FIGHT OR FLIGHT: A STUDY ON FUGIVITIVE ECONOMIC OFFENDERS BILL,
2018
AUTHORED BY
Trisha Mukherjee
FIRST YEAR
ABSTRACT
There have been several instances of economic offenders fleeing the jurisdiction of Indian courts,
anticipating the commencement, or during the pendency, of criminal proceedings. The absence
of such offenders from Indian courts has several deleterious consequences. First, it hampers
investigation in criminal cases. Second, it wastes precious time of courts of law. Third, it
undermines the rule of law in India. Further, most such cases of economic offences involve nonrepayment of bank loans thereby worsening the financial health of the banking sector in India.
The existing civil and criminal provisions in law are not entirely adequate to deal with the
severity of the problem. After the recent financial frauds came to fore in India, especially the Rs
13,000 crore PNB scam where diamantaire Nirav Modi and Mehul Choksi fled the country, it
became apparent that the existing civil and criminal provisions are not entirely adequate to deal
with the severity of the problem. The absence of offenders during investigations poses problems
for the probing agencies apart from undermining the law of the country. The ordinance called as
“Fugitive Economic Offenders Ordinance, 2018” came into effect after the assent of the
President on March 12, 2018 as the act “The Fugitive Economic Offenders Act, 2018.”
Keyword(s): Fugitive offenders, Fugitive Offenders Act 2018, Bank loans, PMLA.
FIGHT OR FLIGHT: A STUDY ON FUGIVITIVE ECONOMIC OFFENDERS BILL,
2018
“The world is an inferno. It will burn until every nation has fallen, until all who oppose us are
dead, until people see the true light.”
― Alexander Gordon Smith
INTRODUCTION
A fugitive economic offender is an individual who has committed some specified offence(s)
involving an amount of one hundred crore rupees or more and has absconded from India or
refused to come back to India to avoid or face criminal prosecution in India. A Fugitive
Economic Offender is a person declared so by a 'Special Court' set up under the Prevention of
Money-laundering Act (PMLA), 20021, against whom an arrest warrant has been issued in
respect of any of the economic offences provided in the schedule to Fugitive Economic
Offenders Bill, 20182 and who has left India so as to avoid criminal prosecution, or being abroad,
refuses to return to India to face criminal prosecution. Offences under some 15 Acts are listed in
the Schedule to the Bill.
The word is defined in Section 2(1)(f) of the Fugitive Economic Offenders Bill, 2018 3 which
lays down measures to deter economic offenders from evading the process of Indian law by
remaining outside the jurisdiction of Indian courts. This Bill as introduced in the Parliament on
12 March 2018 may be seen here. As this could not be passed in the Parliament in that session,
the Union Cabinet, in its meeting held on 21 April, 2018, decided to promulgate the Fugitive
Economic Offenders Ordinance, 2018 and the same was notified on 21 April 2018. The
relevant Rules were notified on 24 April 2018.The cases where the total value involved in such
offences is Rs.100 crore (approx US$15 million) or more, will come under the purview of this
Bill. Hence, a fugitive offender term applies only to those who owe more than Rs. 100 crore in
the domestic territory of India. Placing the burden of proof for establishing that an individual is a
1
Act no 15 of 2003.
Bill no 79 of 2018.
3
Supra note 2.
2
fugitive economic offender is on the Director or the person authorised by the Director appointed
under section 49(1) of PMLA4.
Economic offences relate to fraud, counterfeiting, money-laundering, and tax evasion, among
others. Currently, various laws contain provisions to penalise such offences. These include:
(i) the Prevention of Money-Laundering Act (PMLA), 2002 which prohibits money-laundering,
(ii) the Benami Properties Transactions Act, 1988 which prohibits benami transactions, and
(iii) the Companies Act, 2013 which punishes fraud and unlawful acceptance of deposits. Other
laws such as the Indian Penal Code, 1860 and the Code of Criminal Procedure, 1973 also cover
economic offences, such as forgery and cheating.5
In 2017, the Ministry of Finance released a draft Bill to address cases of high-value economic
offenders fleeing the country to avoid prosecution. It observed that a new legal framework was
required as the current civil and criminal laws do not contain specific provisions to deal with
such offenders.6 The Ministry further stated that procedures under these laws are timeconsuming, which obstructs investigation and impacts the financial health of banks.
