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Saturday, August 18

41. Fugitive Economic Offenders Bill 2018




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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