Runaway Billionaire No More- Analysing the Fugitive Economic Offenders Ordinance, 2018

This post has been written by Saarthak Jain.

Recently, the Fugitive Economic Offenders Ordinance received the assent of the President. To the relief of many of his beleaguered debtors, liquor baron, Vijay Mallya, will be the first to be tried under this new law. On 18th June, the Enforcement Directorate moved a Special Court to initiate the process of getting Mallya declared as a ‘fugitive economic offender’ [“FEO”] as under the provisions of the ordinance and seek the immediate confiscation of his assets valued at over Rs. 12,400 crores. The ordinance aims to stop absconding high-value economic offenders from avoiding due process, by allowing the confiscation of their properties and assets. In this post, I seek to examine the provisions of this ordinance and analyze the legal issues presented by them.

Background

With financial frauds cropping up like mushrooms, it became apparent that the existing legal provisions to deal with absconding economic offenders were not adequate. In response, the Finance Minister, in his 2017 budget speech, first announced the Government’s intention to come up with a new law to take possession of properties belonging to such offenders. After the Nirav Modi- PNB fraud came to light in February 2018, the Union Cabinet cleared the bill and it was introduced in the Lok Sabha on 12th March 2018. Due to a logjam in the lower house, the Government decided to take the ordinance route. The ordinance received the assent of the President on 21st April and is now in force.

Key Features of the Ordinance

The ordinance defines a ‘fugitive economic offender’ [“FEO”] as an absconding individual against whom an arrest warrant has been issued for committing a scheduled offense, and the monetary value involved in the offense is equal to or more than Rs. 100 crore. The schedule of the Bill mentions 55 offenses under various legislations including the IPC, Prevention of Corruption Act, SEBI Act, and Prevention of Money Laundering Act [“PMLA”].

For the declaration of an individual as an FEO, the director or any person authorized by the director, is empowered to make an application to a Special Court as per the procedure contained in Section 4 of the ordinance. Further, the director has been given broad powers to attach the property of an individual even before the filing of the application under Section 4.

Upon declaration of an individual as an FEO, the Special Court may allow the central government to confiscate any property owned by the offender, free of any encumbrances. Moreover, Section 14 of the ordinance grants power to any court or tribunal in India to disallow the FEO or any company associated with from filing or defending civil claims.

Legal Issues

This law has attracted a lot of scrutiny due to the stringent action provided for under it. When the bill was introduced in the Parliament, an MP had raised an objection to the pre-trial confiscation of property as being violative of fundamental rights. Although the ordinance contains safeguards such as the right of hearing through counsel, serving of notice and an appeal mechanism, some of the provisions might be challenged as being ultra vires the Constitution.

For instance, Section 5(2) of the ordinance empowers the Director to attach any property for which there is a reason to believe that it is a proceed of crime or is owned by an FEO, and which may be dealt with in a manner that would result in its unavailability for confiscation. However, such measures are well-accepted and should withstand any constitutional challenge. Preventive detention is allowed under other legislations in India such as the COFEPOSA, and its constitutionality validity has been upheld by the Supreme Court in Dropti Devi v. Union of India. Further, Section 5 of the PMLA contains a similar provision for the attachment of such property that is believed to be a proceed of crime. As to non-conviction based asset confiscation, such measures have been accepted in the UN Convention against Corruption which was ratified by India in May 2011.

Furthermore, there are concerns over the provision that allows any Indian court to bar the FEO from bringing or defending civil claims. This disentitlement may also extend to any company or LLP if its promoter, key managerial personnel, majority shareholder or any individual exercising controlling interest in the LLP has been declared as an FEO. In the writer’s opinion, such absolute power to disallow civil claims violates an individual’s right to access justice. This right has been read into Article 14 and 21 of the Constitution by the Supreme Court in Anita Kushwaha v. Pushap Sudan. By granting such absolute discretion to the courts, the provision violates the fundamental right of an individual to bring a civil claim and seek justice. Therefore, it would be interesting to see how the Courts interpret this provision.

Comment

Apart from the constitutional challenges, the ordinance might face challenges in its efficient implementation. For instance, this ordinance does not lay down a specific time frame for the Special Court’s proceedings. Such time frames are crucial to prevent unnecessary delay in the declaration of an individual as a ‘fugitive economic offender’ and the subsequent confiscation of property.

In my opinion, this ordinance has the potential to deter economic offenders who attempt to evade the process of law by remaining outside the jurisdiction of Indian Courts. The existing legislations for attachment and confiscation of property are inadequate and involve several procedural defects, which the new law seeks to remedy. Further, legislations like the PMLA only allow for the confiscation of property which is a proceed of crime, meaning the property which is derived or obtained as a result of criminal activity. The new law brings within its ambit all property of an economic offender, regardless of whether or not it is a proceed of crime.

However, the law, in its current form, could be vulnerable to constitutional challenges, and the Government might have to tweak provisions relating to the power to disallow civil claims. It remains to be seen whether the FEO ordinance will be able to achieve its objective. What can most certainly be expected, however, is a judicial scrutiny of this law in the near future.

4 thoughts on “Runaway Billionaire No More- Analysing the Fugitive Economic Offenders Ordinance, 2018

  1. How according to you is the confiscation of all economic property a good measure considering that Right to Property is a constitutional right and the ordinance does not give any rationale as to when or what kinds of property will be confiscated.

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    1. Hey,
      I believe there are sufficient safeguards to ensure that the provision for confiscation of all property of an FEO is not misused. Sec 12(3) of the ordinance provides that the confiscation order of the Special Court identify properties that constitute proceeds of crime to the extent possible. If this cannot be done, then the value of the proceeds of crime must be quantified. The Special Court is required to separately list any property which is not a proceed of crime but is being confiscated. Further, the ordinance provides for exempting such property from confiscation in which any person other than the FEO has a bonafide interest. Therefore, the ordinance makes it clear that the confiscation is permissible only when a Special Court is satisfied that an individual is a fugitive economic offender and moreover, an attempt has been made to ensure that the property confiscated is a proceed of crime to the extent possible.

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  2. Thought-provoking analysis, Saarthak.

    Recently, I also develop a great level of (new-found) interest in legal studies and this initiative will surely help me.

    Now, I know this blog is to give uber-intellectual analysis of recent developments in India regarding law domain, however, can you people also write some (say, 2-3) articles on aspects related to “common” law knowledge such as ‘CRPC’ (specifically on arrest and detention process – like how sometimes police will arrest any person and that person, who is illiterate as far as law procedures, frets and freaks out seeing a policeman out at his door), ‘discovery and interrogation’, and similar topics ).

    If possible, please provide insightful comments on such topics too. Good luck to you and your team!

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    1. Hi Pratik! Thanks for your good wishes. I’ll keep your interests in mind and try focussing upon preventive detention and search & seizure procedures in my later posts. Meanwhile, feel free to contact me with any queries in this regard. Once again, thanks for your encouragement 🙂

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