THE FUGITIVE ECONOMIC OFFENDERS ACT, 2018 – AN OVERVIEW – PART 1

In the recent
past, there have been quite a few instances of big time offenders including
economic offenders (For example, Vijay Mallya, Lalit Modi, Nirav Modi, Mehul
Choksi, Deepak Talwar, Sanjay Bhandari, Jatin Mehta, Prateek Jindal etc.),
fleeing the country to escape the clutches of law. The Parliament has therefore
enacted a new law, to deal with such offenders by confiscating the assets of
such persons located in India until they submit to the jurisdiction of the
appropriate legal forum.

In this Part 1
of the article, we have attempted to give an overview of some of important
aspects of The Fugitive Economic Offenders Act, 2018 [the FEO Act or the Act].

1.  INTRODUCTION

The FEO Bill, 2018
was introduced in the Lok Sabha on 12^th March, 2018 but the same
could not be passed both the houses of parliament were prorogued on 6^th
April, 2018.  Hence, the FEO Ordinance,
2018 was promulgated on 21^st April, 2018 which came into force
immediately. The FEO Bill, 2018 was passed by Parliament on 25^th
July, 2018 and received the assent of the President on 31^st July,
2018. Section 1(3) of the FEO Act provides that it is deemed to have come in to
force w.e.f. 21^st April, 2018 and section 26(1) repeals the FEO
Ordinance, 2018.

2. 
NEED AND RATIONALE FOR FEO ACT

2.1  After approval of the proposal of the Ministry
of Finance to introduce the Fugitive Economic Offenders Bill, 2018 in
Parliament, the Press Release dated 1^st March, 2018, issued by the
Ministry of Finance, Government of India, explained the background of the FEO
Bill, 2018, as follows:

“Background

There have been
several instances of economic offenders fleeing the jurisdiction of Indian
courts, anticipating the commencement, or during the pendency, of criminal
proceedings. The absence of such offenders from Indian courts has several
deleterious consequences – first, it hampers investigation in criminal cases;
second, it wastes precious time of courts of law, third, it undermines the rule
of law in India. Further, most such cases of economic offences involve
non-repayment of bank loans thereby worsening the financial health of the
banking sector in India. The existing civil and criminal provisions in law are
not entirely adequate to deal with the severity of the problem. It is,
therefore, felt necessary to provide an effective, expeditious and
constitutionally permissible deterrent to ensure that such actions are curbed.
It may be mentioned that the non-conviction-based asset confiscation for
corruption-related cases is enabled under provisions of United Nations
Convention against Corruption (ratified by India in 2011). The Bill adopts this
principle. In view of the above context, a Budget announcement was made by
the Government in the Budget 2017-18 that the Government was considering to introduce
legislative changes or even a new law to confiscate the assets of such
absconders till they submit to the jurisdiction of the appropriate legal
forum.”

2.2  The Statement of Objects and Reasons of the
FEO Bill, provides as follows:

“Statement of objects and reasons

There have been several instances of economic
offenders fleeing the jurisdiction of Indian courts anticipating the
commencement of criminal proceedings or sometimes during the pendency of such
proceedings. The absence of such offenders from Indian courts has several
deleterious consequences, such as, it obstructs investigation in criminal
cases, it wastes precious time of courts and it undermines the rule of law in
India. Further, most of such cases of economic offences involve non-repayment
of bank loans thereby worsening the financial health of the banking sector in
India. The existing civil and criminal provisions in law are inadequate to deal
with the severity of the problem.

2.    In order to address the said problem and
lay down measures to deter economic offenders from evading the process of
Indian law by remaining outside the jurisdiction of Indian courts, it is
proposed to enact a legislation, namely, the Fugitive Economic Offenders Bill,
2018 to ensure that fugitive economic offenders return to India to face the
action in accordance with law.

3.    The said Bill, inter alia, provides for:
(i) the definition of the fugitive economic offender as an individual who has
committed a scheduled offence or offences involving an amount of one hundred
crore rupees or more and has absconded from India or refused to come back to
India to avoid or face criminal prosecution in India; (ii) attachment of the
property of a fugitive economic offender and proceeds of crime; (iii) the
powers of Director relating to survey, search and seizure and search of
persons; (iv) confiscation of the property of a fugitive economic offender and
proceeds of crime; (v) disentitlement of the fugitive economic offender from
putting forward or defending any civil claim; (vi) appointment of an
Administrator for the purposes of the proposed legislation; (vii) appeal to the
High Court against the orders issued by the Special Court; and (viii) placing
the burden of proof for establishing that an individual is a fugitive economic
offender on the Director or the person authorised by the Director.

