Sandpapergate: ICC’s Failure to Save the Spirit of the Game from Orchestrated Cheating.

[Harshit Anand]

Mr. Harshit Anand works at Khaitan & Co, Kolkata and deals with Real Estate and Corporate matters. He may be reached at harshit.anand@khaitanco.com.

Introduction

In the annals of finance, the promulgation of the Fugitive Economic Offenders Bill, 2018 (“the Ordinance”) is being lauded as another bold step of the government after the Insolvency and Bankruptcy Code of 2016. The intent behind the Ordinance is to target those economic offenders who flee the jurisdiction of India and evade the rigours of the legal process, and impending criminal prosecution. This Ordinance empowers the Government to seize the property of such economic offenders- Benami and otherwise- situated in India as well as in foreign jurisdictions. The Ordinance would, under its purview, deal with cases in which the total amount involved is INR 100 crores or more. As the instances of fraudulent conduct in corporate behaviour pile up day upon day, relevance of this Ordinance cannot be overemphasized. I shall briefly discuss the important provisions and procedures listed under the Ordinance and its potential impact on our economy.

Offences under the Ordinance

One singular feature of the Ordinance is that it defines significant terms and phrases such as ‘fugitive economic offender’, ‘schedule offence’ and ‘special courts’, amongst others. It makes provisions for presenting an application before such special courts for a juridical declaration that an individual is a fugitive economic offender. Attachment of the offender’s property- which would include their Benami property- situated in India or in some other country is an option explicitly available under the Ordinance. For management and disposal of such confiscated property, the Ordinance provides for the appointment of an Administrator. With the Ordinance in operation, offenders who fit the definition of a ‘fugitive economic offender’ would be tried for all offences listed under the schedule of the Ordinance

The Ordinance defines a ‘fugitive economic offender’ as any individual against whom an arrest warrant concerning a scheduled offence has been issued by any Indian court, who has either left India so as to evade criminal prosecution or being abroad, has refused to return to India to face criminal prosecution.[i] In other words, all individuals who have left India in order to avoid criminal prosecution and refuse to return to the Indian jurisdiction would satisfy the text of § 2(1) (f). However, leaving the country to dodge the legal process does not automatically make a person a fugitive economic offender (“FEO”); what is of essential requirement is commission of a schedule offence under the Ordinance. The Ordinance lays down that a ‘Schedule Offence’ would mean an offence specified in the schedule, if the total amount involved in the commission such offence or offences is rupees one hundred crore or more.[ii]  This Section implies that every offence laid down under this schedule would come under the ambit of economic offence and any person indulging in this schedule offence would be tried in special courts established under the Prevention of Money Laundering Act of 2002. The schedule is quite comprehensive, in the sense that it lists offences under a plethora of existing laws such as the Indian Penal Code of 1860, the Prevention of Corruption Act of 1988, the Customs Act of 1962, the Companies Act of 2013, the SARFAESI Act of 2002, the Limited Liability Partnership Act of 2008, the Prevention of Money Laundering Act of 2002 and the Insolvency and Bankruptcy Code of 2016.

Authorities under the Ordinance

The Ordinance defines certain authorities and accords them functions and some special powers. Three authorities who bear primary responsible for the operation of the Ordinance are:

1.Administrator:

• 2(a) describes an administrator as one who has been appointed under §15(1). §15 deals with management of the properties confiscated under the Ordinance, and under §15(1), the Central Government may, by notification in Official Gazette, appoint as many officers, as they may think fit not below the rank of Joint Secretary of the Government of India to perform the function of an administrator. An administrator is therefore a subordinate officer or officers of the Central Government, who perform(s) their function on the direction of Central Government. The administrator receives and manages the properties confiscated under the Ordinance. §12 of the Ordinance dictates the administrator to disposes of such property on the direction of the Central Government.

2. Special Courts:

A special court under §2(n) of the Ordinance refers to a court of session designated as a special court under §43(1) of the Prevention of Money-laundering Act of 2002. Under the Ordinance, a special court (“Court”) has the right to declare a person as an FEO under §12 of the Ordinance and issue a notice requiring appearance of such person. With the permission of the Court, a property may be attached under §5(1), if with regard to the referred property, there is a reason to believe that the property is a proceed of crime or is a property owned by an individual who is an FEO, and which is being or is likely to be dealt with in a manner which may result in the property being unavailable for confiscation.

3. Director:

A director in the Ordinance is one appointed under §49(1) of the Prevention of Money-laundering Act of 2002, which defines a director as a person deemed fit to be an authority for the purposes of the Act and appointed by the Central Government. Under the Ordinance, the director may file an application before the Court if he has reason to believe, or any other material in his possession indicates that an individual is an FEO under the Ordinance. §6 of the Ordinance states that the director shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit in respect of discovery and inspection. Powers of survey, as well as of search and seizure have been given to the Director under the Ordinance, provided he has reason to believe that an individual is a FEO.

