THE FUGITIVE ECONOMIC OFFENDERS ACT, 2018 – AN OVERVIEW – PART 2

In Part 1 of the
article published in the April, 2019 issue of the Journal, we have covered the
need and rationale for the FEO Act, an overview of the Act and the Rules framed
thereunder, and various aspects relating to a Fugitive Economic Offender.

In this
concluding Part 2 of the article, we have attempted to give an overview of some
of the remaining important aspects of The Fugitive Economic Offenders Act, 2018
[the FEO Act or the Act].

1.  SCHEDULED OFFENCES

Section
2(1)(m) of the Act defines the Scheduled Offences as follows:

(m) “Scheduled Offence” means an offence specified
in the Schedule, if the total value involved in such offence or offences is
one hundred crore rupees or more;”

The Schedule
to the Act lists out offences under 15 different enactments and 56 different
sections/sub-sections. The Schedule of the FEO Act is given in the Annexure to
this article for ready reference.

The Schedule covers offences under the Indian
Penal Code, 1860; Negotiable Instruments Act, 1881; Reserve Bank of India  Act, 1934; Central Excise Act, 1944; Customs
Act, 1962; Prohibition of Benami Property Transactions Act, 1988; Prevention of
Corruption Act, 1988; Securities and Exchange Board of India Act, 1992;
Prevention of Money-Laundering Act, 2002; Limited Liability Partnership Act,
2008; Foreign Contribution (Regulation) Act, 2010; Companies Act, 2013; Black
Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015;
Insolvency and Bankruptcy Code, 2016; and Central Goods and Services Tax Act,
2017.

It is
pertinent to note that the aforesaid list of 15 enactments does not include the
offences under the Income-tax Act, 1961, though it includes offences under the
Black Money Act, PMLA and the Benami Act.

In order to
ensure that courts are not overburdened with such cases, only those cases
where the total value involved in such offences is Rs. 100 crore or more
are covered within the purview of the FEO Act.

2.  DECLARATION OF AN INDIVIDUAL AS AN FEO

Section 12(1)
of the Act provides that after hearing the application u/s. 4, if the Special
Court is satisfied that an individual is a fugitive economic offender (FEO), it
may, by an order, declare the individual as an FEO for reasons to be recorded
in writing. The order declaring an individual as an FEO has to be a speaking
order.

Section 16
deals with rules of evidence. Section 16(3) of the Act provides that the
standard of proof applicable to the determination of facts by the Special Court
under the Act shall be preponderance of probabilities. Preponderance of
probabilities means such proof that satisfies the Special Court that a certain
fact is true rather than the reverse. The proof of beyond reasonable doubt
applicable to criminal law is not applicable in case of the FEO Act.

3.  CONSEQUENCES OF AN INDIVIDUAL BEING DECLARED AS AN FEO

3.1  Confiscation
of Property

3.1.1  Section 12(2) of the Act provides that on a
declaration u/s. 12(1) as an FEO, the Special Court may order that any of the
following properties stand confiscated by the Central government:

(a)  the proceeds of crime in India or abroad,
whether or not such property is owned by the FEO; and

(b)  any other property or benami property in
India or abroad owned by the FEO.

Article 2(g)
of the UNCAC defines confiscation as follows: “Confiscation”, which includes
forfeiture where applicable, shall mean the permanent deprivation of property
by order of a court or other competent authority. It results in the change of
ownership and property vesting in the government, which is irreversible unless
the individual declared as an FEO succeeds in appeal.

Section
2(1)(k) defines proceeds of crime as follows:

“proceeds
of crime” means any property derived or obtained, directly or indirectly,
by any person as a result of criminal activity relating to a Scheduled Offence,
or the value of any such property, or where such property is taken or
held outside the country, then the property equivalent in value held within the
country or abroad.

The fact that
the benami property of an FEO can be confiscated shows that section 12(2)
emphasises de facto ownership rather than de jure ownership.

3.1.2  Section 21 of the FEO Act provides that the
provisions of the Act shall have effect, notwithstanding anything inconsistent
therewith contained in any other law for the time being in force. Section 22
provides that the provisions of the Act shall be in addition to and not in
derogation of any other law for the time being in force.