4.    The Bill seeks to achieve the above
objectives.”

2.3  Shri Piyush Goyal, then holding charge as
Finance Minister explained the rationale for the FEOA in the Rajya Sabha debate
on 25^th July, 2018, as under:

“Sir, there have been many instances of economic
offenders in last several decades, fleeing from the jurisdiction of the Indian
Courts, sometimes in anticipation of commencement of proceedings or sometimes
during the pendency of proceedings. Sir, you are not able to impound of those
leaving the country, except through due process of law. The current laws as
they stand today, have its own limitations in stopping people who flee the
country in anticipation or during the pendency of the proceedings. The absence
of such offenders from the Indian courts has very deleterious consequences. The
existing civil and criminal laws do not allow us to adequately deal with the
severity of the problem, since they are not available or present.

Criminal law
does not allow us to push in for punishment, impound their properties and deal
with their properties. Therefore, it was felt necessary to provide an
effective, expeditious and constitutionally permissible deterrent to ensure
that such people do not runaway or, if they runaway, confiscate their
properties. In this context, in the Budget for
2017-18, the hon’ble Finance Minister had announced the intention of the
Government to introduce legislative changes or even a new law to confiscate
assets of such absconders till they submit themselves before the jurisdiction
of the appropriate legal forum. We are not only confiscating their assets but
we are also providing how the confiscated property will be managed and disposed
of, so that dues of Government of India, State Governments and banks, etc., can
be recovered from them.”

2.4  The Preamble to the FEO Act
provides as follows:

“An Act 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 and for matters connected
therewith or incidental thereto.”

2.5  On 30^th November, 2018 in the
meeting at Buenos Aires, India suggested following Nine Point Agenda to G-20
for action against Fugitive Economic Offences and Asset Recovery:

1.    “Strong and active cooperation across
G-20 countries to deal comprehensively and efficiently with the menace fugitive
economic offenders.

2.    Cooperation in the legal processes such
as effective freezing of the proceeds of crime; early return of the offenders
and efficient repatriation of the proceeds of crime should be enhanced and
streamlined.

3.    Joint effort by G-20 countries to form a
mechanism that denies entry and safe havens to all fugitive economic offenders.

4.    Principles of United Nations Convention
Against Corruption (UNCAC), United Nations Convention Against Transnational
Organized Crime (UNOTC), especially related to “International Cooperation”
should be fully and effectively implemented.

5.    FATF should be called upon to assign
priority and focus to establishing international co-operation that leads to
timely and comprehensive exchange of information between the competent
authorities and FIUs.

6.    FATF should be tasked to formulate a
standard definition of fugitive economic offenders.

7.    FATF should also develop a
set of commonly agreed and standardized procedures related to identification,
extradition and judicial proceedings for dealing with fugitive economic
offenders to provide guidance and assistance to G-20 countries, subject to
their domestic law.

8.    Common platform should be set up for
sharing experiences and best practices including successful cases of
extradition, gaps in existing systems of extradition and legal assistance, etc.

9.    G-20 Forum should consider initiating
work on locating properties of economic offenders who have a tax debt in the
country of their residence for its recovery.”

2.6  From the above, it is apparent that the
government is making all possible efforts to compel the FEOs to submit
themselves before the jurisdiction of the appropriate legal forum.

3.  OVERVIEW OF THE ACT AND THE RULES

3.1  The FEO Act is divided in three Chapters
containing 26 sections and one Schedule listing the sections and description of
various offences.

3.2  Various rules have been made by the Central
Government for various matters for carrying out the provisions of the FEO Act.
The present list of rules is as follows:

3.3  Some
Salient Features of the FEO Act

a.  
The FEO Act is deemed to have come into force on 21^st April
2018 i.e. the date of issuance of the FEO Ordinance, 2018.

b.  
The FEO Act extends to whole of India including Jammu and Kashmir.

c.  
The Act provides 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 and for
matters connected therewith or incidental thereto.

d.   
Section 3 of the FEO Act provides that the provisions of the Act apply
to any individual who is, or becomes a Fugitive Economic Offender [FEO] on or
after the date of coming into force of the Act i.e. 21^st April,
2018.

e.  
Section 4(3) provides that the authorities appointed for the purposes of
the Prevention of Money-laundering Act, 2002 shall be the Authorities for the
purposes of the Act.

f.  
Section 18 provides that no civil court shall have jurisdiction to
entertain any suit or proceeding in respect of any matter which the Special
Court is empowered by or under the Act to determine and no injunction shall be
granted by any court or other authority in respect of any action taken or to be
taken in pursuance of any power conferred by or under the Act.

