In the recent past, the rich Indian brigade has caught the public eye on account of what the Indian Government refers to as the 'loot and scoot' crimes. From cricket event organizers, liquor barons to diamond merchandisers all have been accused of multi crore scams and the tendency of suddenly leaving the shores of India.
As per the 2015 data produced by National Crime Records Bureau, the number of economic offences in India have doubled in the last decade.1
In the past, several laws have been enacted to regulate financial discipline and recovery of monies in case of delinquencies and irregularities.
- The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) provides that if the borrower failed to discharge his liability then the banks without intervention of the courts can recover the secured assets.
- The Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDDBFI) debts, secured or unsecured may be recovered by the Debt recovery tribunal. The recovery officer is authorized to recover the debt by attaching and selling the assets, arresting the debtor etc.
- Insolvency and Bankruptcy Code (IBC), 2016 enjoins invocation of insolvency resolution process in appropriate circumstances comprising a restructuring of the debts through the formulation of a repayment plan.
- Prevention of Money Laundering Act,
2002 (PMLA), envisions for confiscation of property derived from or
involved in money laundering of proceeds of crime of a scheduled
offence. Under the PMLA the Enforcement Directorate is entitled to
provisionally attach the property of the defaulter pending trial
subject to confirmation by the adjudicating authority.
On conviction in the trial, the property stands confiscated, free from all encumbrances to the Central Government. However, the provision for confiscation is available consequent to the conclusion of trial and can rarely be used expeditiously. Further, the purpose for such confiscation is as punishment for the offence committed and not strictly as a deterrent for any absconding accused to return to India.
- Section 37A of Foreign Exchange Management Act, 1999, (FEMA) stipulates that value equivalent, in India may be seized, if any foreign exchange, foreign security or immovable property is held in contravention of Section 4 of the FEMA Act. Consequently, the competent authority may confirm or set aside such confiscation. The order of the competent authority shall continue till disposal of adjudication. If during this process the person brings back the same into India the seizure may be set aside by the competent authority;
In addition to the above enactments, the Central Bank of India from time to time issued circulars where banks and financial institutions were required to submit to it the details of willful defaulters above a specified limit.2
In spite of the above efforts, the incidence of reporting of economic offences have been on a steep rise. One may possibly attribute the reasons for such rise to the growing proximity of rich and wealthy with the powerful Center, best described as crony capitalism3.
The commissioning of economic offences and fleeing to a foreign territory not only undermines the Rule of law in India but also causes a strain on the overall economy.
With this background and in an attempt to curb economic offenders from evading the process of Indian law by resorting to relocation to foreign jurisdiction and thereby remaining outside the jurisdiction of Indian courts, the Fugitive Economic Offenders Bill, 2018 (FEO) has been passed in the Lok Sabha and is Pending in the Rajya Sabha.4 (As on the date of Publishing of this article)
FEO is developed with the respective objective, as the preamble states "A Bill to provide for measures to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts"
The unique trait about the FEO is that it empowers the Indian Government to confiscate the property of economic offenders absconding from India until they submit to the jurisdiction of the appropriate legal forum.
This attribute in the FEO has been introduced in pursuance of India's Ratification of the United Nations Convention against Corruption (UNCAC) in 2011. The UNCAC is a comprehensive anti-corruption convention that includes wide range of corruption offences and aims at garnering international co-operation in criminalizing offences of corruption. The convention recommends non-conviction-based asset confiscation for corruption related cases. Asset recovery is stated explicitly as a fundamental principle of the Convention. Member countries are bound by the UNCAC to render mutual legal assistance towards prosecution of offenders as well as in tracing, freezing, and confiscating the proceeds of corruption.
It is generally observed that income earned from illicit activity is routed to other country where the source of income is not questioned. Since the offender has escaped from the respective state he/she no longer can be held liable in other state due to the principle of statehood. Hence introduction of a Statue, which helps in tracking such offenders, is the need of the hour.
The ambit of proceeds of crime under FEO includes the property (within and outside) India acquired from any criminal activity.
Hence, FEO clearly aims on capturing the offender's property not only within but also outside India as well, acquired both from legitimate as well as illegitimate means.
The Fugitive Economic Offenders bill, 2018 (FEO): Chief Highlights
- Section 4(1)(e) of FEO defines a fugitive as, means any individual against whom a warrant for arrest in relation to a scheduled offence5 has been issued by any court in India, who leaves or has left India to avoid criminal prosecution; or refuses to return to India to face criminal prosecution.
- Proceeds of Crime have been defined as "any property derived or obtained, directly or indirectly, by any person from any criminal activity relating to a scheduled offence or the value of such property or where such property is outside of the country, then the property equivalent in value held within the country." Also, Section 6(2)(c) of the FEO mentions that the applicant shall disclose all the properties belonging to him outside India during the process of confiscation.
- For declaration of a fugitive economic offender and confiscation, the director has the same powers as enlisted in PMLA, he may file an application with the Special Court (designated under PMLA) to declare a person as a fugitive economic offender with the following details, i.e. the reasons to believe that an individual is a fugitive economic offender; information about his whereabouts; list of properties believed to be proceeds of a crime for which confiscation is sought; a list of benami properties or foreign properties for which confiscation is sought; and a list of persons having an interest in these properties.
- No civil claim can be made in any Indian court with regard to such confiscation. The Special court shall appoint an Administrator (Insolvency Professional under IBC only) to manage and deal with the confiscated property.
