The recent extradition order of Mr. Vijay Mallya passed on December 10, 2018 by the Westminster Magistrate's Court in UK surely comes as a huge sigh of relief for the government and the Indian banks currently under enormous pressure with a long list of bad loans and absconding promoters. The UK order has now been swiftly followed up by the special PMLA court in Mumbai which declared Mr. Vijay Mallya a 'fugitive economic offender' under the Fugitive Economic Offenders' Act, 2018 ("the said Act") on 5th January 2019.
This leads to an analysis as to why was there the need to enact the said Act. The answer lies in some alarming statistics. The number of fraud cases reported by banks, which generally averaged around 4,500 cases a year in the past 10 years skyrocketed to a shocking number of 5,835 cases in the year 2017-18. This year itself it has been estimated that the banking and finance sector has suffered losses of a staggering amount of Rs. 41,000 Crores due to frauds.1 As per the Ministry of External Affairs, over 30 people accused of various financial scams/frauds and under probes by the Enforcement Directorate/ Central Bureau of Investigation are currently absconding from India2. It is thus evident that despite the existence of various statutes and regulations, the same have failed or have been poorly implemented or simply inadequate to control white collar crimes.
At present, various laws contain provisions to penalise such offences such as (i) the Prevention of Money-Laundering Act, 2002 primarily focused on containing money-laundering transactions; (ii) the Benami Properties Transactions Act, 1988 which prohibits benami transactions; and (iii) the Companies Act, 2013 which prescribes penal and pecuniary measures for offences such as fraud and other unlawful corporate practices. Long standing statutes such as the Indian Penal Code, 1860 and the Code of Criminal Procedure, 1973 also cover economic offences, such as forgery and cheating. Various recovery laws such as The Securitization and Reconstruction of Financial of Financial Assets and Enforcement of Securities Interest Act, 2002 and The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 are also present, however the same have not proved to be time efficient. Further, none of these statutes contain specific provisions to deal with high value white collar criminals who have left the Indian borders primarily to escape proceedings against them, which thus forces authorities to resort to extradition proceedings under the Extradition Act, 1962. However, the process of extradition is extremely procedural and time-consuming. Further, factors such as the status of the international relations between the concerned countries, existence of an extradition treaty, nature of offence etc., have a considerable impact on the manner and time frame within which the extradition proceedings progress.
The said Act was first envisaged under the 2017 Union Budget and was originally enacted in the form of an Ordinance. Subsequent to the President's assent, the Fugitive Economic Offenders' Act, 2018 was enacted and was deemed to have come into force from the 21st day of April 2018.
The preamble of the said Act states that the act aims to provide for measures to deter fugitive economic offenders from evading the process of law in India by staying outside the jurisdiction of Indian courts and to preserve the sanctity of the rule of law in India.
The Act heavily relies on the Prevention of Money Laundering Act, 2002 ("PMLA"). A lot of definitions and provisions are the same as in PMLA and therefore it won't be completely wrong to even term the said Act as a supplemental act to PMLA. However, please note that both the statutes aim to achieve different goals.
A broad framework of the said Act is laid out hereunder:
A "fugitive economic offender" means any individual against whom a warrant for arrest in relation to a Scheduled Offence has been issued by any Court in India, who-
(i) has left India so as to avoid criminal prosecution; or
(ii) being abroad, refuses to return to India to face criminal prosecution;
"Scheduled Offence" under the Act is basically a list of existing offences (provided the total value involved is more that Rs. 100 Crores) under various statutes such as Indian Penal Code, 1860, Negotiable Instruments Act, 1881, Prohibition of Benami Property Transactions Act, 1988, Prevention of Corruption Act, 1988, the Companies Act, 2013, Prevention of Money Laundering Act, 2002 etc.
The said Act applies to any individual who is or becomes a fugitive economic offender on or after 21st day of April 2018.
An application to declare an individual as a 'fugitive economic offender' can be made under S.4 by a Director or a Deputy Director (as defined under the PMLA). Under S.5 of the said Act subject to receipt of the Special Court's permission, the Director or the Deputy Director may proceed with attachment of properties; whether the property is proceeds of crime or any other property (including any benami property) which is owned by a fugitive economic offender. The Special Court here means the Sessions Court designated as a Special Court under sub-section (1) of section 43 of the PMLA.
