TITLE: ARTICLE ON ANALYSIS OF FUGITIVE ECONOMIC OFFENDERS ACT, 2018
Author: Rahul Kumar
NALSAR UNIVERSITY OF LAW, JUSTICE CITY,
SHAMEERPEET, HYDERABAD, TELANGANA-500101
Currently, various laws contain provisions to penalize 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 offence of fraud and unlawful acceptance of deposit is also punishable under the companies act 2013. Securities and exchange board of India act 1992 deals with “Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control”. There are many other laws which also define another economic offence like forgery, cheating in the Indian penal code, 1860.
And now new act introduced by the parliament of India to punish these economic offenders named as Fugitive Economic Offenders Act, 2018. After reading the act I find the research questions that what is the need to pass this act as the existing law are fails to punish the offenders? How the fugitive offenders practice has hampered economic performance, economic governance and how has this disturbed the goodwill of the Indian economy? What are the legal impediments, socio-political constraints and organizational hurdles in the process of reforms of Fugitive Offenders Bill, 2018? Are the provision laid down in the act similar to the other provision of different acts? Is there any certainty that the offender be punished and the debt is fully recovered by the government? The monetary value seems to help the other lesser value offender to fly away. The given act not clearly defines criminal punishment for the offenders.
These analyses give the point of arguments that the act also fails to provide speedy recovery so that the person, investor, bank also fails to restore back to their original position. The act did not prescribe the important aspect of the time of disposal of proceeding. The central government has all the power to deal with that and it shows that it may not share the outcomes of the recovery to the state government. Hence, a hypothesis is drawn that the act is work on prediction to re-establish the rule of law with relation to the fugitive economic offenders as they might be forced to come back to India to face trial for scheduled offences.
The Rs. 100 crore thresholds would permit several different offenders to travel freely. The total ban on offenders contesting the seizure of their properties through civil suits might not survive the review. An absolute ban is contrary to the essential tenets of justice and honest play, besides being in violation of the Indian Constitution. Sale of property of the alleged offender without giving him the chance of defending or hearing violates the fundamental right under article 21 and also violates the principle of natural justice i.e. unless guilt is proved every person is innocent.
In the previous time, 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 the cricket to liquor barons or diamond merchandisers all have been engaged or accused of crore scam and suddenly leaving the country. In the context of Indian act of fugitive economic offenders, a fugitive economic offender is any individual against whom an arrest warrant has been issued for committing any offence listed in the schedule of the act and the person abscond the country to avoid facing prosecution and also to refused to return to face prosecution. When an individual left out the jurisdiction of the country it creates various harmful consequences as first, it arises problem at the time of investigation of the case. Second, when the investigation is not properly initiated then it wastes a lot of time of the court itself. Third, this will create a problem to cut the natural rule of law in a country. Further, these types of issues if faced in the economic sector which generally include the banking sector and the problem of the bank is non-repayment of loans that destroy the health of the financial market of the country. And if the banks follow the civil and criminal process to recover its debts then it takes time to resolve the issue of recovery. Due to this the present structure of civil and criminal law are not adequate for them to follow. Hence, due to all of these reasons a necessary falls on the back of the government to pass a new law which deters the absconder and helps to recover the billions of assets to them.
So a piece of legislation to address all such issues was need of the hour. And on 01st March 2018, the central government introduced the Fugitive Economic Offenders Bill, 2018 to deter fugitive economic offenders from evading the process of law in India by staying outside the jurisdiction of Indian courts. The President promulgated the Fugitive Economic Offenders Ordinance on April 21, 2018. And most recently on 5th August 2018 president, Ram Nath Kovind gave his assent to the bill under Article 111 of the Indian Constitution.
United Nation Convention Against Corruption which has been ratified by the India year 2011 has clearly laid down the provision of nonconviction as is based on asset confiscation for corruption-related matters. This provision of UNCC can be adopted by the Indian Fugitive Economic Offenders act. On that, in 2017-18 budget session the union government announced that it was considering a new law to confiscate the assets of the absconder until the absconder surrender themselves to the Indian jurisdiction. And the government also announced to amend this time to time if requires.
