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.