India Economy

Bringing economic offenders to book

Aarthi Lakshminarayanan | Updated on March 18, 2018 Published on March 18, 2018

It might be interesting to see if certain sections of the Economic Offenders Bill withstand judicial scrutiny once enacted

In the light of all the mega financial scams that have rocked the country in the past few years, the Cabinet appears to have retaliated by giving its consent to the Fugitive Economic Offenders Bill 2018, which was introduced in the Lok Sabha on March 12, 2018.

The prime reason for the introduction of this Bill is to prevent economic offenders from escaping the process of law by leaving the country and staying outside the jurisdiction of Indian Courts. Clearly, this has direct bearing on quite a few high profile individuals leaving the country immediately before several financial scams or offences came to public light. Hence, the key question one asks is whether the Bill is capable of bringing back our long list of vanishing economic offenders to face prosecution for their actions.

Stringent provisions

A fugitive economic offender is someone against whom a warrant for arrest is issued by any court in India in relation to one of the scheduled offences under the Bill, which involves a value of ₹100 crore or more.

A study of the Bill reveals that the authorities under this Bill may take quick steps to provisionally attach, both in India and abroad, properties of the fugitive economic offender, as well as properties acquired from the proceeds of any crime and properties that are likely to be transferred to avoid confiscation under the Bill. The attachment may last for 180 days or until a Special Court declares the individual a ‘fugitive economic offender’ and orders that properties concerned stand confiscated to the Central government.

Once confiscated, the properties shall belong to the Central government free of all encumbrances, and the Centre is free to dispose the properties. Exemption from confiscation is granted to properties that are acquired by bonafide persons who did not have knowledge that such properties were sourced from the proceeds of crime. If a fugitive economic offender appears in person, the Special Court may terminate the proceedings.

Execution is key

It might be interesting to see if certain sections of the Bill are able to withstand judicial scrutiny once enacted, specifically provisions permitting a Court or Tribunal in India to disallow a fugitive economic offender from defending any civil claim, and extending this harsh treatment to companies and limited liability partnerships in which such individual is a promoter, majority shareholder or has controlling interest. These provisions may adversely affect other innocent investors and may be adjudged to be discriminatory, arbitrary or against the principles of natural justice.

Another important feature regarding the Bill is that the provisions of the Bill can override any other law in force. It is important to understand how this aspect of the Bill will affect the remedies available to secured creditors under existing laws such as the Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interest Act 2002, the Recovery of Debts due to Banks and Financial Institutions Act 1993 and the Insolvency and Bankruptcy Code, 2016. Confiscation of properties connected with the fugitive economic offender, which are already mortgaged with secured creditors, may adversely affect the secured creditors considering that, the properties, after confiscation, vest with the Central government free from encumbrances.

The Bill singularly targets fugitive economic offenders and brings together actions and penalties that are presently provided under different enactments such as the Prevention of Money Laundering Act 2002 and the Prohibition of Benami Property Transactions Act 1988. However, it is arguable as to whether such actions and penalties are sufficient to coerce fugitive economic offenders to return to India to face prosecution.

In order to achieve that, it would be far more prudent to revisit and strengthen our extradition laws and treaties with other countries.

The writer is a partner with Shardul Amarchand Mangaldas, Advocates & Solicitors, Chennai

Published on March 18, 2018
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