Fugitive Economic Offenders Bill: A Viable Project or a Doomed Battle?

[Malcolm Katrak is a Law Clerk to Justice (Retd.) S. N. Variava, Former Judge, Supreme Court of India]

Recently, the Law Ministry affirmed the draft ‘Fugitive Economic Offenders Bill, 2017’, which gives powers to the Government to confiscate property of economic offenders and defaulters. This Bill flows from the Finance Minister’s budget speech promising legislative changes to confiscate the assets of fugitives. It is a huge step towards achieving the commitments laid down in the United Nations Convention against Corruption (UNCAC). India had ratified the said Convention in 2011. The UNCAC is a comprehensive anti-corruption convention that includes wide range of corruption offences and aims at garnering international co-operation in criminalizing offences of corruption. The Bill has been motivated by the debate surrounding prevention of corruption and the recovery of assets or proceeds of corruption. Reminiscent is the case of Vijay Mallya’s companies’ arrears amounting 9,000 crore rupees owed to public sector banks. This Bill is a first of its kind which seeks to allow the Financial Intelligence Unit, under the aegis of the Finance Ministry, to file an application for the declaration of fugitive economic offenders for confiscation of their assets. In this post, I examine the important provisions of the bill and analyze the viability of the same.

Overview of the Provisions

The Bill defines a fugitive economic offender as any individual against whom a warrant for arrest in relation to a scheduled offence has been issued by any court in India, who (i) leaves or has left India so as to avoid criminal prosecution; or (ii) refuses to return to India to face criminal prosecution. The Schedule to the said Bill provides a list of economic offences under inter-alia the Indian Penal Code, 1860, the Prevention of Corruption Act, 1988 and the Insolvency and Bankruptcy Code, 2016. Additionally, the proposed legislation only applies if the total value involved in such offences is 100 crores rupees or more. Where the same applies, the Director (as specified in the Bill) may file an application following the procedure enumerated under section 6 to the Special Court for a declaration that an individual is a fugitive economic offender. The Director has been provided with wide powers under section 7 to preserve the property by way of attachment even before filing the application under section 6, which may continue for 180 days. Upon declaration of an individual as a fugitive economic offender, the Special Court may order the Central Government to confiscate (a) any of the properties being proceeds of crime, whether or not such property is owned by the fugitive economic offender; (b) any other property in India, owned by the fugitive economic offender.

Adjudging its Constitutionality

Before analyzing the viability of the proposed legislation, it is necessary to analyze the vires of its provisions. The proposed law may seem harsh on the individual penalty front; however, it appears to bear the necessary safeguards to withstand a challenge of constitutionality. According to the author, the challenge might accrue on three fronts. The first being the confiscation of proceeds by the Special Court, second being the challenge on preservation of property and third being the disentitlement of the offender to bring forth civil cases.

As far as the first aspect is concerned, section 10 titled ‘Declaration of Fugitive Economic Offender’ under its ambit directs the Special Court to confiscate the proceeds of the crime situated in India and any other proceeds of the offender. For that purpose, the Bill mentions under sub-section 10(2) that the confiscation order of the Special Court, to the extent possible, identify the property that constitutes the proceeds of the crime which are to be confiscated and, in case such properties cannot be identified, quantify the value of the proceeds of the crime. Additionally, the Special Court is barred from confiscating any property where any other person, apart from the economic offender, has an interest.

The second challenge might arise against the provision relating to preventive measures. Section 7 titled ‘Preservation of Property’ allows the Director, by an order in writing, to attach any property which (a) there is a reason to believe is proceeds of crime or is property owned by an individual who is a fugitive economic offender, or (b) is being likely to be dealt with in a manner which will result in the property being unavailable for confiscation. This attachment order can continue for 180 days from the date of order of the attachment.

In the past, there have been similar provisions in economic laws such as the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA) which provided for preventive detention for three months. Further, the constitutionality of COFEPOSA was challenged in the case of Attorney General of India v. Amratlal Parjivandas, wherein the Supreme Court held that COFEPOSA was intra vires the constitution. Additionally, in the case of Dropti Devi v. Union of India, the Court reiterated the necessity of economic laws such as COFEPOSA. There, Justice Lodha rightly stated: “The menace of smuggling and foreign exchange violations has to be curbed. Notwithstanding the many disadvantages of preventive detention, particularly in a country like ours where the right to personal liberty has been placed on a very high pedestal, the Constitution has adopted preventive detention to prevent the greater evil of elements imperilling the security, the safety of State and the welfare of the Nation.

Further, the U.K. Proceeds of Crimes Act, 2002 also has similar provisions which enable the enforcement authority to recover, in civil proceedings before the Court, property which is obtained through unlawful conduct. This power conferred on the enforcement authority is exercisable in relation to any property even without any proceedings brought before the court for an offence in connection with the property. The UK Parliament is aiming to overhaul its legislation of economic crimes including the Serious Crime Act, 2007 to include stringent preventive measures and, additionally, to make the companies liable for failing to detect economic crimes occurring through them.

Lastly, the third challenge could arise against section 11 which allows any court, in its discretion, to disentitle a declared fugitive economic offender to bring forth or defend any civil claims in any civil proceedings. Above all, it also disentitles any company from putting forward or defending any civil claim, if an individual filing the claim on behalf of the company or any promoter or key managerial personnel or majority shareholder of the company has been declared a fugitive economic offender. Further, this power is provided to all judges and not only the highest judges of the land. This, in my view is a faulty provision, which will arguably might not survive. The discretion given to courts to bar an offender to proceed or defend any civil case overreaches the basic principles of natural justice.

Analyzing its Viability

The Press Release issued by the Government of India mentions that there was need to provide an effective, expeditious and constitutionally permissible deterrent to ensure the actions of economic offenders are curbed. In that context, the Budget Announcement mentions: “Recently, there have been instances of big time offenders, including economic offenders, fleeing the country to escape the reach of law. We have to ensure that the law is allowed to take its own course. Government is therefore considering introduction of legislative changes, or even a new law, to confiscate the assets of such persons located within the country, till they submit to the jurisdiction of the appropriate legal forum.” In the past, the legislature has enacted several laws relating to economic offences providing equal penalties; however, the same have failed to be implemented at ground level. This Bill could be recounted as the first step towards taking the measures of UNCAC into account. The provisions of the Bill would certainly help the Government to bring alleged fraudsters to justice, although provisions such as section 11 ought to be read down. The Bill is still at a nascent stage and requires several revisions and additions before it can be laid on the floor of Parliament. Provisions regarding time for appeal under section 15 read with section 13 titled “Disposal of confiscated property” ought to be revised as there is no clarity with respect to safeguarding the property in matters where appeal is allowed. While adjudging the constitutionality of COFEPOSA, the Supreme Court followed the observations in R.K.Garg v. Union of India:

The court must always remember that ‘legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry’; ‘that exact wisdom and nice adaptation of remedy are not always possible’ and that ‘judgment is largely a prophecy based on meagre and uninterpreted experience’. Every legislation, particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid.

The Law Ministry has accorded its concurrence to the draft bill with a ‘Savings Clause’ to be inserted. The Bill is said to be debated in the Lower House in the winter session of Parliament.

– Malcolm Katrak

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