The Fugitive Economic Offenders Bill Leaves a Lot to Be Desired

Various persons accused of economic offences have managed to flee due to the failure of the investigating agencies, not due to the lack of laws.

During the campaign trail in 2013, then chief minister of GujaratNarendra Modi claimed that he did not want to become the prime minister, but rather wanted to be the ‘chowkidar’, or night watchman, of the country.

However, under his nose, a string of businessmen have managed to flee the country after allegedly defrauding a wide range of creditors. Vijay Mallya fled the country with unpaid loans to the tune of Rs 9,000 crore, on March 2, 2016, the same day the banks moved the Debt Recovery Tribunal against the liquor baron. This despite the fact that the CBI had issued a lookout notice for Mallya on October 16, 2015.

Similarly, diamond czar Nirav Modi escaped with ease after allegedly defrauding the Punjab National Bank (PNB) of up to Rs 11,400 crore. Mehul Chokshi also managed to escape the arms of the law, even though the ED, CBI and the PMO were informed of his dealings in early 2016.

Sanjay Bhandari, Deepak Talwar and Lalit Modi are among others who have managed to evade the territorial limits of the investigative agencies. To be fair, the practice of accused individuals leaving the country is not a recent phenomenon; the infamous escape of Warren Anderson and Ottavio Quattrocchi under the Congress regimes is well recorded.

Now, on the heels of the Modi-Chokshi controversy, coupled with the bloating NPAs of the banks, the Modi government has responded by bringing in the Fugitive Economic Offenders Bill, 2018. The Bill consists of a schedule of various types of economic offences. If there is a warrant for arrest issued by any court in India against a person for allegedly committing one or more of these scheduled offences, to the tune of Rs 100 crores or more, and the person concerned evades trial by going abroad, then he or she shall be considered a ‘fugitive economic offender’ (hereinafter referred to as ‘FEO’).

Under clause 4 of the Bill, the authorised authority, known as the director, can make an application to a special court to declare that a person is an FEO. In the application, the properties of the person in India and abroad are to be listed for confiscation. Once an application is made, the court will issue a notice to the accused under clause 10, requiring him/her to appear at a specified place within six weeks of such notice.

If the person appears, then the court will terminate any proceedings under the Act. If the person fails to appear but appears through his or her lawyer, then the court can, through its discretion, give the lawyer one week to respond to the charges made in the application filed by the director. If the accused does not appear in person or through his/her lawyer, then the court can proceed to hear the application in the absence of the defence.

Once the court is convinced that the accused is an FEO, it may order the confiscation of the following properties to the Central government; 1) the proceeds of crime in India or abroad, even if it is not owned by the FEO and 2) any other property, including benami property, owned by the FEO.

It is important to note that since the clause uses the phrase “any other property”, the director is allowed to attach any property – and not just properties arising out of criminal proceedings, as is the case under the existing Prevention of Money Laundering Act, 2002. The director is empowered under clause 5(2) to attach the properties of the accused, even before making an application for the declaration of the individual as an FEO, if the director feels that the accused may sell off the property, thereby frustrating the confiscation process.

Nevertheless, apart from widening the scope of properties which can be attached, the Bill is a re-hash of existing powers under the Prevention of Money Laundering Act, 2002.

It must be noted that under the proposed Bill, only if the total value of the offence amounts to Rs 100 crore or more, would the provisions of this Bill be attracted. This is not harmonious with the numerical threshold provided under the Prevention of Money Laundering Act, wherein certain offences need to have a value of at least Rs 1 crore for the Act to apply. By keeping a threshold of Rs 100 crore, a large number of transactions get omitted from the Act. A person who may have committed economic offences up to Rs 80 crore or 90 crore, cannot be declared an FEO due to this clause.

In the hurry to push for legislative action, the Bill has been hastily drafted, leaving a lot to be desired. For instance, fleeing the country is not an independent criminal offence under the Bill, it is dependent on the commission of the offences mentioned in the schedule, known as the predicate offence. It is similar to the Prevention of Money Laundering Act, 2002 (PMLA), which follows a similar mechanism.

Under the PMLA, it must be proven before the special court that the scheduled offence was committed. However, it is unclear whether the special court, before declaring a person an FEO under clause 12, needs to be satisfied that the allegation exists, for which the accused is evading arrest or if the allegation is true. If it is the latter, then a full drawn trial must be held before the court can decide if someone is an FEO and not merely a satisfaction based on prima facie material. The Bill fails to provide clarity on this point. This aspect is also significant as it can impact the constitutionality of the Bill.

Clause 15(3) empowers the Central government to direct the administrator to sell the confiscated properties of the FEO. If the court does not need to conduct a trial to determine the veracity of the allegations before declaring a person an FEO, this power would be tantamount to penalising an individual even before he or she is convicted and thus can be challenged for being arbitrary. If the purpose of the Bill is for a declaration of a person as an FEO, based on a prima facie satisfaction, then the power under Clause 15(3) must be revised.