- Upon filing of the application, the Special Court would issue a notice to the alleged offender and any other person having interest in such property requesting an appearance at a specified date and time failure of which will result in the declaration as a Fugitive Economic Offender.
- After service of Notice if an appearance is made in person, the proceedings under this act would stand terminated. If appearance is made through counsel, then the court may grant discretion to file a reply.
- The Director may also attach any property (for 180 days) where he has reasons to believe that the property of the offender is likely to be dealt with in a manner making it unavailable for confiscation. If at the conclusion of proceedings, the person is not found to be a fugitive economic offender, his properties will be released.
- Subsequent to declaration as a Fugitive Economic Offender the Special Court may order the listed properties to be confiscated by the Central Government; Proceeds of crime, irrespective of ownership, any other property owned by the Fugitive Economic offender in or outside India.
- The provisions of FEO may have a retrospective application since Section 3 of the FEO explicitly makes a mention that different dates may be appointed for different provisions of this Bill and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.
- An appeal against such declaration may be made to the High court.
When compared with PMLA the ambit of scheduled offences under the PMLA is much wider than given under the FEO. The legislator has tried vide FEO to plug-ins the loopholes of the earlier enactments viz., not providing any opportunity of any civil claims against the property confiscated unlike in PMLA which was silent on the same.
In comparison to other legislations FEO seeks to have a deterrent effect, as it mandates that the offender would have to submit to Indian jurisdiction to protect their assets, unlike the PMLA that has a punitive effect. Moreover, the PMLA provides for a cumbersome procedure with regard to reciprocal arrangements and agreements with foreign countries for enforcing provisions of the same. This can be viewed as regressive in the sense that the processes involved may not be appreciated in an era where mobility is exceptionally convenient. The PMLA is also ineffective in a way that the provision of confiscation is available consequent to the conclusion of the trial and therefore can rarely be used expeditiously.
As first instant, FEO may not be reviewed as consistent with the basic tenets of natural justice. The provision of selling the property on mere declaration of a person as a fugitive economic offender, without a proper trial violates this principle of 'innocent until proven guilty'. The bill is silent on the aspect of piercing of corporate veil, however basis the objective of FEO it becomes essential to pierce the corporate veil by getting to the root of white color crimes. The major concern, which remains unanswered, is the aspect of "unintended consequences" inter-alia about the protection of associated parties or the investors in such companies/ limited liability partnerships who may or may not be benefitted with such criminal act.
Also, the burden of proof rests on the interested parties to prove that they had no knowledge of such property being acquired through proceeds of crime. Discharging the burden of proof might become an insurmountable challenge for the third party who unknowingly ends up assisting in the execution of such crime without being aware of the same.
Every country has to find a balance between the need to have access to information of its residents and the privacy rights of the resident taxpayer. Concerns have been expressed regarding the violation of fundamental Right of privacy with the passing of FEO. For instance, aspects of Exchange of Information. When information of an Indian citizen is accessed by any other country without the citizen's personal consent he is subjected to disclose his personal information to a third party which violates the citizen's privacy. A citizen surrenders his information to the country but by no means agrees to make it accessible to the third party.
FEO also stipulates that any Indian court, in any civil proceedings before it, may disentitle an economic offender from putting forward or defending any civil claim. This sweeping provision also disentitles the companies in which the offender holds a key managerial post or is a majority shareholder, which may be viewed as in violation of the fundamental principles of natural justice and fair play.
Further, FEO would be a futile legislation for confiscation of property outside India unless suitable arrangements are made via treaties or other formal agreements. The Ministry of External Affairs has issued a comprehensive list of 39 countries with which India shares Mutual Legal Assistance treaties for service of all kinds of judicial processes or other documents. New modes of service of notice have been prescribed under the Fugitive Economic Offenders Bill such as; email Address, electronic accounts accessed by the offender etc. Reciprocal arrangements may be made with 'Contracting States' so as to issue Notice to Economic Offenders and for execution of order of confiscation where property is situated in a contracting state.
To summarize, Government's initiative of introducing measures encapsulated under the FEO, can be regarded as the need of the hour. However, certain amendments/ clarifications may be welcomed for effective implementation as it prescribes for a wholesome approach rather than concentrating on recovery from foreign assets.
Whether all this could have been achieved by making adequate/suitable amendments to the existing host of laws or aptly another law as proposed is required to efficiently tackle this menace. Time will tell whether multiplicity of laws in this contentious facet of undesirable economic behavior of society end up being effective or once again end up being in a situation of "too many laws but too little justice."
The authors would like to appreciate the efforts of Ms. Prerna Sharma (Intern).
1. Economic offences double in past 10 years, NCRB data shows in the last 10 years, the reporting of economic crimes such as cheating and criminal of trust, has doubled Last Published: Fri, Oct 07 2016. in the Mint.
2. Master Circular no. RBI/2015-16/100 DBR.No.CID.BC.22/20.16.003/2015-16, dated July 1, 2015
3. The Cambridge Dictionary defines the term as an economic system in which family members and friends of government officials and business leaders are given unfair advantages in the form of jobs, loans, etc.
4. Passed in the Lok Sabha on 12th March' 2018.
5. Some of the offences listed in the schedule are: (i) counterfeiting government stamps or currency, (ii) cheque dishonor for insufficiency of funds, (iii) money laundering, and (iv) transactions defrauding creditors. The Bill allows the central government to amend the schedule through a notification.
We would like to appreciate the efforts of Ms. Prerna Sharma (Intern).
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.