There are various other laws as well which deals with such issue as:-
The RBI Circular on Willful Defaulters, dated 1st July, 2015, it defines “Willful Default” and lays down the mechanism for identification of wilful defaulters.
The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Bill, 2002 (“SARFAESI Bill”), “Section 13 of the SARFAESI Bill is used to recover secured assets by the banks and financial institutions without the involvement of a court or tribunal”.
Recovery of Debts due to Banks and Financial Institutions Bill, 1993 (“RDDBFI Bill”), “Under Sections 19 and 25 of the RDDBFI Bill, a debt, whether secured or unsecured, may be recovered on the issue of a recovery certificate by the Debt Recovery Tribunal (“DRT”)”.
Insolvency and Bankruptcy Code, 2016 (“IBC”): “On default by a debtor (corporate or individual), the debtor or the creditor can trigger the insolvency resolution process, which involves a restructuring of the debts through the formulation of a repayment plan”.
Objectives of the study
- To explore the concept of Fugitive Offenders Bill and the use of it in eradicating the unethical practices adopted by the offenders.
- To assess the scenario of the legal system prevailing in India regarding fugitive offenders.
- To examine the old policy of the government on fugitive economic offenders.
- To analyze the suitability of Fugitive Offenders Bill, 2018 for disposing of the matters of fugitive offenders in a speedy and justifiable manner.
Survey of literature
A genuine research study was initiated with a survey of the literature. Since, the whole study is based on the doctrinal method, a separate endeavor required for each part of the study. A doctrinal part includes various distinctive facets, i.e. Fugitive offenders and legislation related to that. Hence, the literature is explored mainly with two keywords, i.e. Fugitive Offender and legal implication and it’s future. However, during analysis, some more supplementary topics came across the study and their relevance was also studied with the main topic of the research. Literature in connection with these two words is reviewed from various online sources.
Detailed literature has been scanned for the impost of legal awareness in India. Reports of various commissions regarding Fugitive Offender, Problems in the future, Historical aspect, etc. are appraised. The judgments passed by the Hon’ble Supreme Court and various High Courts, regarding Fugitive Offenders, Loan defaulters are examined and their ratio is estimated. Various policy papers and thoughts of the Bar Council of India are gauged to identify the reason for the tragic condition of the legal education in India. Furthermore, the websites of various departments and legal institutions of different countries, online journals, books, news lines, etc. have been referred to according to the requirement of the study. All of these have been duly cited at the relevant places wherever their contents have been mentioned in this research project.
The aforesaid discussion leads to the following a set of questions ought to be addressed as a prerequisite for this study:-
- What is the need to pass this act as the existing law is failing to punish the offenders?
- How the fugitive offenders practice has hampered economic performance, economic governance and how has this disturbed the goodwill of the Indian economy?
- What are the legal impediments, socio-political constraints and organizational hurdles in the process of reforms of Fugitive Offenders Bill, 2018
- Are the provision laid down in the act similar to the other provision of different acts?
- Is there any certainty that the offender be punished and the debt is fully recovered by the government?
Research approach and methodology
The present research study is doctrinal in nature. The doctrinal proposition of the study is made by a systematic approach to examining the options developed in the selected research method. Each of the ancillary questions of the research problem is approached separately through the appropriate research method.
Since all the research question is based on the doctrinal study, an appropriate research method of literature survey and documentary analysis were used to formulate for the modeling of Fugitive Economic Offender Bill 2018.
Scope of the Study
The scope of study this concept is limited in order to complete it in a reasonable time and budget constraints. The concept of the fugitive economic offenders is very wide and broader, it has various dimensions. The philosopher who studies this concept studies it with reference to finance, management, economics, and governance. Hence, with the short span of time, I have only covered some provision of the act and some judicial response to determining the present status of FEO in India. And the present study is limited to India only.
