[Meera Sreekumar is a corporate lawyer and a graduate of the National Law School of India University, Bangalore]
In the backdrop of the Nirav Modi scam, the Union Cabinet has approved the Fugitive Economic Offenders Bill, 2018 (the “Bill”). The Government of India initially introduced the Bill in the budget session of 2017-2018, and re-introduced it in the Lok Sabha on March 12, 2018 during the second part of the budget session. The Parliament has not yet passed this Bill.
Under the Bill, the investigating agencies can confiscate the property of the absconding offender without any conviction. Further, the authorities are empowered to impound the assets situated abroad. The objective of the law is to act as deterrence for absconding economic offenders, and to ensure speedy recovery of dues from such corporate defaulters.
Key provisions of the Bill
Definition of Fugitive Economic Offender
A fugitive economic offender is “a person who has an arrest warrant issued in respect of a scheduled offence, and who leaves or has left India so as to avoid criminal prosecution, or refuses to return to India to face criminal prosecution.”
The scheduled offences under the Bill include willful loan defaults, cheating, forgery, duty evasion and non-repayment of deposits. Offences under the Prevention of Corruption Act, 1988, and certain economic offences under the Securities and Exchange Board of India Act, 1992, Customs Act, 1962, Companies Act, 2013 etc. are also covered under the Bill. Further, in order to be classified as a scheduled offence under the Bill, the total value of the offence should be INR 100 crores or more.
The Bill lays the burden of proof for establishing a defaulter as a fugitive economic offender on the investigating agencies. The standard of proof is on the basis of preponderance of probabilities.
Setting up of special court
Sessions court designated as special court under the Prevention of Money Laundering Act, 2002 (PMLA) will be set up for declaring an individual as fugitive economic offender, and confiscation of assets.
Declaration as ‘Fugitive Economic Offender’
The court declares a defaulter as a ‘fugitive economic offender’ after hearing an application filed by the investigating agencies (termed as Director under the Bill). In this application, the investigating agencies are required to provide the reasons for declaring a person as a fugitive economic offender, the whereabouts of the offender, list of assets (including proceeds of crimes) situated in and outside India, and list of interested persons (if any). Interested persons are those who have any stake in the assets of the offender.
The offender, and the interested persons are issued notices, and provided six weeks to appear at the designated place in the notice. The investigating authorities may also serve the notice to the fugitive economic offender through electronic means. If the fugitive economic offender is in a state with which India has a contracting arrangement, then the notice will also be issued to the relevant authority of such state. Such authority should make efforts to serve the notice within two weeks. If the defaulter appears through a counsel, then the court, may in its discretion, provide a week to file a response to the application.
Confiscation of Assets
If the defaulter fails to comply with the notice, the court, after hearing the application and relevant evidence submitted by the Director, will declare such defaulter as a ‘fugitive economic offender’, and order for confiscation of such offender’s assets. If any person other than the fugitive economic offender has a bonafide interest in the attached property, then the special court may exempt the confiscation of such property, if the court is satisfied that such interest was acquired bonafide and without knowledge of the fact that the property was proceeds of crime.
Prior to the court declaring a person as a fugitive economic offender, the investigating agencies may, confiscate the assets of the offender if it has reason to believe that the assets have been procured using the proceeds of the crime. Further, the authorities may confiscate the assets, if they are of the believe that the assets will be dealt in a manner which will lead to the assets being unavailable for confiscation. However, the investigating agencies are required to file an application with the special court within thirty days from the date of the provisional attachment. The attachment of the assets will be valid for a period of 180 days or such other period as may be extended by the special court before the expiry of the period.
Any court in India, may disentitle the fugitive economic offender from defending any civil claim. On the same lines, the court may also disentitle a company or a LLP from defending a civil claim, if the individual filing the civil claim on behalf of the company or LLP, is a majority shareholder, key managerial personnel or a promoter of the company, or an individual having controlling interest in the LLP.
Appointment of administrator and disposal of assets
The Central Government will appoint officers, not below the rank of a Joint Secretary to the Government of India, to perform the functions of an administrator. The administrator will manage and dispose of the confiscated assets in accordance with the instructions of the Central Government. The Central Government or the administrator shall not dispose of any property for a period of 90 days from the date of the confiscation order.
The Bill is silent on how the administrator is to deal with the claims of the creditors (i.e., priority of claims), and there will be further clarity in this regard in the rules.
Difference with PMLA
The key difference between the Bill and the PMLA is that under the PMLA only the proceeds of the crime can be attached by the authorities, while under the Bill the authorities can confiscate all the assets of the offender.
While the Bill is a pro-active step by the government to prevent absconding of economic offenders, the Bill has a few drawbacks. As of now, the Bill does not specify the time frame within which the court is required to proceed and conclude the hearing of the application for declaration of a fugitive economic offender. This is important to ensure that there is no unnecessary delay in the confiscation of the assets, and the offender does not dispose of the assets in the meanwhile.
In addition, any attachment of properties situated abroad will not be possible without the co-operation of the state in which such asset is situated.
– Meera Sreekumar