4.    FUGITIVE ECONOMIC OFFENDER [FEO]

4.1  The term ‘Fugitive Economic Offender’ or FEO
is the main stay of the FEO Act, as the Act provides for action against FEOs
and the significance of the definition of FEO cannot be undermined. Section
2(1)(f) of the Act defines the term FEO, as follows:

“(f) “fugitive
economic offender” means any individual against whom a warrant for arrest in
relation to a Scheduled Offence has been issued by any Court in India, who –

(i)    has left India so as to avoid criminal prosecution;
or

(ii)   being abroad, refuses to return to India to
face criminal prosecution;”

Thus, a person is
considered to be a FEO, if he satisfies the following conditions:

a)    He is an individual;

b)    a warrant for arrest in relation to a
Scheduled Offence has been issued by any Court in India against him;

c)    he is a fugitive i.e. he (i) has left India
so as to avoid criminal prosecution; or (ii) being abroad, refuses to return to
India to face criminal prosecution.

4.2  Only
an Individual to be declared as FEO

From the definition
in section 2(1)(f) and provisions of section 3 (Application of Act), section
4(1) (Application for declaration of FEO and procedure therefore), section
10(1) (Notice), section 11 (Procedure for hearing application) and section 12(1)
(Declaration of FEO), makes it abundantly clear that only an individual can be
declared as a FEO.

Thus, prima
facie, the provisions of the FEO Act should not have application to a
company or Limited Liability Partnership [LLP] or partnership firm or other
association of persons.

However, as an
exception, section 14 dealing with ‘Power to disallow civil claims’ provides
that on declaration of an individual as a FEO, any Court or Tribunal in India
in any civil proceeding before it may, disallow any company or LLP (as defined
in section 2(1)(n) of the LLP Act, 2008) from putting forward or defending any
civil claim, if such an individual is (a) filing the claim on behalf of the
company or the LLP, or (b) promoter or key managerial personnel (as defined in
section 2(51) of the Companies Act, 2013) or majority shareholder of the
company or (c) having a controlling interest in the LLP.

Section 12(2) of
the FEO Act provides that on declaration of an individual as a FEO, the Special
court may order that any of the following properties stand confiscated to the
Central Government (a) the proceeds of crime in India or abroad, whether or not
such property is owned by the fugitive economic offender; and (b) any other
property or benami property in India or abroad, owned by the fugitive economic
offender. The assets owned by LLPs in which the FEO having controlling interest
or Companies in which the FEO is promoter or key managerial personnel or
majority shareholder, can be confiscated only if it is established that such
LLP or Company is benamidar of the FEO or the property held by the company or
LLP represents proceeds of crime. Further, it appears that the courts can lift
the corporate veil in appropriate cases and rule that the property standing in
the name of the company or LLP is actually the property of the Individual FEO
and the same is liable for confiscation.

4.3  Warrant
of Arrest

For an individual
to be declared as a FEO, it is necessary that (a) a warrant of arrest has been
issued against him by a Court in India; (b) such warrant is in relation to a
Scheduled Offence, whether committed before or after the date of coming in to
force of the FEO Act i.e. 21-04-18; (c) it is immaterial whether the warrant
was issued before, on or after 21-04-18 as long as the same is pending on the
date of declaration as FEO; and (d) if the warrant of arrest stands withdrawn
or quashed as of the date of declaration as FEO, then the individual cannot be
declared a FEO.

4.4 
Fugitive

The term ‘fugitive’
has not been defined in the FEO Act. Concise Oxford Dictionary defines a
‘fugitive’ as
a person who has escaped from the captivity or is in hiding. To be considered a
FEO the individual should
have (a) has left India so as to avoid criminal prosecution; or (b) being
abroad, refuses to return to India to face criminal prosecution.

Section 11(1) of
the Act provides that where any individual to whom notice has been issued under
sub-section (1) of section 10 appears in person at the place and time specified
in the notice, the Special Court may terminate the proceedings under the Act.
Thus, if the alleged FEO returns to India at any time during the course of
proceedings relating to the declaration as a FEO (prior to declaration) and
submits to the appropriate jurisdictional court, the proceedings under the FEO
Act cease by law.

4.5  Procedure
to declare an individual as FEO

The FEO Act, inter
alia, provides for the procedure to declare an individual as FEO, which is
as follows:

(i)    Application of mind by the Director or other
authorised office to the material in his possession as to whether he has reason
to believe that an individual is a FEO.