A question
arises for consideration as to whether adjudication under Prohibition of the
Benami Property Transactions Act, 1988 [Benami Act] is necessary for
confiscation of the benami property of the FEO. From the aforesaid provisions,
it appears that if the alleged FEO does not return to India and submit himself
to the Indian legal system, the Special Court can order confiscation of benami
properties of the FEO after adjudicating whether property is benami property
owned by the FEO or not.

It is
important to note that adjudication and confiscation of benami property under
the Benami Act will apply when the individual returns to India and submits
himself to the Indian legal process.

The
confiscation of benami property under the FEO Act will apply when an individual
evades Indian law and is declared an FEO and consequently confiscation is
ordered by the Special Court.

It is
important to note that the adjudication and confiscation under the Benami Act
would cover only benami property in India, whereas under the FEO Act benami
property abroad of the FEO can also be confiscated.

3.1.3  Section 12(3) of the Act provides that the
confiscation order of the Special Court shall, to the extent possible, identify
the properties in India or abroad that constitute proceeds of crime which
are to be confiscated and in case such properties cannot be identified,
quantify the value of the proceeds of crime.

Section 12(4)
of the Act provides that the confiscation order of the Special Court shall separately
list any other property owned by the FEO in India which is to be
confiscated.

3.1.4  As pointed out in para 2.1 of Part 1 of the
article, the non-conviction-based asset confiscation for corruption-related
cases is enabled under provisions of the UNCAC. The FEO Act adopts the said
principle and accordingly it is not necessary that the FEO should be
convicted for any of the scheduled offences for which an arrest warrant was
issued by any court in India.

3.1.5  A further question arises as to whether
confiscation can be reversed if the FEO returns to India and submits himself to
the court to face proceedings covered by his arrest warrant. The answer appears
to be “No”, as once an individual is declared an FEO and his assets are
confiscated, his return to India will not reverse the declaration or the
confiscation.

3.2  Disentitlement
of the FEO as well as his Companies, LLPs and Firms to defend civil claims

Section 14 of the Act provides that
notwithstanding anything contained in any other law for the time being in
force,

(a)  on a declaration of an individual as an FEO,
any court or tribunal in India, in any civil proceeding before it, may disallow
such individual from putting forward or defending any civil claim; and

(b)  any court or tribunal in India in any civil
proceeding before it, may disallow any company or LLP from putting forward or
defending any civil claim, if an individual filing the claim on behalf of the
company or the LLP, or any promoter or key managerial personnel or majority
shareholder of the company or an individual having a controlling interest in
the LLP, has been declared an FEO.

3.3 Individual found to be not an FEO

Section 12(9)
of the Act provides that where, on the conclusion of the proceedings, the
Special Court finds that the individual is not an FEO, the Special Court shall
order release of property or records attached or seized under the Act to the
person entitled to receive it.

4.  POWERS OF AUTHORITIES

4.1  Power
of Survey

Section 7 of
the FEO Act contains the provisions relating to power of survey. It appears
that power of survey may be exercised at any time before or after filing an
application u/s. 4 for declaration as an FEO.

Section 7(1)
provides that —

(i)   within the limits of the area assigned to
him; or

(ii)   in respect of which he is authorised for the
purposes of section 7, by such other authority who is assigned the area within
which such place is situated.

Section 7(2)
provides that if it is necessary to enter any place as mentioned in s/s. (1),
the director or any other officer authorised by him may request any proprietor,
employee or any other person who may be present at that time, to – (a) afford
him the necessary facility to inspect such records as he may require and which
may be available at such place; (b) afford him the necessary facility to check
or verify the proceeds of crime or any transaction related to proceeds of crime
which may be found therein; and (c) furnish such information as he may require
as to any matter which may be useful for, or relevant to, any proceedings under
the Act.

Section 7(3)
provides that the director, or any other officer acting u/s. 7 may (i) place
marks of identification on the records inspected by him and make or cause to be
made extracts or copies therefrom; (ii) make an inventory of any property
checked or verified by him; and (iii) record the statement of any person
present at the property which may be useful for, or relevant to, any proceeding
under the Act.

4.2  Power
of Search and Seizure

Section 8 of
the Act and Fugitive Economic Offenders (Procedure for Conducting Search and
Seizure) Rules, 2018 contain the relevant provisions and procedure to be
followed in respect of search and seizure.

