India: Fugitive Economic Offenders Act, 2018 – Deliberate Or Desperate?

Last Updated: 8 January 2019
Article by Malavika Menon and Shambhawi Sinha

BACKGROUND

The recent extradition order of Mr. Vijay Mallya passed on December 10, 2018 by the Westminster Magistrate's Court in UK surely comes as a huge sigh of relief for the government and the Indian banks currently under enormous pressure with a long list of bad loans and absconding promoters. The UK order has now been swiftly followed up by the special PMLA court in Mumbai which declared Mr. Vijay Mallya a 'fugitive economic offender' under the Fugitive Economic Offenders' Act, 2018 ("the said Act") on 5th January 2019. 

This leads to an analysis as to why was there the need to enact the said Act. The answer lies in some alarming statistics. The number of fraud cases reported by banks, which generally averaged around 4,500 cases a year in the past 10 years skyrocketed to a shocking number of 5,835 cases in the year 2017-18. This year itself it has been estimated that the banking and finance sector has suffered losses of a staggering amount of Rs. 41,000 Crores due to frauds.1 As per the Ministry of External Affairs, over 30 people accused of various financial scams/frauds and under probes by the Enforcement Directorate/ Central Bureau of Investigation are currently absconding from India2. It is thus evident that despite the existence of various statutes and regulations, the same have failed or have been poorly implemented or simply inadequate to control white collar crimes.

At present, various laws contain provisions to penalise such offences such as (i) the Prevention of Money-Laundering Act, 2002 primarily focused on containing money-laundering transactions; (ii) the Benami Properties Transactions Act, 1988 which prohibits benami transactions; and (iii) the Companies Act, 2013 which prescribes penal and pecuniary measures for offences such as fraud and other unlawful corporate practices. Long standing statutes such as the Indian Penal Code, 1860 and the Code of Criminal Procedure, 1973 also cover economic offences, such as forgery and cheating. Various recovery laws such as The Securitization and Reconstruction of Financial of Financial Assets and Enforcement of Securities Interest Act, 2002 and The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 are also present, however the same have not proved to be time efficient. Further, none of these statutes contain specific provisions to deal with high value white collar criminals who have left the Indian borders primarily to escape proceedings against them, which thus forces authorities to resort to extradition proceedings under the Extradition Act, 1962. However, the process of extradition is extremely procedural and time-consuming. Further, factors such as the status of the international relations between the concerned countries, existence of an extradition treaty, nature of offence etc., have a considerable impact on the manner and time frame within which the extradition proceedings progress.

INTRODUCTION

The said Act was first envisaged under the 2017 Union Budget and was originally enacted in the form of an Ordinance. Subsequent to the President's assent, the Fugitive Economic Offenders' Act, 2018 was enacted and was deemed to have come into force from the 21st day of April 2018. 

The preamble of the said Act states that the act aims to provide for measures to deter fugitive economic offenders from evading the process of law in India by staying outside the jurisdiction of Indian courts and to preserve the sanctity of the rule of law in India.

The Act heavily relies on the Prevention of Money Laundering Act, 2002 ("PMLA"). A lot of definitions and provisions are the same as in PMLA and therefore it won't be completely wrong to even term the said Act as a supplemental act to PMLA. However, please note that both the statutes aim to achieve different goals.

MAJOR FEATURES

A broad framework of the said Act is laid out hereunder:

A "fugitive economic offender" means any individual against whom a warrant for arrest in relation to a Scheduled Offence has been issued by any Court in India, who-

(i) has left India so as to avoid criminal prosecution; or

(ii) being abroad, refuses to return to India to face criminal prosecution;

"Scheduled Offence" under the Act is basically a list of existing offences (provided the total value involved is more that Rs. 100 Crores) under various statutes such as Indian Penal Code, 1860, Negotiable Instruments Act, 1881, Prohibition of Benami Property Transactions Act, 1988, Prevention of Corruption Act, 1988, the Companies Act, 2013, Prevention of Money Laundering Act, 2002 etc.

The said Act applies to any individual who is or becomes a fugitive economic offender on or after 21st day of April 2018.

