The Fugitive Economic Offenders Bill, 2017: The Mallya-Chidambaram Effect.

[Param Pandya, Tarika Jain, Margi Pandya]

In the wake of the rising non-performing assets crisis, the Indian legal system seems to be grappling with major challenges than before. While turnaround of debt remains a problem, wilful default of debt adds to this menace. As banks and the government are dead beat trying to prosecute Mr. Vijay Mallya for wilful default of loans and Mr. Karti Chidambaram on money laundering charges, they continue to evade law by residing out of India. The Fugitive Economic Offenders Bill, 2017 (the “Bill”) seems to be a knee-jerk reaction which attempts to remedy such regulatory fiascos. The Bill was put in public domain on May 19, 2017 for comments.  

Background

To state that the existing legal framework to deal with high value multi-jurisdictional economic offences is inadequate would be an understatement. The RBI Master Circular on Wilful Defaulters (July 01, 2015) provides for barring a wilful defaulter from (a) raising any loans from banks, financial institutions and non-banking companies; and (b) floating a new venture. The other remedies available to banks and financial institutions are contained in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Recovery of Debt due to Banks and Financial Institutions Act, 1993 which are time consuming since they involve prolonged litigation.

Moreover, even though the Insolvency and Bankruptcy Code, 2016  aims to provide for a speedy bankruptcy process, the National Company Law Appellate Tribunal  by holding that the timelines prescribed in Sections 7, 9 and 10 of the Code are directory in nature[1] has reduced its effectiveness to an extent. Further, liquidation/ bankruptcy process is not a sufficient deterrent in case of high value economic offences. The provisions of civil law in India do not address the issue of high value multi-jurisdictional fugitive economic offenders whereas the process prescribed under the Code of Criminal Procedure, 1973 is time consuming and hence inefficient.

The Explanatory Note appended to the Bill states that fleeing of economic offenders leads to several “deleterious” consequences such as (a) hampering investigation in criminal matters; (b) wasting the precious time of the court; (c) undermining the rule of law; and (d) cases which involve non-payment of bank loans cause strain on the banking system. The Bill aims to deter fugitive economic offenders by providing for confiscation of all properties of a wilful defaulter prior to conviction.

Key Features

(1) Definition of Fugitive Economic Offenders

The Bill defines a “Fugitive Economic Offender” as any individual against whom a warrant for arrest in relation to a scheduled offence[2] has been issued by any court in India who (a) leaves or has left India so as to avoid criminal prosecution; or (b) refuses to return to India to face criminal prosecution. Further, in order to ensure that the courts are not overburdened with such cases, only such cases where the total value involved is INR 100 crores or more shall be within the purview of the Bill. This is a higher threshold and must be reduced.

(2) Applicability

The provisions of the Bill shall apply to any individual who is, or becomes, a Fugitive Economic Offender on or after the date of coming into force of this law. It may be argued that the Bill (when becomes law) will be an ex post facto law i.e. it will impose penalties retroactively.[3] It may appear that such a provision shall the violate Article 20(1) of the Constitution of India. In case this line of argument is upheld by the court, by application of doctrine of severability, the remainder of the Bill may survive as good law which means that those individuals who fall within the definition of a “Fugitive Economic Offender” on the date of enactment of the Bill may be excluded from penalties under the Bill. [4]  

(3) Process

The Director[5] or any authorised officer shall make an application to the Special Court[6] for declaring an individual as a Fugitive Economic Offender. The Director or any authorised officer may pass an order attaching the properties as described in the application. Such attachment shall be valid for a period of 180 days from the date of the order.

The Special Court shall serve notice and call upon the said individual to present himself before the Special Court within a stipulated time period. The Special Court may terminate such proceedings if the said individual appears in person within the specified time. However, the prescribed time may be provided by the Special Court if the individual seeks to be represented by a counsel. If the Special Court concludes that the individual is a Fugitive Economic Offender, the Special Court is required to record the reasons in writing.

(4) Penalty

Upon an individual being declared as a Fugitive Economic Offender, the Special Court shall pass an order confiscating all the properties which are enlisted in the application or as determined by the Special Court. From the date of such order, all rights and title in respect to such confiscated property shall vest with the Central Government, free from all encumbrances.

