Explained: Fugitive Economic Offenders Bill spells trouble for likes of Vijay Mallya, Nirav Modi, Mehul Choksi

By: | Updated: July 26, 2018 3:02 PM

The Fugitive Economic Offenders Bill, which aims to prevent culprits from fleeing the country and evading legal proceedings, has now been passed by both houses of the Parliament.

Explained: Fugitive Economic Offenders Bill spells trouble for likes of Vijay Mallya, Nirav Modi, Mehul ChoksiThe Fugitive Economic Offenders Bill, which aims to prevent culprits from fleeing the country and evading legal proceedings, has now been passed by both houses of the Parliament. (Image: Reuters)

The Fugitive Economic Offenders Bill, which aims to prevent culprits from fleeing the country and evading legal proceedings, has now been passed by both houses of the Parliament. With Rajya Sabha passing the bill on Wednesday, the bill, which was bought in action in the form of an Ordinance, is set become a law. Currently, the Enforcement Directorate (ED) is seeking ‘economic offender’ tag for Vijay Mallya who is an accused in the bank loan fraud of Rs 9,000 crore.

Interim Finance Minister Piyush Goyal said that the bill “will empower Indian authorities to bring back such (Vijay Mallya, Nirav Modi, Mehul Choksi) offenders, seize their assets, and stop them from fleeing the country”, while the opposition argued that the existing laws in India were good enough to bring back these offenders.

Sandeep Grover, Partner at law firm IndusLaw explains different aspects of the bill.

Why did existing laws not deter fugitive economic offenders?

The existing civil and criminal provisions in the law are not entirely adequate to deal with fugitive economic offenders. Under the existing laws, the power of the court or authority is confined to the attachment of properties of the offender, which were secured (by way of lien or mortgage) or those properties which are proceeds of the alleged crimes. However, under the Fugitive Economic Offenders Bill, the Special Court is being given the power to order confiscation by the central government.

How existing laws work:

Under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), a lender can directly take action against the borrower in case of non-repayment of loan amount by the borrower. The possession of the properties of the borrower which have been retained as security by the lender can be directly taken by the lender and the lender may sell the said properties in order to procure the amounts handed out by loans.

Under Insolvency and Bankruptcy Code, 2016 (IBC), the directors and promoters of the companies, which have defaulted in repayment of the loan amount, are replaced by an insolvency professional and thereafter methods for either revival of the company or winding up of the company are devised.

Under Prevention of Money Laundering Act (PMLA), ED is allowed to confiscate the proceeds of crime, and only after completion of proceedings, the property which has been attached is converted into confiscation free of encumbrances.

Under Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDDBFI), proceedings can be initiated before the Debt Recovery Tribunal to procure the loan amount advanced by the lender and would result in reliefs of attachment of properties which were provided as security.

What the Fugitive Economic Offenders Bill will do:

The bill will give power to Special Court to order confiscation by the central government of any of the following properties:

  • proceeds of crime, whether or not such property is owned by the fugitive economic offender
  • any other property in India, owned by the fugitive economic offender

In view of the above, the answer will be ‘Yes’, the existing laws do not have the deterrent effect, and probably the present bill would have a higher deterrence on such fugitive economic offender.

How exactly will it be an improvement from the existing laws?

The existing laws do not allow for attachment of properties that are not directly involved with the offence. This bill would create an added pressure and deterrence on the fugitive economic offender as all the properties belonging to the offender will automatically come under the ambit of the bill and the Special Court will have the power to direct confiscation of all such properties. Furthermore, the restraint from agitating any civil matters by any such person shall also act as a huge deterrent to the offender.

Will the proposed law have retrospective effect?

The proposed legislation is not stated to be retrospective in effect. However, the director or any other officer authorised by the director may make an application to declare any person as ‘fugitive economic offender if the said person either leaves or has left India in order to avoid criminal prosecution and/or refuses to return to India to face criminal prosecution.

Therefore, for offences which have been committed even before the coming into effect of the bill as an act, it could be construed that an application could lie to declare the said offender as a fugitive economic offender.

Are there any loopholes in the bill?

In Section 10(5) of the bill, it is stated that the Special Court, while making the confiscation order, is exempt from confiscation of any property that is a proceed of crime, in which any other person other than the fugitive economic offender has an interest, provided it is shown that such interest was acquired without knowledge of the fact that the property was a proceed of crime.

There should be a provision that in such an eventuality. The Special Court can attach the offender’s share in the joint property if the property is capable of being divided by metes and bounds.

The blanket disentitlement from pursuing or defending any civil claim under Section 11 should be clarified and made reasonable. Like, for instance, if the claim/defence sought to be raised by such offender appears to be, prima facie, sham or bogus, then the fugitive economic offender should be disentitled from pursuing/defending civil proceedings, as against putting a blanket disentitlement.

Do you foresee any constitutional challenge to the provisions of the bill?

I think the bill is susceptible of being challenged on inter alia the following broad grounds:

  • An absolute bar to pursue or defend civil proceedings is contrary to the basic tenets of justice and fair play, besides being violative of the Indian Constitution.
  • Sale of property of a fugitive economic offender without adjudicating after a proper trial whether or not the said person is actually liable for the offence, would amount to the violation of settled principle under the Constitution that “one is considered innocent unless proven guilty.”

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