Fugitive Economic Offenders Ordinance 2018

Introduction

Scam and Scat is the motto
of the day! The number of persons committing frauds and leaving the country is
increasing. Once a person escapes India, it not only becomes difficult for the
law enforcement agencies to extradite him but also to confiscate his
properties. In order to deter such persons from evading the law in India, the
Government has introduced the Fugitive Economic Offenders Bill, 2018 (“the
Bill”). The Bill has been tabled in the Lok Sabha. However, while the Bill
would take its own time to get cleared, the Government felt that there was an
urgent need to introduce the Provisions and so it promulgated an Ordinance
titled, the Fugitive Economic Offenders Ordinance, 2018. This Ordinance was
promulgated by the President on 21^st April 2018 and is in force from
that date.

Fugitive Economic Offender

The Preamble mentions that
it is an Ordinance 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, to preserve the sanctity of the rule of law in India.

The Ordinance defines a
Fugitive Economic Offender as any individual against whom an arrest warrant has
been issued in India in relation to a Scheduled Offence and such individual
must:

(a) Have left India to avoid criminal prosecution;
or

(b) If he is abroad, refuses to return to India to
face criminal prosecution.

Thus, it
applies to an individual who either leaves the country or refuses to return but
in either case to avoid criminal prosecution. An arrest warrant must have been
issued against such an individual in order for him to be classified as a
`Fugitive Economic Offender’ and the offence must be an offence mentioned in
the Schedule to the Ordinance. The Ordinance provides for various economic
offences which are treated as Scheduled Offences provided the value involved in
such offence is Rs. 100 crore or more. Hence, for offences lesser than Rs. 100
crore, an individual cannot be treated as a Fugitive Economic Offender. Some of
the important Statutes and their economic offences covered under the Ordinance
are as follows:

 (a) Indian Penal Code, 1860 – Cheating, forgery,
counterfeiting, etc.

 (b) Negotiable Instruments Act, 1881 – Cheque
Bouncing u/s. 138

 (c) Customs Duty, 1962 – Duty evasion

 (d) Prohibition of Benami Property Transactions
Act, 1988 – Prohibition of Benami Transactions

 (e) SEBI Act, 1992- Prohibition of Insider Trading
and Other Offences for contravention of the provisions of the SEBI Act in the manner
provided u/s. 24 of the aforesaid Act.

 (f)  Prevention of Money Laundering Act, 2002 –
Offence of money laundering

 (g) Limited Liability Partnership Act, 2008 –
Carrying on business with intent to defraud creditors of LLP

 (h) Companies Act, 2013 – Private Placement
violation; Public Deposits violation; Carrying on business with intent to defraud creditors / fraudulent purpose; Punishment for fraud in the
manner provided u/s. 447 of the Companies Act.

(i)  Black Money (Undisclosed
Foreign Income and Assets) and Imposition of Tax Act, 2015 – Wilful attempt to
evade tax u/s. 51 of the Act. It may be noted that this offence is also a
Scheduled Cross Border Offence under the Prevention of Money Laundering Act,
2002. Thus, a wilful attempt to evade tax under the Black Money Act may have
implications and invite prosecutions under 3 statutes!

(j)  Insolvency and Bankruptcy Code, 2016 –
Transactions for defrauding creditors

(k) GST Act, 2017 – Punishment for certain offences
u/s. 132(5) of the GST Act, such as, tax evasion, wrong availment of credit,
failure to pay tax to Government, false documents, etc.   

Applicability

The
Ordinance states that it applies to any individual who is, or becomes, a
fugitive economic offender on or after the date of coming into force of this
Ordinance, i.e., 21^st April 2018. Hence, its applicability is
retroactive in nature, i.e., it applies even to actions done prior to the
passing of the Ordinance also. Therefore, even the existing offenders who
become classified as fugitive economic offenders under the Ordinance would be
covered.

Declaration of Fugitive Economic Offender

The
Enforcement Directorate would administer the provisions of the Ordinance. Once
the ED has reason to believe that any individual is a Fugitive Economic
Offender, then he (ED) may apply to a Special Court (a Sessions Court
designated as a Special Court under the Money Laundering Act) to declare such
individual as a Fugitive Economic Offender. Such application would also contain
a list of properties in India and outside India believed to be the proceeds of
crime for which properties confiscation is sought. It would also mention a list
of benami properties in India and abroad to be confiscated. The term `proceeds
of crime’ means any property derived directly or indirectly as a result of
criminal activity relating to a scheduled offence, and where the property is
held abroad, the property of equivalent in value held within the country or
abroad.

With the
permission of the Court, the ED may attach any such property which would
continue for 180 days or as extended by the Special Court. However, the
attachment would not prevent the person interested in enjoyment of any
immovable property so attached. The ED also has powers of Survey, Search and
Seizure in relation to a Fugitive Economic Offender. It may also search any
person by detaining him for a maximum of 24 hours with prior Magistrate
permission.

