Fugitive Economic Offenders Act - a step in the right direction
Published: Sep 14, 2018
Mr Nirav Modi, Mr Mehul Choksi and Mr Vijay Mallya cases have highlighted loopholes in India's existing legal framework and forced the lawmakers to understand that it was high time to come up with a strong law which does not let delinquents run away with big chunks of money from India after defrauding financial institutions and the government exchequer.
Finance Minister Mr. Arun Jaitley, in his Budget speech of 2018, hinted about introduction of legislative changes which would allow confiscation of the assets of economic offenders. On July 31, 2018, President Ram Nath Kovind, gave assent to the Fugitive Economic Offenders Act, 2018 (Act). This new Act will help to rein in the fugitive economic offenders from evading our legal system and flee the country. This Act provides measures to deter economic offenders from staying outside the jurisdiction of Indian courts.
The Act is detrimental for a “fugitive economic offender" which term means any individual against whom a warrant for arrest has been issued in relation to a Scheduled Offence but he has left India to avoid criminal prosecution or if he is abroad, refuses to return to India to face criminal prosecution. This Act is applicable to the whole of India and is deemed to have come into force on April 21, 2018.
In order to declare any person as a fugitive economic offender, application is submitted with special court by person not below the rank of Deputy Director, who should have material/evidences to establish the belief that an individual is a fugitive economic offender. The Special Court has power to order for attachment of any property purchased from proceeds of crime or any benami property owned by the fugitive economic offender.
In this Act a person is punishable, if guilty of an offence specified in the Schedule of Act and value involved in offence is one hundred crore rupees or more. Mr. Piyush Goyal on financial cap of Rs 100 crore, has stated that “the intention is to catch the big offenders and not to clog the courts".
The Director has been given power equivalent to vest in a civil court under the Code of Civil Procedure, 1908.
The Special Court issues a notice to person who is alleged to be a fugitive economic offender to make him appear before court at a specified time and place. Minimum six weeks time is given for appearance. If a noticee fails to appear on due date he can be declared fugitive economic offender and order for confiscation of property can be passed on this ground itself.
The new Act recognizes electronic mail as a valid method of sending notice to individual alleged to be a fugitive economic offender. This mail can be sent on such email ID which is used for applying for allotment of PAN or for enrolment of the Aadhaar or any email ID belonging to the individual and recently accessed by such individual.
An individual to whom notice is served, if he does not appear before special court at the specified place and time, then court can hear the application ex-parte. The Special Court after hearing, if satisfied, can pass an order declaring the alleged individual as a fugitive economic offender. The reasons must be given by court in writing.
The Special Court has been given wide powers to order for confiscation of all the proceeds of crime in India or abroad. Even benami property in India or abroad, owned by the fugitive economic offender can be confiscated and handed over to Central Government.
The property which is a proceed of crime would be exempted from confiscation by Special Court, if any genuine and innocent person, other than the fugitive economic offender, has an interest in such property and the property was acquired by him bona fide and without knowledge of the fact that the property was proceeds of crime.
As per the Act, confiscated property from the date of the confiscation order becomes the property of Central Government, free from all encumbrances and all the interest, title vests with the Central Government.
The Act has gone one step ahead and clearly mentioned that if any individual is declared as a fugitive economic offender, he cannot put forward any civil claim in any civil proceeding before any Court or tribunal in India.
The companies and limited liability partnership firms are also not untouched in the Act as they are prohibited from making civil claim in any civil proceedings if an individual who is declared as a fugitive economic offender is promoter or key managerial personnel or majority shareholder or is having a controlling interest in company or is a partner of liability partnership firm.
After confiscation of properties, the Central Government appoints officers (not below the rank of a Joint Secretary to the Government of India) as an Administrator to manage the properties and dispose of the property in manner directed by Central Government. But for a period of first 90 days from the date of confiscation order, Central Government or the Administrator cannot dispose of any property.
The person who makes an application to special court has to establish that an individual is a fugitive economic offender and property in question has come from the proceeds of crime.
An appeal against the order of special court can be filed before the High Court. Normally the High Court takes in to account the question of law but under this Act both question of law as well as facts can be raised and admitted by the High Court.
Conclusion
The Fugitive Economic Offenders Act, 2018 seems to be an effective constitutional method to stop offenders from running away. However, this Act can badly impact the insolvency proceedings if property of the corporate debtor is declared as being “proceeds of crime" or a “benami property" owned by Fugitive Economic Offender. Such property would be excluded from the insolvency resolution process and restricts the ability of financial creditors to realise their dues. The attachment or confiscation of properties of the corporate debtor in this Act would in a way penalise the banks for the actions of an Economic Offender . The Act must, therefore, be suitably amended to ensure that lenders' interests in properties are identified before the properties are attached or confiscated.
(The views expressed are strictly personal.)
