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 (Left) Vijay Mallya, leaves after an extradition hearing at Westminster Magistrates’ Court in central London; (inset)The Kingfisher Villa in Goa. Photo: UNI

The tough provisions in the new law are expected to force fugitive millionaires to return home and face trial. The first official move was made against flamboyant ex-liquor baron Vijay Mallya

~Diljeet Titus and Ria Khanna

There is a new breed of business class travellers flying out of the country; who go on a one-way ticket, hoping they will never have to come back. The trend started with Lalit Modi fleeing to London in 2010. Two years back, Vijay Mallya followed even as the centre was about to begin proceedings against him for defrauding public sector banks to the tune of over Rs 9,000 crore.

The latest to join the group is Nirav Modi and Mehul Choksi of the infamous Rs 13,000 crore PNB scam, and India is still reeling from the impact. With such incidents occurring with increasing frequency in recent times, it has become clear that the existing legal framework is not well-equipped to effectively deal with the magnitude of the problem. In fact, it is stirring chances of the occurrence of greater financial frauds with no accountability or deterrence whatsoever.

To deter such absconding economic offenders from undermining the rule of law by defying the legal process and remaining outside the jurisdiction of Indian courts, the Fugitive Economic Offenders Ordinance, 2018 was promulgated by the President of India on 22 April 2018.

The Ordinance aims to aid law enforcement agencies to force economic offenders, who have fled abroad, to return home and face the law by proceeding to attach and confiscate their properties and proceeds of crime. With such promulgation, India is now at par with the global standards of financial crime deterrence as envisaged in the United Nations Convention against Corruption (which was ratified by India in 2011). The Convention recognises a very distinct approach to asset recovery, “non-conviction-based asset confiscation”, which the Ordinance has effectively adopted. This approach allows for assets of an economic offender to be seized, not only in the absence of a criminal prosecution but importantly using the civil standards of proof (preponderance of probabilities).

APPLICABILITY

Section 3 of the Ordinance specifies that the provisions of the Ordinance shall apply to any individual who is, or becomes, a fugitive economic offender on or after the date of enforcement of this Ordinance.

  • Fugitive Economic Offender: The Ordinance empowers a Special Court to declare a person as a “fugitive economic offender”, a pre-requisite to initiate procedures against such an offender. Section 2(f) defines a fugitive economic offender as an individual against whom an arrest warrant has been issued by any court in India in relation to a Scheduled Offence; who (i) has left India to avoid criminal prosecution; or (ii) being abroad, refuses to return to India to face criminal prosecution.
  • Scheduled Offence: An offence, as specified in the Schedule under the Ordinance, amounts to a ‘Scheduled Offence’ under Section 2(m) of the Ordinance, if the total value involved in such offence(s) is one hundred crore rupees or more. The offences listed under the Schedule on which the Ordinance applies include cheating and counterfeiting offences under the Indian Penal Code, 1860, dishonour of cheque under the Negotiable Instruments Act, 1881, evasion of duty or prohibitions under the Customs Act, 1962, illegal gratification under the Prevention of Corruption Act, 1988, insider trading under the SEBI Act, 1992, money-laundering under the Prevention of Money Laundering Act, 2002 (PMLA) and various other offences under the RBI Act, 1934, Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, Foreign Contribution (Regulation) Act, 2010, Companies Act, 2013, Insolvency and Bankruptcy Code, 2016 and Central Goods and Services Tax Act, 2017.

PROCEDURES

  • Application before the Special Court: To declare a person a fugitive economic offender, a director or deputy director (appointed under the PMLA) may file an application with the Court of Sessions, designated as a Special Court under the PMLA, stating the reasons to believe that an individual is a fugitive economic offender, information on his whereabouts, the list of properties, including those outside India, believed to be proceeds of crime, for which confiscation is sought, list of properties and benami properties owned by the individual in India or abroad, for which confiscation is sought and a list of persons having an interest in such properties.
  • Power to attach properties to compel appearance: The director or deputy director, as the case may be, may attach any property specified in the application with the permission of the Special Court. The Ordinance further empowers such enforcement authority to provisionally attach any property of the alleged economic offender even without seeking permission of the Special Court (in cases where the property is being or may be dealt in a manner resulting in it being unavailable for confiscation), provided that such authorities file the application before the Special Court within 30 days. The attachment of the property is for a period of 180 days, subject to extension by the Special Court.