This must be distinguished from the recent action of the banks in auctioning off the properties of Mallya even before he was convicted. This arises out of a personal contract between the bank and the debtor, and due to the existence of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), under which the bank can seize the securities for the unpaid loan without the intervention of the court. However, selling the properties of an FEO by the government is not dependent on any contractual arrangement.

Once a person is declared an FEO, he or she is debarred from making or defending any civil claim before any court or tribunal in India. By using the terms “any civil claim” and “any court”, the person’s right to access a civil court is effectively extinguished. This means that if an individual is part of a civil proceeding regarding his inheritance or a property dispute, which is independent of his alleged economic offences, the moment he is declared an FEO, he will be unable to defend himself or make any claim in the aforesaid proceedings.

Ubi Jus Ibi Remedium is an established legal principle, which means that every right when it is breached must be provided with a right to a remedy. In Brij Mohan Lal vs Union of India, the Supreme Court had stated that it is the constitutional duty of the state to ensure that everyone citizen has access to the judicial system.

In Tamilnad Mercantile Bank Shareholders Welfare Association vs S.C. Sekar and Ors, the Supreme Court held that the access to justice is a human right, and an aggrieved person cannot be left without the ability to seek judicial recourse. In 2016, the constitutional bench of the Supreme Court in Anita Kushwaha vs Pushap Sudan held that the right to access courts is an inalienable right, which “is so basic and inalienable that no system of governance can possibly ignore its significance, leave alone afford to deny the same to its citizens.”

In the same judgment, the court declared that the right to access justice is a part and parcel of the right to life under Article 21 of the constitution and that it also forms a facet of the right to equality before the law under Article 14 of the constitution. An important aspect of this right, as specified by the court, is the right to access an effective adjudicatory mechanism.

There are also laws such as the Arbitration and Conciliation Act, 1996 or the Consumer Protection Act, 1986 which restricts a person from accessing the civil courts; however, it is important to note that these laws provide a separate adjudicatory mechanism like an arbitration tribunal or a consumer forum, as a substitute for the civil courts. Clause 14 of the Fugitive Economic Offenders Bill, on the other hand, does not provide an alternative forum, rather it extinguishes the right. This can be challenged as a violation of Article 21 and Article 14 of the constitution since it negates the principle of access to justice. Even if a person is a criminal under the law, the fundamental rights which are vested in him can only be restricted, they cannot be extinguished.

Similarly, under the Bill, a company or an LLP, can be prevented from participating in a civil case in any court or tribunal in India, if its promoter, director, KMP or majority shareholder is declared an FEO. It may be argued that this law will force companies to drop members of senior management who engage in economic crimes.

However, a majority shareholder is someone who brings capital to the company; he or she cannot be removed overnight, as the company is dependent on the capital base to continue its business. It is also well established that a company and its shareholders are distinctly separate entities. In the triple talaq judgment, Justice Nariman of the Supreme Court had said that ‘when something is done which is excessive and disproportionate, such legislation would be manifestly arbitrary.’ Punishing the minority shareholders for the act of the majority shareholder can be considered an act which is manifestly arbitrary.

Under Clause 16(2), if a property is the result of a criminal activity and it is sold, mortgaged or leased to a third party, then that third party needs to prove that the property was acquired by him/her in a bonafide manner, without the knowledge of the fact that the property constituted the proceedings of a crime, otherwise that property can be attached and sold by the authorities under the Act.

This clause can be exceptionally harsh for third parties as it is difficult to prove a negative act, such as the lack of knowledge, as opposed to a positive act. Ideally, the Bill should not obviate the prosecution’s responsibility to show that the third party had reasonable grounds to believe that the property was part of the proceedings of a crime, and the third party must be given the ability to rebut the said grounds.

Clause 20 of the Bill enables the government to insert or omit offences from the schedule of offences. This power can be subjected to misuse to assist those close to the corridors of power. The government should explain in parliament why it seeks to remove or insert an offence under the schedule and take the sanction of parliament, rather than making such changes through notifications.

Various persons accused of economic offences have managed to leave the country due to the failure of the investigating agencies and other instrumentalities of the government, not due to the lack of laws. Instead of providing for administrative reforms, the enactment of Bills which provide very little substantive value to the existing volley of laws may be seen as a deflective tactic, to show the public that “strong actions” are being taken against the perpetrators of the crime.

In their haste, the drafters of the Bill have failed to provide the new law enough safeguards to withstand a constitutional challenge. The statement of objects of the Bill also fails to list out the legal lacuna which it seeks to address. However, as parliament acts more as a rubber-stamp of the executive than an instrument of checks and balances – and policymakers increasingly focus on playing to the gallery instead of providing substantive policy reforms – such laws will keep piling up.

Arvind Kurian Abraham is a lawyer based in Delhi.