Recently, in March 2018, the Ministry of External Affairs stated that over 30 businessmen, under
investigation by the CBI and the Enforcement Directorate, had absconded to avoid facing
prosecution before Indian courts.7 The Fugitive Economic Offenders Bill, 2018 was introduced
in Lok Sabha on March 12, 2018. 8Subsequently, an Ordinance containing similar provisions was
promulgated on April 21, 2018.9
4
Supra note 1
Draft Fugitive Economic Offenders Bill,
2017,https://dea.gov.in/sites/default/files/Draft%20Fugitive%20Economic%20Offenders%20Bill%2C%20201722.3.2017.pdf.
6
Explanatory Note on the Fugitive Economic Offenders Bill, 2017, Ministry of Finance, May
2017,https://dea.gov.in/sites/default/files/Final_Explanatory_Note%20on%20the%20Draft%20Bill.pdf.
7
Unstarred Question No. 3198, Lok Sabha, Ministry of External Affairs, Answered on March 14, 2018.
8
The Fugitive Economic Offenders Bill, 2018, Ministry of
Finance,http://www.prsindia.org/uploads/media/Fugitive%20Economic%20Offenders/Fugitive%20Economic%20O
ffenders%20Bill,%202018.pdf.
9
The Fugitive Economic Offenders Ordinance, 2018, Ministry of
Finance,http://www.prsindia.org/uploads/media/Ordinances/The%20Fugitive%20Economic%20Offenders%20Ordi
nance%202018.pdf.
5
Implication and Background
The property of a fugitive economic offender, resulting from the proceeds of crime,
including benami property, can be confiscated once he is declared so by the Court (Provisional
attachment may happen before confiscation10. Properties abroad are also liable for confiscation.
Further, he would be disentitled from defending any civil claim. An Administrator will be
appointed to manage and dispose of the confiscated property. However, if, at any point of time in
the course of the proceeding prior to the declaration, the alleged Fugitive Economic Offender
returns to India and submits to the appropriate jurisdictional Court, proceedings under the
proposed Act would cease by law. All necessary constitutional safeguards in terms of providing
hearing to the person through counsel, allowing him time to file a reply, serving notice of
summons to him, whether in India or abroad and appeal to the High Court have been provided
for.
There have been several instances of economic offenders fleeing the jurisdiction of Indian courts,
anticipating the commencement, or during the pendency, of criminal proceedings. The absence
of such offenders from Indian courts hampers investigation in criminal cases, wastes precious
time of courts of law and undermines the rule of law in India. Further, most such cases of
economic offences involve non-repayment of bank loans thereby worsening the financial health
of the banking sector in India. The existing civil and criminal provisions in law are not entirely
adequate to deal with the severity of the problem. It is, therefore, felt necessary to provide an
effective, expeditious and constitutionally permissible deterrent to ensure that such actions are
curbed.
The non-conviction-based asset confiscation for corruption-related cases is enabled under
provisions of United Nations Convention against Corruption (ratified by India in 2011)11. Article
54(1)(c) of the UN Convention enables signatories to consider taking such measures as may be
necessary to allow confiscation of such property without a criminal conviction in cases in which
the offender cannot be prosecuted by reason of death, flight or absence or in other appropriate
cases. The Fugitive Economic Offenders Bill, 2018 adopts this principle.
10
11
“Confiscation” mean the permanent deprivation of property by order of a court or other competent authority
Convention number 58/4 of 31 October 2003
In view of the above context, a Budget announcement was made by the Government in the
Budget 2017-18 that the Government was considering to introduce legislative changes or even a
new law to confiscate the assets of such absconders till they submit to the jurisdiction of the
appropriate legal forum.
Objectives of the Act
The Bill is expected to re-establish the rule of law12 with respect to the fugitive economic
offenders as they would be forced to return to India to face trial for scheduled offences (meaning
list of economic offences appearing in the schedule to the Fugitive Economic Offenders Act).
This would also help the banks and other financial institutions to achieve higher recovery from
financial defaults committed by such fugitive economic offenders, improving the financial health
of such institutions.
It is expected that the special forum to be created for expeditious confiscation of the proceeds of
crime, in India or abroad, would coerce the fugitive to return to India to submit to the jurisdiction
of Courts in India to face the law in respect of scheduled offences.
Features and areas of concern
The Bill allows for a person to be declared as a fugitive economic offender (FEO) if:
(i)
an arrest warrant has been issued against him for any specified offences where the value
involved is over Rs 100 crore, and
(ii)
he has left the country and refuses to return to face prosecution.
13
To declare a person an FEO, an application will be filed in a Special Court (designated under the
Prevention of Money-Laundering Act, 2002)14 containing details of the properties to be
confiscated, and any information about the person’s whereabouts.15 The Special Court will
12
No freemen shall be taken or imprisoned or disseised or exiled or in any way destroyed, nor will we go upon him
nor send upon him, except by the lawful judgment of his peers or by the law of the land. —Article 39, Magna Carta
(1215)
13
Section 5 of the FEOB
14
Supra note 1
15
Section 3
require the person to appear at a specified place at least six weeks from issue of notice.
Proceedings will be terminated if the person appears.
The Bill allows authorities to provisionally attach properties of an accused, while the application
is pending before the Special Court. 16
Upon declaration as an FEO, properties of a person may be confiscated and vested in the central
government, free of encumbrances (rights and claims in the property). Further, the FEO or any
company associated with him may be barred from filing or defending civil claims. 17
Section 11(1) of the Bill empowers the Special Courts to disentitle an alleged individual from
defending or putting forward a civil claim. This may result in violation of Article 21 and go
against the spirit of the Constitution.18
Section 11(2) of the Bill gives the discretion to the Special Courts to disentitle a person from
filing or defending a civil claim on behalf of a company if he inter alia is a majority shareholder,
key managerial personnel or promoter declared as a fugitive economic offender. This is an area
of concern.
Under Section 14(4) of the Bill, the standard of proof applied by the Special Courts is
preponderance of probability instead of requiring proof beyond reasonable doubt.
The burden on the third parties to prove their ignorance of the fact that the properties were
proceeds of crime would create unnecessary hardships for those unrelated parties.
Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI), Insolvency and
Bankruptcy Code (IBC) and Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act (SARFESI) are laws that would co-exist with the proposed
16
Fugitive Economic Offenders Bill, Section 4(c) (2017)
Fugitive Economic Offenders Bill Section 7(3) (2017)
18
Contracting State, as per Section 4(d), is any State or place outside India with which the Central Government of
India has arrangements by way of treaty or otherwise
17
Act. Since the Bill has an overriding effect, a saving clause would be of immense need to protect
the existing laws trying fugitive economic offenders.19
Strategy of the act
The ordinance is expected to re-establish the rule of law as the accused will be forced to return to
India and face trial for his offences. This would also help the banks and other financial
institutions to achieve higher recovery from financial defaults committed by such fugitive
economic offenders, improving the financial health of such institutions. It is expected that the
creation of a special forum for a speedy confiscation of the proceeds of crime, in India or abroad,
would force the fugitive to return to India to submit to the jurisdiction of courts in India to face
the law in respect of scheduled offences.
Drawbacks of the act with recommendations
The Bill first began circulating in around August 2017. At the time, a number of commentators
spoke about portions of it that might end up being seen as unconstitutional. The government has
been trying to rebut this, saying on Thursday that “all necessary constitutional safeguards in
terms of providing hearing to the person through counsel, allowing him time to file a reply,
serving notice of summons to him, whether in India or abroad and appeal to the High Court have
been provided for”.
A lawyer wrote in a renowned newspaper said there is a “high chance” that the Bill would not
pass muster before a court. He pointed to the fact that it allows the government to take control of
property based only on allegations of wrongdoing, with no conviction. It also disentitles entire
companies from defending themselves in civil cases, meaning all those invested would be at risk
if even just one of them has been accused of a crime. And moreover, it allows for the seizure of
all of the declared offender’s property in India, regardless of whether the value of that exceeds
the amount that they will have to pay their liabilities.
“Proceeds of crime” is defined in Section 4(g) of the Bill as any property that is obtained, directly or indirectly,
from indulging into a criminal activity related to the scheduled offences, or the value of such property or where it is
held outside India, the value of such property in India
19
Every coin has a two side, so does the act. It aims to curb the practice of evading the criminal
prosecution by the economic offenders who flee from the country to stay out of the jurisdiction
of Indian courts.It empowers the authorities to confiscate and sell assets of economic offenders,
especially bank fraudsters who have fled the country. It will give the right to the government to
confiscate the property of such economic offenders in India and abroad. The Bill will also be
applicable on the proxy-owned properties of the economic offenders. It will apply for economic
offences with monetary value in excess of Rs 100 crore. All cases will be tried under PMLA Act
and the administrator will sell fugitive’s property to pay off the lenders. It will have overriding
effect over all other pieces of legislation. Offender will not able to pursue any civil cases in
India. It defines economic offenders as those against whom a legal warrant has been issued, but
they refuse to adhere to the summons of the legal authority. The law balances itself with a
provision that allows the accused to file an appeal in the High Court to state their case. The Bill
makes provisions for a Court (‘Special Court’ under the Prevention of Money-laundering Act,
2002) to declare a person as a Fugitive Economic Offender.
An absolute ban is contrary to the basic tenets of justice and fair play, besides being in violation
of the Indian Constitution. Finding a suitable buyer is another issue. Assets confiscated by
enforcement agencies and courts are termed as distressed properties, and seldom find buyers. For
example,Sahara’s Amby Valley.Unable to find suitable buyers for almost a year. Sale of
property without proper trial is violation of settled principle under the constitution. Anyone can
be prosecuted or property can be acquired without the person being found guilty. These
provisions are against the fundamental rights. According to experts flaws in the proposed
legislation could be used to challenge the law in courts. The provision that empowers any court
to dis-entitle any person from putting forward or defending any civil action if that he/she is
declared as a fugitive economic offender is seen as harsh. A challenge may be made against such
provision on the ground that it is disproportionate and arbitrary. Does not provide for a situation
where the confiscated property is in excess of the claims against fugitive offender.
To solve the problem of finding a suitable buyer, the bill should provide for time limits for
disposal and encashment of property,separate limits for movable-immovable property and
running business, and any property which would be subject to valuation loss over a period of
time must be disposed of quickly. The capacity of our legal system needs to get better. The issue
of lack of time, and domain knowledge and expertise needs to be taken care of.
Government needs to focus a lot on how the rules are made and framed in a manner that they
reflect the true spirit of the law. Government needs to reach out to different countries with whom
we don’t have as yet the arrangement to have enforcement of the provisions under the law. We
need to really expand that list to make sure that very few countries are left as a matter of fact no
country should be left out of the purview of the contracting laws. Even key managerial persons
can be declared fugitives, if a court has issued warrant against them. To further strengthen it, the
bill should separately provide for dealing with siphoning off of funds, round-tripping, and
employing any scheme or edifice to cause loss.