(ii)   Documentation of reason for belief in
writing.

(iii)   Provisional attachment (without Special
Court’s permission) by a written order of an individual’s property (a) for
which there is reason to believe that the property is proceeds of crime, or is
a property or benami property owned by an individual who is a FEO; and (b)
which is being or is likely to be dealt within a manner which may result in the
property being unavailable for confiscation. In cases of provisional
attachment, the Director or any other officer who provisionally attaches any
property under this section 5(2) is required to file an application u/s. 4
before the Special Court, within a period of thirty days from the date of such
attachment.

(iv)  Making an application before the special court
for declaration that an individual is a FEO (Section 4);

(v)   Attachment of the property of a FEO and
proceeds of crime (Section 5);

(vi)  Issue of a notice by the special court to the
individual alleged to be a FEO (Section 10);

(vii)  Where any individual to whom notice has been
issued appears in person at the place and time specified in the notice, the
special court may terminate the proceedings under the FEO Act. (Section 11(1))

(viii) Hearing of the application for declaration as
FEO by the Special Court (Section 11);

(ix)  Declaration as FEO by Special Court by a
speaking order (Section 12);

(x)   Confiscation of the property of an individual
declared as a FEO or even the proceeds of crime (Section 12);

(xi)  Supplementary application in the Special Court
seeking confiscation of any other property discovered or identified which
constitutes proceeds of crime or is property or benami property owned by
the individual in India or abroad who is a FEO, liable to be confiscated under
the FEO Act (Section 13)

(xii)  Disentitlement of a FEO from defending any
civil claim (Section 14); and

(xiii) Appointment of an Administrator to manage and
dispose of the confiscated property under the Act
(Section 15).

4.6  Manner
of Service of notice

Section 10 dealing
with Notice, provides for two alternative prescribed mode of service of notice
on the alleged FEO: (a) through the contracting state (s/s. (4) and (5); and
(b) e-service.

Notice through Contract State

Section 2(1)(c) of
the Act defines Contracting State as follows:

“Contracting
State” means any country or place outside India in respect of which
arrangements have been made by the Central Government with the Government of
such country through a treaty or otherwise;”

Section 10(4)
provides that a notice under s/s. (1) shall be forwarded to such authority, as
the Central Government may notify, for effecting service in a contracting
State.

Section 10(5)
provides that such authority shall make efforts to serve the notice within a
period of two weeks in such manner as may be prescribed.

Service of notice
through the contracting state is possible only when alleged FEO is suspected or
known to be in a contracting state with which India has necessary arrangements
through a treaty or otherwise.

E-service of Notice

Section 10(6)
provides that a notice under s/s. (1) may also be served to the
individual alleged to be a FEO by electronic means to:

(a)   his electronic mail address submitted in
connection with an application for allotment of Permanent Account Number u/s.
139A of the Income-tax Act, 1961;

(b)   his electronic mail address submitted in
connection with an application for enrolment u/s. 3 of the Aadhaar (Targeted
Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016; or

(c)   any other electronic account as may be
prescribed, belonging to the individual which is accessed by him over the
internet, subject to the satisfaction of the Special Court that such account
has been recently accessed by the individual and constitutes a reasonable
method for communication of the notice to the individual.

4.7  India’s
First Declared FEO

As per the news
report appearing in the New Indian Express dated 19^th January, 2019,
Mr. Vijay Mallya is the first businessman to be declared an FEO under the FEO
Act. In absence of the copy of the court’s order being available in public
domain as yet, the key points of the special court’s order, as appearing in the
text of the new report, is given for reference.

“Businessman
Vijay Mallya’s claim that the Indian government’s efforts to extradite him were
a result of “political vendetta” was “mere fiction of his
imagination”, a special PMLA court observed in its order.

Mallya, accused
of defaulting on loans of over Rs 9,000 crore, was on January 5 declared a
fugitive economic offender (FEO) by special Judge M S Azmi of the Prevention of
Money Laundering Act (PMLA) court.

The judge, in
his order that was made available to media Saturday, said, “Mere statement
that the government of India had pursued a political vendetta against him and
initiated criminal investigations and proceeding against him cannot be ground
for his stay in UK.”

Besides these
bare statements, there is nothing to support as to how the government of India
initiated investigation and proceedings to pursue political vendetta, the judge
said in his order.

“Hence the
arguments in these regards are mere fiction of his imagination to pose himself
as law-abiding citizen,” he added.

