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The Fugitive Economic Offenders Act

The Fugitive Economic Offenders Act

The Fugitive Economic Offenders Act, 2018-

On 29th Jan,2018, PNB (Punjab National Bank) filed a criminal complaint with India`s federal investigative agency against three companies and four people, including billionaire jeweller Nirav Modi and his uncle Mehul Choksi, the managing director of Gitanjali Gems, saying they had defrauded PNB and caused a loss of 2.8 billion rupees ($43 million). In a regulatory filing on Feb. 14, the bank updated the sum involved in the fraud to 113.94 billion rupees ($1.77 billion),which it said was determined after further investigation at Mumbai's Brady branch. This fraud is done by Nirav Modi in 2011 who fraudently raised funds worth of Rs.12,636 crore from various public & privatesector banks by showing Letter of Undertaking (LOU) issued by Punjab National Bank.  The employees at PNB Brady House branch fraudulently issued a  LoU for 365 days without making any provisions for collateral andbypassing Core Banking System (CBS).

Similarly, The banks that lent money to Vijay Mallya for Kingfisher airlines alleged that Mallya had diverted 4000crs to places like Mauritius and Cayman Islands which are called tax havens.In 2010 signed a deed that allows SBI ownership of all trademarks and goodwill if the airline fail to repay the debts. Today the trademark and goodwill will get SBI 6 crore as against 1,600 crore that it has lent. Indian Overseas Bank – lent Rs. 108 crore, mortgaged two helicopters in 2008. Tragedy for bank is that the helicopters are not in flying condition. Bank of India - term loan to Mallya, the condition of the loan was that all sale proceeds and lease rents will be used to pay the loan back. The airline was grounded very next year and now bank had no means to recover the money.

The Fugitive Economic Offenders Act, 2018  aims to punish plunderers, who rob the banks and attempts to escape judicial orders by staying outside the jurisdiction of Indian Courts.  Enforcement Directorate will be the investigative agency under the Act.

The new legislation will prevent big economic offenders like Vijay Mallya and Nirav Modi from fleeing the country and evading the law. 

Both Mallya and Modi, wanted in cases being probed by the Central Bureau of Investigation (CBI), are out of India. 

The new law allows designated special court to declare a person as fugitive economic offender and to confiscate his property, including 'benami' ones. 

 

Why is there a need to enact the Act, inspite of having laws that deter Bank frauds and such illegal practices?

The answer lies in some alarming statistics. The number of fraud cases reported by banks, which generally averaged around 4,500 cases a year in the past 10 years skyrocketed to a shocking number of 5,835 cases in the year 2017-18. This year itself it has been estimated that the banking and finance sector has suffered losses of a staggering amount of Rs. 41,000 Crores due to frauds.1 As per the Ministry of External Affairs, over 30 people accused of various financial scams/frauds and under probes by the Enforcement Directorate/ Central Bureau of Investigation are currently absconding from India2. It is thus evident that despite the existence of various statutes and regulations, the same have failed or have been poorly implemented or simply inadequate to control white collar crimes.

 

Who is an economic offender?

A "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;

How is a person declared an economic offender?

A director appointed by Central Government will have to file an application to Special Court to declare a person as FEO.

The director has the authority to attach properties that the accused hold.

The court will issue a notice to the person.

Within six weeks the person will have to present himself in the court

If he fails to do so, he will be declared as a fugitive economic offender, and his properties will be confiscated.

The Special Court will appoint an administrator to oversee and dispose the property to satisfy the creditors’ claims.

 

Analysis -

The said Act provides for confiscation and subsequent disposal of properties (whether situated in India or abroad) on the mere declaration of an individual as a 'fugitive economic offender' if the individual fails to return to Indian jurisdiction. Such draconian measure would prompt an economic offender to present himself in front of court.

 

The Act gives Enforcement Directorate  ample power to search, seize and attach properties even without commencement of any proceedings. Further, the authorities may even dispose off the properties after a period of 90 (Ninety) days from the date of declaration of the fugitive economic offender. This norm does not lie in consonance with the basic principle of justice i.e. 'innocent until proven guilty'

Under clause 14, any court or tribunal may bar an FEO from filing or defending any civil claim before it. It may be argued that such a bar would violate Article 21 of the Constitution which states that no person (or company) must be deprived of the right to life or personal liberty( which includes right to access justice)

Conclusion

Considering the stringent provisions of the Act, any economic offender will be discouraged to flee India to escape the law. It remains to be seen that how much will the fraudsters fear the confiscation of their property.