Procedure and Consequences under the Ordinance

A Director, or any other officer who does not fall below the rank of a Deputy Director and enjoys requisite authorisation from the Director, may present an application before the Court so as to obtain a juridical declaration with regard to FEO status of an individual. After such application has been filed, the Court shall issue a notice to the concerned individual, requiring them to appear at a specified place at a specified time, which will be not less than six weeks from the date of issue of notice by the Court. If the concerned individual appears in person before the Court, the Court may terminate proceedings under this Ordinance. However, if the concerned individual chooses to appear through a counsel, the Court may exercise discretion and provide a period of one week, within which a reply to the application has to be filed by the concerned individual under § 4 of the Ordinance. If the Individual to whom notice has been issued fails to appear before the Court, either in person or through counsel, the Court may proceed to hear an application and record reasons in writing at the same time. Once the application is heard and the Court is satisfied that an individual is an FEO, it may, by an order, declare the individual as an FEO, and record the reasons in writing.

It lies well within the discretion of the Court to order that the proceeds of crime in India or any other jurisdiction, irrespective of the fact whether such property is owned by the FEO, stand confiscated to the Central Government. §2(k) of the Ordinance defines ‘proceeds of crime’ as any property derived or obtained, directly or indirectly, by any person as a result of a criminal activity relating to a scheduled offence, or the value of any such property, or in case such property is taken or held outside the country, then the property equivalent in value held within the country or abroad. At the same time, the Court may also order confiscation of any other property, including benami property, of the FEO situated in India or other jurisdictions. As per §2(b) of the Ordinance, ‘benami property’ and ‘benami transaction’ shall have the same meanings as assigned to them under §2(8) and §2(9) respectively of the Prohibition of Benami Property Transactions Act of 1988. Any Indian court or tribunal in any civil proceeding before it, may, disallow the FEO from putting forward or defending any civil claim. The same bar to putting forward or defending a civil claim would apply to any company or limited liability partnership if an FEO has a controlling interest in them.

Confiscation of property is the teeth of the Ordinance, which guarantees the recovery of outstanding debt of banks, financial institutions and other creditors. There exist several provisions under the Ordinance which guide authorities, not only in relation to properties which have to be confiscated but also persons whose properties have to be confiscated. The application filed by the Director or any other authorised officer before the Court must necessarily mention the list of properties or value of properties believed to be the proceeds of crime, including any such property outside India for which confiscation is sought, a list of properties, including benami property, owned by the concerned individual in India or any other jurisdiction for which confiscation is sought and a list of persons who may have an interest in any of such listed properties listed.

Conclusion: Potential impact and a few weak links here and there

It is imperative to note that if under §14 of the Ordinance, a FEO is debarred from making or defending any civil claim before any Indian court or tribunal, the person’s right to access a civil court gets extinguished. This implies that if an individual is part of a civil proceeding regarding a property dispute or his inheritance, which has no dealings with their alleged economic crime, he will not be able to make any claim or defend himself in such proceedings the moment he is declared a FEO. This position stands in clear violation of the Ubi Jus Ibi Remedium principle which states that every right, when it is breached, must be provided with a right to a remedy. In Brij Mohan Lal vs Union of India,[iii] the Supreme Court has stated that it is the constitutional duty of the state to ensure that everyone citizen has access to the judicial system. The apex court maintains that the access to justice is a human right and an aggrieved person cannot be left without the ability to seek judicial recourse.[iv]  A constitution bench of the Supreme Court, as recently as in 2016, has opined that the right to access justice is a part and parcel of the right to life under Article 21 of the constitution and also forms a facet of the right to equality before the law under Article 14 of the constitution.[v] An important aspect of this right, as specified by the apex court, is the right to access an effective adjudicatory mechanism.[vi] There is also speculation with regard to the threshold limit, as some experts have argued that a bracket of Rupees 100 crores or more will allow a large number of offenders who have swindled significant sums of money would escape indictment.

The Ordinance is an attempt on part of the government to answer all the questions which have surfaced in light of the multiple fraudulent activities in the financial sector involving whopping sums of money. The current situation requires a robust mechanism to improve the plight of the banking sector and other lending institutions, and restore the confidence of the public in adjudicatory bodies. The authorities under the Ordinance enjoy a lot of power which should be helpful in achieving the intent behind the Ordinance. The threshold limit of Rupees 100 crore and stringent time limits should allow the authorities to function in an effective and swift manner. What needs to be keenly observed now is the international cooperation mechanism and arrangements which the government puts in place, in order to facilitate the confiscation of properties which lie in foreign jurisdictions, for it will have a huge role to play in the successful implementation of the Ordinance.

[i] § 2(1) (f), the Ordinance.

[ii] § 2(1) (m), the Ordinance.

[iii] Brij Mohan Lal vs Union of India, (2012) 6 SCC 502.

[iv] Tamilnad Mercantile Bank Shareholders Welfare Association vs S.C. Sekar and Ors., (2009) 2 SCC 784.

[v] Anita Kushwaha and Ors. vs Pushap Sudan and Ors., AIR 2016 SC 3506.

[vi] Ibid.