RIGHTS OF OFFENDERS

  • Notice to the alleged economic offender including via e-mail: To ensure that the rights of the alleged economic offender are duly protected, the Ordinance through Section 10 requires the Special Court to issue notice requiring such individual to appear at a designated place and date which is at least six weeks from the issue of notice, stating that such failure shall result in declaration of the individual as a fugitive economic offender and confiscation of his property as specified in the application. As an effective measure, the Ordinance makes provisions for service of notice via email in addition to the usual modes of service.
  • Entering appearance: The proceedings under the Ordinance stand terminated once the alleged offender appears before the Special Court. If the alleged offender appears through his counsel, the Special Court may in its discretion give a period of one week to file a reply to the application filed against such offender. Complete failure to appear before Court accompanied by proof of service of notice or proof of evasion of service of notice, results in the Special Court proceeding to hear the application filed against the alleged economic offender.
  • Standard of Proof: The standard of proof applicable to the determination of facts by the Special Court under the Ordinance is preponderance of probabilities, the standards applied essentially in civil proceedings.
  • Declaration as a fugitive economic offender and confiscation of properties: On the Court being satisfied that such individual is a fugitive economic offender, a declaration by virtue of a Speaking Order shall be passed by the Court proclaiming such individual as a fugitive economic offender and confiscation of his properties may be directed. Upon confiscation, the rights and titles in such property(ies) will vest in the central government free from all encumbrances. In case the Special Court believes that such an individual is not a fugitive economic offender for the purposes of the Ordinance, the Court will pass directions for release of the property(ies).

HOW EFFECTIVE

Presently, the Ordinance provides that in the proceedings before the Special Court, if an accused is allowed to appear through his counsel, it may defeat the fundamental purpose of the Ordinance by granting sufficient time to the accused to prepare his case without returning to India. Further, issuance of an arrest warrant is a pre-requisite to initiate proceedings under this Ordinance which can take several months due to the complexity of procedures in obtaining the same.

Fugitive Economic Offenders Ordinance, 2018: Tough New Measures
(From far left) Lalit Modi, Mehul Choksi and his nephew Nirav Modi have till now taken advantage of the existing civil and criminal provisions to escape the arm of law

Nevertheless, the Ordinance is definitely a positive and progressive step towards competing with other jurisdictions with regard to economic offences and does a commendable job in rectifying the lacunae in the existing Indian laws relating to fugitive economic offenders, providing respite to banks and financial institutions to proceed against such offenders.

However, to what extent the Ordinance can rectify the existing lacunae is debatable as it only acts as a deterrent against fugitive economic offenders. Offences for which he may be prosecuted also continue to be a matter of trial under the relevant statutes, such as IPC, PMLA, etc.

It is yet to be seen whether the threat of confiscation and sale of property and barring of remedies in civil proceedings is sufficient in prosecuting fugitive economic offenders and alleviating severe economic offences in India.

The first application was recently filed by the Enforcement Directorate against Mallya before a Special Court under the provisions of this Ordinance. As per reports, the Directorate will proceed to confiscate Rs 9,000 crore worth of assets if Mallya is declared a fugitive economic offender under the Ordinance. Similar proceedings under the ordinance are also expected to be launched against other fugitive offenders like Nirav Modi and Mehul Choksi.

Bringing them to book, apart from signalling a determination to punish wrongdoers, will mean that the country has at last devised a mechanism to deal with millionaire fugitives.

—The writers are advocates at Titus and Co

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