Once an
application to a Court is made, the Court will issue a Notice to the alleged
Fugitive Economic Offender asking him to appear before the Court. It would also
state that if he fails to appear, then he would be declared as a Fugitive
Economic Offender and his property would stand confiscated. The Notice may also
be served on his email ID linked with his PAN / Aadhaar Card or any other ID
belonging to him which the Court believes is recently accessed by him.

If the
individual appears himself before the Court, then it would terminate the
proceedings under the Ordinance. Hence, this would be the end of all
proceedings under the Ordinance. However, if he appears through his Counsel,
then Court would grant him 1 week’s time to file his reply. If he fails to appear
either in person or Counsel and the Court is satisfied that the Notice has been
served or cannot be served since he has evaded, then it would proceed to hear
the application.

Consequences

If the
Court is satisfied, then it would declare him to be a Fugitive Economic
Offender and thereafter, the proceeds of crime in India / abroad would be
confiscated and any other property / benami property owned by him would also be
confiscated. The properties may or may not be owned by him. In case of foreign
properties, the Court may issue a letter of request to a Court in a country
which has an extradition treaty or similar arrangement with India. The
Government would specify the form and manner of such letter. This Order of the
Special Court is appealable before the High Court.

The Court,
while making the confiscation order, exempt from confiscation any property
which is a proceed of crime in which any other person, other than the
FugitiveEconomic Offender, has an interest if the Court is satisfied that such
interest was acquired bona fide and without knowledge of the fact that
the property was proceeds of crime. Thus, genuine persons are protected.

One of the
other consequences of being declared as a Fugitive Economic Offender, is that
any Court or Tribunal in India may disallow him to defend any civil claim in
any civil proceedings before such forum. A similar restriction extends to any
company or LLP if the person making the claim on its behalf/the promoter/key
managerial person /majority shareholder/individual having controlling interest
in the LLP has been declared a Fugitive Economic Offender. The terms
promoter/majority shareholder /individual having controlling interest have not
been defined under the Ordinance. It would be desirable for these important
terms to be defined or else it could either lead to inadvertent consequences or
fail to achieve the purpose. This ban on not allowing any civil remedy, even
though it is at the discretion of the Court/Tribunal, is quite a drastic step
and may be challenged as violating a person’s Fundamental Rights under the
Constitution. Although the words used in the Ordinance are that “any Court
or tribunal in India, in any civil proceeding before it, may, disallow
such individual from putting forward or defending any civil claim”; it
remains to be seen whether the Courts interpret may as discretionary or as
directory, i.e., as ‘shall’?

The
Ordinance also empowers the Government to appoint an administrator for the
management of the confiscated properties and he has powers to sell them as
being unencumbered properties. This is another drastic step since a person’s
properties would be confiscated and sold without him being convicted of an
offence. A mere declaration of an individual as a Fugitive Economic Offender
could lead to his properties being confiscated and sold? What about charges
which banks/Financial Institutions may have on these properties? Would these
lapse? These are open issues on which currently there is no clarity. It is
advisable that the Government thinks through them rather than rushing in with
an Ordinance and then have it struck down on various grounds!

An
addition in the Ordinance as compared to the Bill is that no Civil Court has
jurisdiction to entertain any suit in respect of any matter which the Special
Court is empowered to determine and no injunction shall be granted by any Court
in respect of any action taken in pursuance of any power conferred by the
Ordinance.

Onus of Proof

The onus
of proving that an individual is a Fugitive Economic Offender lies on the
Enforcement Directorate. However, the onus of proving that a person is a
purchaser in good faith without notice of the proceeds of crime lies on the
person so making a claim. 

Epilogue

This
Ordinance together with the Prohibition of Benami Transactions Act, 1988; the
Prevention of Money Laundering Act, 2002 and the Black Money(Undisclosed
Foreign Income and Assets) and Imposition of Tax Act, 2015 forms a
four-dimensional strategy on the part of the Government to prevent wilful
economic offenders from fleeing the country and for confiscating their
properties. Having said that, there are many unanswered questions which the
Ordinance raises:

 (a) Whether a mere declaration of an individual as
a Fugitive Economic Offender by a Court would achieve the purpose– Is it not
similar to bolting the stable after the horse has eloped?

 (b) How easy is it going to be for the Government
to attach properties in foreign jurisdictions?

 (c) Would a mere Letter of Request from a Special
Court be enough for a foreign Court / Authority to permit India to confiscate
properties in foreign jurisdictions?

 (d) Would not the foreign Court like to hear
whether due process of law has been followed or would it merely take off from
where the Indian Court has left?

 (e) The provision of attachment of property is
common to the Ordinance, the Prohibition of Benami Transactions Act, 1988, and
the Prevention of Money Laundering Act, 2002. In several cases, all three
statutes may apply. In such a scenario, who gets priority for attachment? 

These and several unanswered questions
seem to create a fog of uncertainty. Maybe with the passage of time many of
these doubts would get cleared. Till such time, let us all hope that the
Ordinance is able to achieve its stated purpose of deterring economic offenders
from fleeing the Country and create a Ghar Vapsi for them…!!