Fugitive Offender Practices and its Ethical Aspects
The data provide by the national crime record bureau of India has shown that the rate of crime of economic offences has been increased two times in the last decade. Before this act came into picture there are too many laws that have been passed or enacted by the government of India to regulate the financial market and recovery of money in case of commission of offences or irregularities happens. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) “empowers the competent authority that if the borrower failed to comply with the direction or fails to discharge his liability then the banks without prior approval to the courts having jurisdiction can recover the secured assets.
The Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDDBFI) “provides that any debts whether secured or unsecured may be recovered by the DRT. The Act gives power to the competent authority to recover the debt either by attaching and selling the assets or arresting the debtor or put him in prison etc”.
Insolvency and Bankruptcy Code (IBC), 2016 it initiates the insolvency resolution process in appropriate time and duration which comprising a restructuring of the debts through the formulation of a repayment plan. Prevention of Money Laundering Act, 2002 (PMLA), “also deals for the confiscation of property derived from or involved in money laundering of proceeds of crime of a scheduled offence”. Under this Act, the Enforcement Directorate(ED) is empowered to attach the property of the defaulter without any approval of any adjudicating authority during the case is pending. When the person has convicted then its property is confiscated by the authority for the central government. However, when the trial is over then the text of the provision comes in to play to confiscate the property otherwise generally it will not be used. Hence, the said purpose of this section provision is only to punish the wrongdoer and not to deter other absconders who left the country after doing this. Section 37A of Foreign Exchange Management Act, 1999, (FEMA) said that if any person deals with the foreign money, security, and movable or immovable property in contravention of Section 4 of the FEMA Act then it may be seized in the territory of India. However, the authority that it is not so then it set aside confiscation order. And order pass by such authority shall be in force till disposal of the case. And if the absconder returns to the territory then the authority set aside the seizer order.
The Reserve Bank of India over a period of time-released notification and circulars to the banks and financial institutions to provide the information of the willful defaulters above a specified limit to the RBI from time to time. And the new act came into force with a new objective to punish and catch the offender, to deter the other similar doer from evading the process of the law in India.
The special point mention above in the FEO act has been taken from the UNCAC (United Nations Convention Against Corruption) which India has ratified in the year 2011. The UNCAC is also an anti-corruption convention that includes a wide range of offences against corruption and it also aims to serve international cooperation in criminalizing offences of corruption. This convention provides the non-conviction based asset confiscation which generally relates to the corruption matters. The convention also deals in the assets recovery as it is the fundamental principle of this convention. Those who are the members of this convention are legally bound to provide the mutual legal assistance to the other countries against the prosecution of the offenders, tracing of offenders, freezing it, and confiscating the proceeds of corruption.
It is basically argued or mentioned that some of the people do illicit activities and earn income from that in those countries where the money earned by them has not routed or the source of income has not been questioned. Due to this the offender easily left out the respective state and as per the principle of statehood, the offender may not be held liable in the state where he/she stays. Hence, these are some common reasons that the introduction of the new law is essential in India. Now, the act helps to trace, freeze, or other proceeds of crime whether within India or outside it.
Critical Analysis of Fugitive Offenders Act, 2018 and Judicial Responses
The very first point which comes into mind after the FEO came into picture is that whether the said act which came or introduced in India does in reality is essential or it is also a case of futile legislative action taken to cool down the people of India made victim in the day to day scams happens in the country. By the way, this act is very similar to the prevention of money laundering act. And it also makes a direct connection to the other similar act deals in the financial market or contains a schedule of offences. This act covers less number of offences as compare to another statute. The reasoning behind this may be due to this fact that the other statute “where when the proceeding ends then the confiscation or disposal of the property actually takes place. But, the new act provides the confiscation and disposal of property (whether it is inside or outside India) be takes place as soon as the person declares as FEO and hence this may deter the accused and force him to face trial in the home country if that accused left the country and fails to return to the jurisdiction of the country.
The section 5(2) of the act faces some criticism as it does not mention the basic principle of natural justice i.e. ‘innocent until proven guilty’. This section empowers the director or its subordinate not below the rank of deputy director or the ED itself to search, seize and attach properties even without initiation of any proceedings. Additionally, here it is also mentioned that after the lapse of the period of ninety days when the person declares as a fugitive economic offender his property may be disposed of by the concern authorities. This approach has also be taken from the UNCAC article 54.