Further, a Fugitive Economic Offender may, at the discretion of the court, be disentitled to file or defend a civil claim. If such Fugitive Economic Offender is a promoter or a key managerial personnel or a majority shareholder of a company, such company may also be disentitled to file or defend a civil claim.

(5) Non-conviction-based Asset Confiscation

Under the Prevention of Money Laundering Act, 2002 (“PMLA”), confiscation of the assets of the offender can only be resorted post conviction which is not an expeditious remedy. Hence, to address this, the Bill adopts a non-conviction based asset confiscation (“NCBAC”) approach as envisaged in the United Nation’s Convention against Corruption (2003), which was ratified by India in 2011. The NCBAC approach is based on the principle that “crime does not pay” i.e. those who commit unlawful activity should not be allowed to profit from their crimes. Proceeds should be forfeited and used to compensate the victim, whether it is the state or an individual. Forfeiture of instrumentalities ensures that such assets will not be used for further criminal purposes; it likewise serves as a deterrent.[7] Thus, as per the Bill, if a person against whom an arrest warrant is issued flees from India, then notwithstanding a lack of conviction, he will face confiscation of his property in India.

While the Bill, under Clauses 8 and 9, provides for constitutional safeguards such as adhering to the principles of natural justice and allows an appeal to the High Court under Clause 15, the NCBAC approach may be challenged on the grounds of violation of Article 14 and 21 of the Constitution of India. The NCBAC approach is a deviation from the cardinal rule of criminal jurisprudence of “”. While countries like Romania and Bulgaria are facing constitutional and procedural challenges in adopting the NCBAC approach, it has been successfully adopted in countries such as Ireland, Italy and the UK.[8]

(6) International Law at Work

The Bill provides that the Central Government may enter into any treaty with any nation (i.e. contracting state) or through any means inter alia devising a mechanism to extradite the Fugitive Economic Offender or allowing confiscation of foreign property of such offender. Further, the Bill envisages appointment of an authority by the Central Government for effecting the notice under Clause 8 in a contracting state. It is pertinent to note that negotiating treaties to seek international/diplomatic cooperation in relation to Fugitive Economic Offenders may be time consuming due to various legal and political issues which may bring the question of effectiveness back to square one. 

Conclusion

In order to take a hard-hitting stand against Fugitive Economic Offenders, the Bill has adopted the NCBAC approach which is a new concept in the Indian legal landscape. The judicial response to this legislative action will be reflective of the preparedness of Indian legal system in India to embrace such a development. Further, various operational dynamics would be required to be sketched out for a purposeful implementation. International cooperation, especially when major assets of such Fugitive Economic Offenders lie offshore, would also be crucial in determining the end result.  

[1]     The term “Scheduled Offence” is defined in Clause 2(i) and includes the offences mentioned in the Schedule to the Bill, if the total value exceeds INR 100 crores. These offences are certain grave economic offences under the Indian Penal Code, 1860, Prevention of Corruption Act, 1988, Securities and Exchange Board of India act, 1992, Customs Act, 1962, Companies Act, 2013, Limited Liability Act, 2008 and the Code.

[2]     JK Jute Mills Company Limited v. Ms Surendra Trading Company ([NCLAT] Company Appeal (AT) No. 09 of 2017).

[3]     M.P. Jain, “Indian Constitutional Law”, Lexis Nexis Butterworths, Nagpur, Sixth Edition (2010), pp. 1153.

[4]     Sardar Gyan Singh v. State of Bihar AIR 1975 Pat 69.

[5]     The definition of the term “Director” shall be as defined under the PMLA.

[6]     The definition of the term “Special Court” shall be as defined under the PMLA.

[7]     Theodore S. Greenberg, Linda M. Samuel, Wingate Grant & Larissa Gray, “Stolen Asset Recovery – A Good Practices Guide for Non-Conviction Based Asset Forfeiture”, The World Bank (2009), pp. 13.

[8]     Colin King, “Proceeds of Crime: Non-Conviction Based Forfeiture at the EU Level”, Human Rights in Ireland, available at http://humanrights.ie/criminal-justice/proceeds-of-crime-non-conviction-based-forfeiture-at-the-eu-level/ (May 24, 2017).