The court said
the date of Mallya leaving India was March 2, 2016, and on that day admittedly
there was offence registered by the Central Bureau of Investigation (CBI) and
the Enforcement Directorate (ED).

Mallya laid much stress on the fact that he went
to attend a motorsports council meeting in Geneva on March 4, 2016.

“Had it
been the case that he went to attend a pre-schedule meeting and is a
law-abiding citizen, he would have immediately informed the authorities about
his schedule to return to India after attending his meeting and
commitment,” Azmi observed.

Therefore, in
spite of repeated summons and issuance of warrant of arrest, he had not given
any fix date of return, therefore it would be unsafe to accept his argument
that he departed India only to attend a pre-schedule meeting, he said.

The judge stated
that the ED application cannot be read in “piece meal” and must be
read as whole.

The satisfaction
or the reasons to believe by ED that Mallya was required to be declared as an
FEO appears to be based upon the foundation that despite repeated efforts, he
failed to join investigation and criminal prosecution.

Even the efforts
taken by way of declaring him as a proclaimed offender have not served the
desired purpose, he added.

Azmi said the
intention of the FEO Act is to preserve the sanctity of the rule of law and the
expression “reason to believe” has to be read in that context.

The reasons
supplied by the ED were the amount involved – Rs 9,990 crore, which is more
than Rs 100 crore which is the requirement of the Act.

As pointed out,
the summons issued were deliberately avoided, the passport was revoked,
non-bailable warrants were issued and he was also declared a proclaimed
offender, the judge said.

These appear to
be sufficient reasons to declare him an FEO, the judge observed.

Mallya is the first businessman to be declared an
FEO under the FEO Act which came into existence in August 2018.

The ED, which
had moved the special court for this purpose, requested the court that Mallya,
currently in the United Kingdom, be declared a fugitive and his properties be
confiscated and brought under the control of the Union government as provided
under the act.”

The various factors
considered by the court, as mentioned in the news report above, are important
for consideration. The special court has rejected the arguments of (a) that the
Indian government’s efforts to extradite him were a result of “political
vendetta”; (b) that he departed India only to attend a pre-schedule
meeting; (c) satisfaction or the reasons to believe by ED that Mallya was
required to be declared as an FEO appears to be based upon the foundation that
despite repeated efforts, he failed to join investigation and criminal
prosecution; and (d) since the proceedings of his extradition had begun in UK
and with those underway, Mallya cannot be declared a Fugitive.

In this connection,
it would be pertinent to mention that the Westminster’s Magistrates’ Court,
London, UK in the case of The Govt of India vs. Vijay Mallya, dated 10^th
December, 2018 after detailed examination of various issues raised in
respect of Govt of India’s Extradition Request in its 74 page Judgement
available in public domain, found a prima facie case in relation to three
possible charges and has sent Dr. Vijay Mallya’s case to the Home Secretary of
State for a decision to be taken on whether to order his extradition.

4.8  Applications
in Other Cases

In a recent new
report in Hindustan Times, it is mentioned 
that the Enforcement Directorate [ED] has also submitted applications to
have Jewellers Nirav Modi and Mehul Choksi declared fugitives under the FEO Act
after they left India, where they are accused in a Rs. 14,000 scam at Punjab
National bank. These applications are likely to be heard by the same special
court.

4.9  Appeals

Section 17 of the Act provides that an appeal shall lie from any
judgment or order, not being an interlocutory order, of a Special Court to the
High Court both on facts and on law.

Every appeal u/s.
17 shall be preferred within a period of 30 days from the date of the judgment
or order appealed from. The High Court may entertain an appeal after the expiry
of the said period of 30 days, if it is satisfied that the appellant had sufficient
cause for not preferring the appeal within the period of 30 days. However, no
appeal shall be entertained after the expiry of period of 90 days. The Bombay
High Court in the case Vijay Vittal Mallya vs. State of Maharashtra
(Criminal Appeal No. 1407 of 2018) vide order dated 22^nd
November, 2018, while dismissing the Mallya’s appeal for stay of the
proceedings u/s. 4 of the FEO Act, held that for an appeal to lie against an
order of the special court, the said order would have to determine some right
or issue.

5.     CONCLUDING REMARKS

The FEO Act is a
huge step towards creating a deterrent effect for economic offenders and would
certainly help the government bring alleged fraudsters such as Vijay Mallya,
Nirav Modi, Mehul Choksi and such other offenders  to justice.

In Part 2 of the
Article we will deal with remaining other important aspects of the FEO Act and
the Rules.