Parliament has approved a legislation to help the government bring back
fugitives involved in white-collar crimes to stand trial in India.
o It
seeks to confiscate properties of
economic offenders who have left the country to avoid facing criminal
prosecution.
Who is a Fugitive Economic Offender?
o
A fugitive economic offender has been defined as
a person against whom an arrest warrant
has been issued for committing specified offences over Rs 100 crore in
value, and Further the person has:
i.
Left the country to avoid facing prosecution
ii.
Refuses to return to face prosecution.
o There
are 55 economic offences covered under
this definition including tax evasion, money laundering, transactions
defrauding creditors, benami transactions, counterfeiting government stamps or
currency and dishonoring cheques.
o
Some of
the offences listed in the schedule are:
i.
Counterfeiting
government stamps or currency
ii.
Chequedishonourfor
insufficiency of funds
iii.
Money laundering
iv.
Transactions defrauding creditors.
o The
Bill allows the central government to amend the schedule through a
notification.
What is the process involved?
Application
o A director or deputy director (appointed
under the Prevention of MoneyLaundering Act, 2002) may file an application
before a special court (designated under the 2002 Act) to declare a person as a
fugitive economic offender.
o The
application will contain:
i.
The reasons
to believe that an individual is a fugitive economic offender
ii.
Any information about his whereabouts
iii.
List of
properties believed to be proceeds of a crime for which confiscation is
sought
iv.
A list of benami properties or foreign
properties for which confiscation is sought
v.
A list of persons having an interest in these
properties.
o Upon
receiving an application, the special court will issue a notice to the
individual
i.
Requiring him to appear at a specified place within on a date which is six weeks after
the issue of notice
ii.
Stating that a failure to appear will result in
him being declared a fugitive economic offender.
iii.
If the
person appears at the specified place, the special court will terminate its
proceedings under the provisions of this Bill.
Attachment of property
o The
director or deputy director may attach
any property mentioned in the application with the permission of a special
court.
o Further,
these authorities may provisionally
attach any property without the prior permission of the special court,
provided that they file an application before the court within 30 days.
o The
attachment will continue for 180 days, unless extended by the special court. If
at the conclusion of proceedings, the person is not found to be a fugitive
economic offender, his properties will be released.
Attachment is a legal process by which a court of law, at the request
of a creditor, designates specific property owned by the debtor to be
transferred to the creditor, or sold for the benefit of the creditor. A wide
variety of legal mechanisms are employed by debtors to prevent the attachment
of their assets.
Declaration as fugitive economic offender
o After
hearing the application, the special court may declare an individual as a
fugitive economic offender.
o It
may confiscate properties which
i.
Are proceeds
of crime
ii.
Are benami
properties in India or abroad
iii.
Any other
property in India or abroad.
o Upon
confiscation, all rights and titles of the property will vest in the central
government, free from all encumbrances (such as any charges on the property).
o The
central government will appoint an administrator to manage and dispose of these
properties.
o The
Bill allows any civil court or tribunal to disallow
a person, who has been declared a fugitive economic offender, from filing or
defending any civil claim.
Powers of the director
o The
director or deputy director will have
the powers vested in a civil court.
o These
powers include
i.
Entering
a place on the belief that an individual is a fugitive economic offender
ii.
Directing that a building be searched, or
documents be seized.
Appeal
o Appeals
against the orders of the special court will
lie before the High Court
Key Issues
Ø
Barring
an FEO from filling a civil claim
o Under
the Bill, any court or tribunal may bar an FEO or an associated company from
filing or defending civil claims before it.
o Barring
these persons from filing or defending civil claims may violate Article 21 of the Constitution i.e. the right to life.
o Article 21 has been interpreted to include
the right to access justice.
o They can’t even defend themselves if someone
else files a civil case against them, for instance for defamation or
nuisance, which would mean they would automatically lose those cases.
o On
top of this, the Bill also says that if any representative, promoter, key
managerial personnel, majority shareholder or owner of a controlling interest
in a company or LLP is declared a fugitive economic offender, then the company or LLP can’t file or
defend cases either.
o Again,
this can be the case even if the company has nothing to do with whatever
offence the fugitive is alleged to have committed.
The government has also inserted a clause to protect itself and
officers from any legal action. Those classified as fugitives will also not be
able to pursue civil cases in India unless they come back to India and face
prosecution.
Ø
Fate of
unsecured creditors
- Under the Bill, an FEO’s property may be confiscated and vested in the central government.
- The Bill allows the Special Court to exempt properties where certain persons may have an interest in such property (e.g., secured creditors).