In addition to the above, S.5(2) by way of a non-obstante clause also provides for attachment of properties prior to any application being made for declaration of a fugitive economic offender. The attachment of any property under this section shall continue for a period of 180 days from the date of order of attachment or such other period as may be extended by the Special Court. However, in such a case, the application under S.4 has to be made within 30 (Thirty) days from the date of such provisional attachment.
Under S. 12, the Special Court upon being satisfied and for reasons to be recorded in writing may declare an individual as a fugitive economic offender. Upon this declaration, (i) properties which are proceeds of a crime whether owned by the offender or not; and (ii) any other properties (including personal and benami properties) owned by the offender; shall stand confiscated to the Central Government.
A unique provision of the said Act is S.14 which bars a fugitive economic offender from initiating/continuing/defending any civil claims. The section goes a step further and even disallows a limited liability partnership or a company from the same if its promoter or key managerial personnel or major shareholder or anyone who holds a controlling interest has been declared a fugitive economic offender.
As far as burden of proof is concerned, it shall be the Director (as defined under the PMLA) or the person authorized by the Director who has to prove that an individual is a fugitive economic offender. However, if it is a case of any person claiming bona fide interest, then the burden is on the said person to prove his innocent stake in the property and validity of his claim.
The Act extends to the whole of India and shall have effect, notwithstanding anything inconsistent therewith contained in any other law and further, it shall be in addition to and not in derogation of any other law for the time being in force.
- The first thing that comes to mind is that whether the said Act was absolutely essential or is it a case of a futile legislative action taken in haste to calm the agitated common man in light of the recent high value monetary scams. Just like PMLA, the said Act makes a direct reference to various other statutes and includes scheduled offences as per those statutes but interestingly covers a lot less offences as compared to PMLA. The reasoning behind this narrow approach may be due to the fact that unlike PMLA, wherein confiscation and disposal of properties actually takes place only after conclusion of proceedings, the said Act provides for confiscation and subsequent disposal of properties (whether situated in India or abroad) on the mere declaration of an individual as a 'fugitive economic offender' if the individual fails to return to Indian jurisdiction. Such a draconian section is bound to have a strong deterrent effect on the accused and will surely force him to surrender or at least appear (either himself or through an appointed attorney) before the appropriate authorities in India and that's what seems to be the legislative intent here.
- The seemingly arbitrary section S.5(2) is bound to receive some criticism for not being in consonance with a basic principle of justice i.e. 'innocent until proven guilty'. The section is a major enabling provision for the Enforcement Directorate, the law enforcement agency in such matters or any other appropriate authority as it gives them ample power to search, seize and attach properties even without commencement of any proceedings. Further, as pointed out above the authorities may even dispose off the properties after a period of 90 (Ninety) days from the date of declaration of the fugitive economic offender.
This pre-conviction confiscation is not an entirely new concept. It has been laid down in United Nations Convention against Corruption ("UNCC") which India ratified in 2011. Article 54 (1)(c) of the UNCC enables signatory countries to consider taking such measures as may be necessary to allow confiscation of such property without a criminal conviction in cases in which the offender cannot be prosecuted by reason of death or absence. The said Act adopts the same concept.
- In addition to the above, it is also important to highlight the domestic scenario and the approach taken by our courts. Such stringent provisions exist in various other statutes as well, such as the provision of forfeiture of properties under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (which was constitutionally upheld by the Supreme Court in Attorney General for India vs Amratlal Prajivandas3); provision of freezing of assets of a company by the Serious Fraud Investigation Office under the Companies Act, 2013 and provisions of provisional attachment under the Income Tax Act 1961 among others.
