Court while granting bail, he has already furnished personal bond of Rs. 1 crore with two sureties of like amount. The condition of furnishing bank guarantee of Rs. 50 lakhs is onerous and contrary to the law laid down by this Court in Saravanan v. State Represented by the Inspector of Police 2020 INSC 600. Hence, the prayer is for setting aside of that condition.

7. On the other hand, learned counsel for the respondent submitted that the aforesaid condition was required to be imposed while granting bail to the appellant seeing huge amount of tax which the appellant had evaded by availing wrongful Input Tax Credit on the strength of fake invoices. The fact remains that the case pertains to the year 2020 and as admitted in Court, till date even the charges have not been framed.

8. After hearing learned counsel for the parties and considering the law laid down by this Court in Saravanan’s case (supra), in our opinion, furnishing bank guarantee of Rs. 50 lakhs as a condition for grant of bail, cannot be legally sustained, especially, considering the fact that the appellant was required to furnish personal bond of Rs. 1 crore with two sureties of like amount, which admittedly has already been furnished.

9. Considering the aforesaid fact, the impugned order passed by the High Court is set aside. The condition of furnishing bank guarantee of Rs. 50 lakhs as a condition for bail stands set aside.

10. The Appeal is allowed.

11. Pending application(s), if any, shall also stand disposed of.