Adding another point to the above, it is also essential to mention the domestic approach taken by the Indian courts. Such provisions is also lie in various other statutes, 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 the case of Attorney General for India vs Amratlal Prajivandas provision of seizing 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.
Section 5(2) of the PMLA Act which tells for “attachment of properties on mere suspicion prior to the declaration of fugitive economic offender and initiation of any proceedings may possibly be challenged on grounds of its constitutionality for being against basic doctrines of natural justice. It is a valid concern that by mentioning the attachment point in section 5(2) without initiation of the proceeding the authorities deal the case may generally misuse the text of the section but it is essential as if see with the intent of the framer of this act to compel the accused absconder to surrender. In Sushil Kr Sharma vs Union of India and Mafatlal Industries Ltd. and Anrs. v. Union of India the Supreme Court clearly said that only with the mere possibility to abuse the power given in a particular statute is not a valid reason to strike down the provision or make it unconstitutional or unreasonable without any further basis is not valid. And the court has the power to set aside the order, decision and grant any appropriate relief to the aggrieved party without touching the bare provision of the statute.
The more appropriate judgment here to be “J.Sekar and Anrs. vs Union of India & Anrs” On which “the Delhi High Court upheld the constitutionality of Section 5(1) second proviso of PMLA. The said non-obstante proviso is related to Section 5(2) of the said Act. It empowers the concerned authority under PMLA Act that on the mere suspicion the authority attaches the property of the accused without making any application or sent any report forthwith to the magistrate under Criminal Procedure Code, 1973. However, this case is pending before the Supreme Court of India and the result of this case will definitely affect the said act”. On the other hand section 14 of the FEO act which restrain the person, LLPs, Company to initiate the civil case or defending the civil case on which this act applies is unreasonably create the problem to the innocent one if they do not involve any of the activity scheduled under this act but merely on the suspicion that they are FEO. Hence in the future, it will be challenged by someone as it violates the principle of natural justice.
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 the right to equality under Article 14 of the Constitution in Anita Kushwaha vs Pushap Sudan
Although the aforementioned Act provides for a period of ninety days from the date of order of declaration before disposing of condemned properties, it is silent on any timeline under which the Special Court should decide on an application under the aforementioned Act. Hence, this may unnecessarily delay the proceeding especially in a case where the offender presents with their counsel in a court at a time of the hearing. And it is to be noted that the alleged offender should not be denied to right to defend himself. Thus, not providing any fixed timeline will sometime benefit the accused person to delay the proceeding and save himself to surrender before the legal authority.
The prescribed threshold of one hundred crores for offences might let the several wrongdoers evade the provision of the FEO act. Alongside this, it should be considered the monetary value of a hundred crores and also the nature of the offence as per the act. And for the extradition of any alleged offender a letter of request to be submitted to the foreign state where the said offender stays hence, also consider that the Indian governments have a poor extradition track record. Till 05, April 2018 over one hundred fifty extradition requests were unfinished with varied foreign countries, simplifying of extradition procedures and the culmination of additional strong extradition arrangement/treaties.
One of the arguments mentions here regarding the act is that why only director or its officer not below the rank of deputy director has the authority to declare any person as FEO under the said act and no other person has this authority to make any application either directly or indirectly. The rationale behind this is unclear.
Section 62 of the PMLA act “provides for the penalization of the officer if he searches vexatiously. Corresponding to the similar nature of the laws, it might are prudent to possess incorporated an analogous under the same act”.
The same Act places reliance on the preponderance of anticipation as the standard of proof to be used by the Special Court. Every time when the prosecution of offence stand the effective evidence is required without any doubt, but the very intention of the FEO act is to push the absconder to the jurisdiction of the territory and not to punish them. Here it does not require mentioning how this act works in a group of other act especially with the similar provision of attachment of property and recovery.