- However, it does not specify whether the central government will share sale proceeds with any other claimants who do not have such an interest (e.g., unsecured creditors).
Ø
Absence
of search warrant
o The
Bill does not require the authorities to
obtain a search warrant or ensure the presence of witnesses before a
search.
o This
differs from other laws, such as the Code
of Criminal Procedure (CrPC), 1973, which contain such
safeguards.
o These
safeguards protect against harassment
and planting of evidence.
Ø
Confiscation
of property
o The
Bill provides for confiscation of
property upon a person being declared an FEO.
o This
differs from other laws, such as CrPC, 1973, where confiscation is final two
years after proclamation as absconder.
Ø
Easily circumvented
o The
draft of the FEO bill that is in the
public domain does not provide for a situation where confiscated property is in
excess of the claims against the fugitive offender.
o If
the scope of the proposed Bill is restricted to offences whose value is Rs. 100
crore or more, it could just as easily
be circumvented by mischievous or devious actions.
Positive Outcome of the Bill
Ø
Aid the Banking
and Judicial system
o Given the apparent ease with which economic
offenders flee India and cock a snook at the banking and judicial systems,
the proposed law to seize their wealth is undoubtedly a welcome
measure.
o Legal
provisions to confiscate the assets of offenders already exist, but these are
regarded as somewhat inadequate.
o The
Fugitive Economic Offenders Bill, aims to make up for the shortcomings and
provide a fresh legal framework that
would enable the confiscation of the property of those evading prosecution by
fleeing the country or remaining abroad.
o This
is expected to help banks and other
financial institutions achieve higher recovery from financial defaults
committed by fugitive economic offenders, thereby improving the overall
financial condition of these institutions.
Ø
Past Instances
o
There remains great consternation over liquor
baron Vijay Mallya’s flight from the
country, with his now-defunct Kingfisher Airlines having run up outstanding
loans of over ₹9,000 crore from Indian banks.
o
Both Mr. Mallya and former Indian Premier
League commissioner Lalit Modi, who faces an Enforcement Directorate probe for
foreign exchange law violations, are in Britain.
o
They left Indian shores for safer climes , as
did diamond merchants Nirav Modi, Mehul
Choksi and their associates, whose firms defrauded the country’s second largest
public sector bank of over ₹12,800 crore.
o
Though government agencies have attached the
diamond merchant duo’s assets in India, an
American court has disallowed the sale of their assets in other jurisdictions
while allowing their U.S.-based entity to offload its assets. The reason: India is yet to pass a model law mooted by
the UN for cross-border insolvency cases.
o
It is not
clear whether this ordinance can tide over this major handicap.
Ø
Catch big
offenders
o
The FEO bill has a pretty clear aim - target fugitives in offences exceeding 100
crore rupees in value.
o
It was being done to "catch
the big offenders and not to clog the courts."
o
The proposed law will extend to loan defaulters and fraudsters as well as to
individuals who violate laws governing taxes, black money, benami properties
and financial corruption.
On whom does the burden of proof lie?
o In
keeping with the principle of ‘innocent
until proven guilty’, the burden of proof for establishing that an individual
is a fugitive economic offender or that certain property is part of the
proceeds of a crime is on the Director
appointed to file an application seeking fugitive economic offender status.
Why was such a law needed, in
the first place?
Ø
Cumbersome
Extradition
o The
existing provisions of the law do not impeder fugitive economic offenders.
o This is because the extradition between India and other countries is generally cumbersome.
o India
is not a favoured country in case of extradition requests.
o Courts in the UK
have rejected the extradition requests on the ground that the jail condition in
India was inhumane and that the accused could not be guaranteed a fair
prosecution.
o This
unexpected argument was most recently on display in connection with Vijay Mallya’s
extradition request.
Ø
Confiscation
of Property
o Confiscation
of property belonging to offenders is already allowed under different laws.
o The
Prevention of Money Laundering (PML) Act, 2002, prescribes three stages before the final confiscation of an accused’s
property - provisional attachment of the property; confirmation of the
attachment pursuant to adjudication; and the confiscation of the property
subject to conviction.
o Under
the PML Act, only the proceeds of crime
or such property that is involved in money laundering attract the provisions of
attachment.
What is the latest development with Vijay Mallya and Nirav Modi?
o A
special Prevention of Money Laundering
Act court on June 30 took cognisance of an application by the Enforcement
Directorate (ED) under the Ordinance and issued
summons to Vijay Mallya and others before it on August 27, 2018.
o The ED on July 11 also moved a special court
in Mumbai seeking ‘fugitive economic
offender’ status for Nirav Modi and his uncle MehulChoksi.
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