S.5(2) of the said Act which provides for attachment of properties on mere suspicion prior to declaration of fugitive economic offender and/or initiation of any proceedings may possibly be challenged on grounds of its constitutionality for being against basic doctrines of justice. We are of the opinion that although potential misuse or exploitation of this provision by the authorities is a valid concern, the intent of the legislature of compelling absconders to surrender has to be kept in mind too. Further, in Sushil Kumar Sharma vs Union of India4 and Mafatlal Industries Ltd. and Ors. v. Union of India5 the Supreme Court has held that the mere possibility of abuse of power is not a ground to strike down the provision on the basis that it is substantively unreasonable or ultra vires or unconstitutional. In any unfair cases, the court by upholding the provision of law, may still set aside the action/order/decision and grant appropriate relief to the person aggrieved.
The most relevant judgment herein would be J.Sekar and Ors. vs Union of India and Ors.6 The Delhi High Court in January 2018 upheld the constitutionality of second proviso of S.5(1) of PMLA. The said non-obstante proviso is akin to S.5(2) of the said Act. It enables the competent authority under PMLA to forthwith provisionally attach properties of an accused on mere suspicion and without forwarding any report to the magistrate under Code of Civil Procedure, 1973. However, the case is currently pending in the Hon'ble Supreme Court of India. Considering the similar nature of these provisions, the final outcome of the case might have a major impact on the said Act.
- S.14 which disallows civil proceedings is a sweeping section which also bars a limited liability partnership or a company with which a fugitive economic offender might be related to from initiating or defending any civil cases. This is an unnecessarily wide and strict provision especially since the said Act does not actually adjudicate upon the innocence or guilt of a person but merely declares the person to be a fugitive economic offender. Chances are fairly high that the constitutionality of this provision will be deliberated upon in the near future. In fact, a Constitution Bench of the Hon'ble Supreme Court of India has held 'access to justice' as a facet of right to life guaranteed under Article 21 of the Constitution and also a part of right to equality under Article 14 of the Constitution in Anita Kushwaha vs Pushap Sudan7.
- Although the said Act provides for a period of 90 days from the date of order of declaration before disposing off confiscated properties, it is surprisingly silent on any timeline within which the Special Court should decide on an application under the said Act. This may potentially delay the proceedings especially in a case where the alleged offender enters an appearance through a counsel. While an alleged offender should not be denied the right to defend himself, absence of any fixed timeline gives just too much leeway to the accused to delay or stall proceedings without actually submitting himself to Indian authorities.
- The prescribed threshold of Rs. 100 Crores for offences may let many wrongdoers evade the provisions of the said Act. Alongside the monetary value, the nature of offence too should be considered for the purposes of the Act.
- Although the said Act covers foreign properties and provides for a letter of request to be made to foreign states, the reality remains that India has a poor track record when it comes to extradition. Till April 05, 2018, more that 150 extradition requests were pending with various foreign countries.8 Thus, due importance needs to be given to strengthening of international relations, simplifying of extradition procedures and culmination of more robust extradition arrangements/treaties.
- From a bare reading of the said Act, it appears that only a Director or an officer not below the rank of a Deputy Director can apply under S.4 for declaration of an individual as a fugitive. There is no scope for any other person to bring forth an application directly or even indirectly. The reason behind such omission is unclear.
- S.62 of the PMLA provides for punishment of officers in case of vexatious searches by them. Considering the similar nature of the laws, it would have been prudent to have incorporated a similar provision under the said Act.
- The said Act places reliance on preponderance of probabilities as the standard of proof to be used by the Special Court. Although, this is a lower parameter as compared to the general principle of requiring proof beyond reasonable doubt for prosecution of offences, the intention of the said Act should be given due weightage which aims to bring the alleged offender within the Indian jurisdiction and not adjudicate upon and/or penalise the alleged offender.
- Needless to say that it remains to be seen as to how the said Act would work in tandem with the existing statutes especially in relation to attachment of properties and recovery of dues under different statutes before different fora.
1 RBI Annual Report 2017-18
2 Question No. 3198 in Rajya Sabha answered on 14th March 2018
3 AIR 1994 SC 2179
4 (2005) 6 SCC 281
5 (1997) 5 SCC 536
7 2016 8 SCC 509
8 Question No. 4338 in Rajya Sabha answered on 5th April 2018.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.