Section 8(1)
of the Act provides that:

Notwithstanding
anything contained in any other law for the time being in force, where the
director or any other officer not below the rank of deputy director authorised
by him for the purposes of this section, on the basis of information in his
possession, has reason to believe (the reason for such belief to be recorded in
writing) that any person –

(i)   may be declared as an FEO;

(ii)   is in possession of any proceeds of crime;

(iii)  is in possession of any records which may
relate to proceeds of crime; or

(iv)  is in possession of any property related to
proceeds of crime,

then, subject
to any rules made in this behalf, he may authorise any officer subordinate to
him to —

(a)  enter and search any building, place, vessel,
vehicle or aircraft where he has reason to suspect that such records or
proceeds of crime are kept;

(b)  break open the lock of any door, box, locker,
safe, almirah or other receptacle for exercising the powers conferred by
clause (a) where the keys thereof are not available;

(c)  seize any record or property found as a result
of such search;

(d)  place marks of identification on such record
or property, if required, or make or cause to be made extracts or copies
therefrom;

(e)  make a note or an inventory of such record or
property; and

(f)   examine on oath any person who is found to be
in possession or control of any record or property, in respect of all matters
relevant for the purposes of any investigation under the FEO Act.

Section 8(2)
of the Act provides that where an authority, upon information obtained during
survey u/s. 7, is satisfied that any evidence shall be or is likely to be
concealed or tampered with, he may, for reasons to be recorded in writing,
enter and search the building or place where such evidence is located and seize
that evidence.

4.3  Power
of Search of Persons

Section 9 of
the Act contains provisions relating to power of search of persons and it
provides as follows:

(a)  if an
authority, authorised in this behalf by the Central government by general or
special order, has reason to believe (the reason for such belief to be recorded
in writing) that any person has secreted about his person or anything under his
possession, ownership or control, any record or proceeds of crime which may be
useful for or relevant to any proceedings under the Act, he may search that
person and seize such record or property which may be useful for or relevant to
any proceedings under the Act;

(b)  where an authority is about to search any
person, he shall, if such person so requires, take such person within
twenty-four hours to the nearest Gazetted Officer, superior in rank to him, or
a Magistrate. The period of twenty-four hours shall exclude the time necessary
for the journey undertaken to take such person to the nearest Gazetted Officer,
superior in rank to him, or the Magistrate’s Court;

(c)  if the requisition under clause (b) is
made, the authority shall not detain the person for more than twenty-four hours
prior to taking him before the Gazetted Officer, superior in rank to him, or
the Magistrate referred to in that clause. The period of twenty-four hours
shall exclude the time necessary for the journey from the place of detention to
the office of the Gazetted Officer, superior in rank to him, or the
Magistrate’s Court;

(d)  the Gazetted Officer or the Magistrate before
whom any such person is brought shall, if he sees no reasonable ground for
search, forthwith discharge such person but otherwise shall direct that search
be made;

(e)  before making the search under clause (a)
or clause (d), the authority shall call upon two or more persons to
attend and witness the search and the search shall be made in the presence of such
persons;

(f)   the authority shall prepare a list of records
or property seized in the course of the search and obtain the signatures of the
witnesses on the list;

(g)  no female shall be searched by anyone except a
female; and

(h)  the authority shall record the statement of
the person searched under clause (a) or clause (d) in respect of
the records or proceeds of crime found or seized in the course of the search.

5. CONCLUDING REMARKS

In response
to unstarred question No. 3198, the Minister of State in the Ministry of
External Affairs on 14-03-18 answered in the Parliament that as per the list
provided by the Directorate of Enforcement, New Delhi, 12 persons involved in
cases under investigation by the Directorate of Enforcement are reported to
have absconded from India who include Vijay Mallya, Nirav Modi, Mehul Choksi
and others. In addition, as per the list provided by the CBI, New Delhi, 31
businessmen, including the aforementioned Vijay Mallya, Nirav Modi and Mehul
Choksi are absconding abroad in CBI cases.

It is hoped
that the stringent provisions of the FEO Act creating a deterrent effect would
certainly help the government in compelling FEOs to come back to India and
submit themselves to the jurisdiction of courts in India.