COMPARATIVE ANALYSIS OF FEO ACT WITH OTHER SIMILAR STATUTE
Search and seizer powers
As per SEBI act, 1992 section 11C (8) if a person violates the direction or order given by the investigation authority or if such person fails to comply such direction or fails to furnish the documents required, books, accounts then the investigation authority by make an application to the judicial magistrate of first class having jurisdiction takes permission to seize all of them.
Section 8(C) of the FEO act says that a director or any officer not subordinate to the deputy director has the power to seize any record or property as a result of the search made by them.
Section 17(1)(c) of the PMLA act also deals with a similar provision as explained in section 8(c) of the FEO act.
But on the other hand, section 17 (1A) of prevention of money laundering act also said if it is not practicable to the officer to seize the property then such officer makes an order to freeze such property whereas the property shall not be transferred without prior approval of that authority. The proviso of this section also talks when at the time before its confiscation under sub-section (5), (7) of section 8 or section 58B or sub-section (2A) of section 60 it becomes practicable to seize a frozen property the officer authorized under subsection (1) may seize such property.
For making a search of person the section 18 of the PMLA Act and section 9 of FEO act have similar provisions.
Attachment of property
As per SEBI act 1992 section 28A if a person fails to pay the penalty to impose by the board, or the fails to comply the direction given by them, and fails to pay any fee due to the board then to recover any of them the board attach or sell the movable property of such person, attach his bank accounts, attach and sell the immovable property in his possession and the board also make an order to arrest the person and detain him in prison or appoint a receiver to recover the said amount. While on the other hand section 5 of FEO act said the director or any subordinate to him not below the rank of deputy director with the prior permission of the special court attach any of the property as mentioned in the application made under section 4 of said act. A similar provision also mentioned in similar section 5 of PMLA act.
Now, I would conclude this whole research report by saying that after reading the other material, report, journals, articles, news etc I have found that the very aim of this act is to tackle the issues which were pending before the government of India to protect the investors and well being of the economy. The environment created by the fugitive economic offenders in the society is of such a nature that it is deeply worrying state of affairs and growing group of community or individual who only seeks to living honestly in the society and prevent themselves to the consequences derived by way of scams and fraudulent enterprises and save themselves from the liability of their action by evading the grasp of justice.
One of the point which strike in my mind while I was preparing for this project and working on it that can the passing of the new act day by day resolve the problems of recovery of such huge amount of debts lend to the absconder like Vijay Mallya, Nirav Modi, Mehoul chouksi etc big entrepreneurs and decreases the occurrence of the scams, or stops to established new fraudulent enterprises in the market. Would I assume that the government himself not respond to these type of big scams happens in the market day to day whether it relates to the companies or to the banking sector by passing vexatiously the clearance certificate to the enterprises to enter into the market or passing of the site plans in the real estate to commit new fraud. It is the harsh reality of our country India that when a small entrepreneur of middle class wants loan either to start business or to raise income in the existing one business the banker shows bad attitude to them and if they grant loan to them and such person not able to pay it at certain time the banker pressurize him and rip him into shreds the banks try every possible ways to recover their amount but when the big entrepreneur takes the same loan the banks politely behave them and serve them in a manner that the owner of the banks comes to want loan. Also sometimes the banks provide these entrepreneurs loans at the cheaper rate of interest or even without enough collateral security because some of the bank’s officials have their own commission on it. And when such a person flees away with the entire amount the bank raises their hand and at that time they have no means to recover the same to them.
At last, I would only say that in report I generally try to cover every aspect of the fugitive economic offender act and raise the issues which in my concern essential to be raised in this report and point out the arguments which should be in the report to deal with that issues. But I think that this act will also not resolve the entire problem especially that is happening at the ground level and there has to be a stringent plan require to sanction a large sum of loan pass without collateral security to be attached before granting the loans.
Now, a new act came into the picture we hopefully pray that this act collects some of the garbage which spread all over the market and also does the things which the old statues would fail to do. Hence, we feel that bringing the new FEO act is a great step to curb the far-reaching menace that is creating a huge impact on the financial-economic sector of India.
(1994) AIR SC 2179.
(2005) 6 SCC 281.
(1997) 5 SCC 536.
2016 8 SCC 509.