An application to declare an individual as a 'fugitive economic offender' can be made under S.4 by a Director or a Deputy Director (as defined under the PMLA). Under S.5 of the said Act subject to receipt of the Special Court's permission, the Director or the Deputy Director may proceed with attachment of properties; whether the property is proceeds of crime or any other property (including any benami property) which is owned by a fugitive economic offender. The Special Court here means the Sessions Court designated as a Special Court under sub-section (1) of section 43 of the PMLA.

In addition to the above, S.5(2) by way of a non-obstante clause also provides for attachment of properties prior to any application being made for declaration of a fugitive economic offender. The attachment of any property under this section shall continue for a period of 180 days from the date of order of attachment or such other period as may be extended by the Special Court. However, in such a case, the application under S.4 has to be made within 30 (Thirty) days from the date of such provisional attachment.  

Under S. 12, the Special Court upon being satisfied and for reasons to be recorded in writing may declare an individual as a fugitive economic offender. Upon this declaration, (i) properties which are proceeds of a crime whether owned by the offender or not; and (ii) any other properties (including personal and benami properties) owned by the offender; shall stand confiscated to the Central Government.

A unique provision of the said Act is S.14 which bars a fugitive economic offender from initiating/continuing/defending any civil claims. The section goes a step further and even disallows a limited liability partnership or a company from the same if its promoter or key managerial personnel or major shareholder or anyone who holds a controlling interest has been declared a fugitive economic offender. 

As far as burden of proof is concerned, it shall be the Director (as defined under the PMLA) or the person authorized by the Director who has to prove that an individual is a fugitive economic offender. However, if it is a case of any person claiming bona fide interest, then the burden is on the said person to prove his innocent stake in the property and validity of his claim.

The Act extends to the whole of India and shall have effect, notwithstanding anything inconsistent therewith contained in any other law and further, it shall be in addition to and not in derogation of any other law for the time being in force.

OBSERVATIONS

  1. The first thing that comes to mind is that whether the said Act was absolutely essential or is it a case of a futile legislative action taken in haste to calm the agitated common man in light of the recent high value monetary scams. Just like PMLA, the said Act makes a direct reference to various other statutes and includes scheduled offences as per those statutes but interestingly covers a lot less offences as compared to PMLA. The reasoning behind this narrow approach may be due to the fact that unlike PMLA, wherein confiscation and disposal of properties actually takes place only after conclusion of proceedings, the said Act provides for confiscation and subsequent disposal of properties (whether situated in India or abroad) on the mere declaration of an individual as a 'fugitive economic offender' if the individual fails to return to Indian jurisdiction. Such a draconian section is bound to have a strong deterrent effect on the accused and will surely force him to surrender or at least appear (either himself or through an appointed attorney) before the appropriate authorities in India and that's what seems to be the legislative intent here.
  1. The seemingly arbitrary section S.5(2) is bound to receive some criticism for not being in consonance with a basic principle of justice i.e. 'innocent until proven guilty'. The section is a major enabling provision for the Enforcement Directorate, the law enforcement agency in such matters or any other appropriate authority as it gives them ample power to search, seize and attach properties even without commencement of any proceedings. Further, as pointed out above the authorities may even dispose off the properties after a period of 90 (Ninety) days from the date of declaration of the fugitive economic offender.

This pre-conviction confiscation is not an entirely new concept. It has been laid down in United Nations Convention against Corruption ("UNCC") which India ratified in 2011. Article 54 (1)(c) of the UNCC enables signatory countries 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 or absence. The said Act adopts the same concept.

  1. In addition to the above, it is also important to highlight the domestic scenario and the approach taken by our courts. Such stringent provisions exist in various other statutes as well, such as the provision of forfeiture of properties under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (which was constitutionally upheld by the Supreme Court in Attorney General for India vs Amratlal Prajivandas3); provision of freezing of assets of a company by the Serious Fraud Investigation Office under the Companies Act, 2013 and provisions of provisional attachment under the Income Tax Act 1961 among others. 

S.5(2) of the said Act which provides for attachment of properties on mere suspicion prior to declaration of fugitive economic offender and/or initiation of any proceedings may possibly be challenged on grounds of its constitutionality for being against basic doctrines of justice. We are of the opinion that although potential misuse or exploitation of this provision by the authorities is a valid concern, the intent of the legislature of compelling absconders to surrender has to be kept in mind too. Further, in Sushil Kumar Sharma vs Union of India4 and Mafatlal Industries Ltd. and Ors. v. Union of India5 the Supreme Court has held that the mere possibility of abuse of power is not a ground to strike down the provision on the basis that it is substantively unreasonable or ultra vires or unconstitutional. In any unfair cases, the court by upholding the provision of law, may still set aside the action/order/decision and grant appropriate relief to the person aggrieved.

The most relevant judgment herein would be J.Sekar and Ors. vs Union of India and Ors.6 The Delhi High Court in January 2018 upheld the constitutionality of second proviso of S.5(1) of PMLA. The said non-obstante proviso is akin to S.5(2) of the said Act. It enables the competent authority under PMLA to forthwith provisionally attach properties of an accused on mere suspicion and without forwarding any report to the magistrate under Code of Civil Procedure, 1973. However, the case is currently pending in the Hon'ble Supreme Court of India. Considering the similar nature of these provisions, the final outcome of the case might have a major impact on the said Act.

  1. S.14 which disallows civil proceedings is a sweeping section which also bars a limited liability partnership or a company with which a fugitive economic offender might be related to from initiating or defending any civil cases. This is an unnecessarily wide and strict provision especially since the said Act does not actually adjudicate upon the innocence or guilt of a person but merely declares the person to be a fugitive economic offender. Chances are fairly high that the constitutionality of this provision will be deliberated upon in the near future. In fact, a Constitution Bench of the Hon'ble Supreme Court of India has held 'access to justice' as a facet of right to life guaranteed under Article 21 of the Constitution and also a part of right to equality under Article 14 of the Constitution in Anita Kushwaha vs Pushap Sudan7
  1. Although the said Act provides for a period of 90 days from the date of order of declaration before disposing off confiscated properties, it is surprisingly silent on any timeline within which the Special Court should decide on an application under the said Act. This may potentially delay the proceedings especially in a case where the alleged offender enters an appearance through a counsel. While an alleged offender should not be denied the right to defend himself, absence of any fixed timeline gives just too much leeway to the accused to delay or stall proceedings without actually submitting himself to Indian authorities.
  1. The prescribed threshold of Rs. 100 Crores for offences may let many wrongdoers evade the provisions of the said Act. Alongside the monetary value, the nature of offence too should be considered for the purposes of the Act. 
  1. Although the said Act covers foreign properties and provides for a letter of request to be made to foreign states, the reality remains that India has a poor track record when it comes to extradition. Till April 05, 2018, more that 150 extradition requests were pending with various foreign countries.8 Thus, due importance needs to be given to strengthening of international relations, simplifying of extradition procedures and culmination of more robust extradition arrangements/treaties.
  1. From a bare reading of the said Act, it appears that only a Director or an officer not below the rank of a Deputy Director can apply under S.4 for declaration of an individual as a fugitive. There is no scope for any other person to bring forth an application directly or even indirectly. The reason behind such omission is unclear.
  1. S.62 of the PMLA provides for punishment of officers in case of vexatious searches by them. Considering the similar nature of the laws, it would have been prudent to have incorporated a similar provision under the said Act.
  1. The said Act places reliance on preponderance of probabilities as the standard of proof to be used by the Special Court. Although, this is a lower parameter as compared to the general principle of requiring proof beyond reasonable doubt for prosecution of offences, the intention of the said Act should be given due weightage which aims to bring the alleged offender within the Indian jurisdiction and not adjudicate upon and/or penalise the alleged offender.
  1. Needless to say that it remains to be seen as to how the said Act would work in tandem with the existing statutes especially in relation to attachment of properties and recovery of dues under different statutes before different fora.

Footnotes

1 RBI Annual Report 2017-18

2  Question No. 3198 in Rajya Sabha answered on 14th March 2018

3  AIR 1994 SC 2179

4 (2005) 6 SCC 281

5 (1997) 5 SCC 536

6 (2018CriLJ1720)

7  2016 8 SCC 509

8 Question No. 4338 in Rajya Sabha answered on 5th April 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions