FUGITIVE ECONOMIC OFFENDER-MEANING-S 2(F)
A ‘fugitive economic offender’ (FEO) as a person against whom an arrest warrant has been issued by any Indian court for committing a ‘Scheduled Offence’ and;
He has either left India to avoid criminal prosecution, or being abroad, refuses to return to India to face criminal prosecution.
The Act adds a Monetary threshold that the value of such Scheduled Offence must be at least Rs. 100 crores.
OFFENCES LISTED UNDER THE SCHEDULE OF THE ACT
Counterfeiting, forgery, fraudulent removal of property and cheating under the Indian Penal Code, 1860.
Dishonor of cheque under the Negotiable Instruments Act, 1881;
Offences under the Reserve Bank of India Act, 1934;
Taking of gratification to influence a public servant under the Prevention of Corruption Act, 1988;
Money laundering offences under the Prevention of Money Laundering Act, 2002;
Fraud under the Companies Act, 2013; and
Defrauding creditors under the Insolvency and Bankruptcy Code, 2016.
The Fugitive Economic Offenders Act, 2018 (FEO) Objectives;
Deter fugitive economic offenders from evading the process of law in India by staying outside the jurisdiction of Indian courts, to preserve the essence and effectiveness of the rule of law in India and for matters connected therewith or incidental thereto.
Aims on confiscating the offender's property not only within the territorial limits of India but also outside India as well, acquired both from legitimate as well as illegitimate means.
The FEO extends to the whole of India. It came in to effect on 21 April 2018. It applies to any individual who is, or becomes, a fugitive economic offender on or after the above date.
Fugitive Economic Offender “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) leaves or has left India so as to avoid criminal prosecution; or (ii) refuses to return to India to face criminal prosecution.
Proceeds of Crime “Proceeds of Crime” means any property derived or obtained, directly or indirectly, by any person from any criminal activity relating to a scheduled offence or the value of such property or where such property is outside the country, then the property equivalent in value held within the country.
Section 2(1) (m), the FEO is applicable when the amount involved in the offence or offences is one hundred crore rupees or more and the offence is specified in the schedule.
Specified offences under the (i) the Indian Penal Code, (ii) the Negotiable Instruments Act, 1881, (iii) the Reserve Bank of India Act, 1934, (iv) the Central Excise Act, 1944, (v) the Customs Act, 1962, (vi) the Prohibition of Benami Property Transactions Act, 1988, (vii) the Prevention of Corruption Act, 1988, (viii) the Securities and Exchange Board of India Act, 1992, (ix) the Prevention of Money Laundering Act, 2002, (x) the Limited Liability Partnership Act, 2008, (xi) the Foreign Contribution (Regulation) Act, 2010 (xii) the Companies Act, 2013, (xiii) the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.The Insolvency and Bankruptcy Code, 2016 and (xv) the Central Goods and Services Tax Act, 2017.
The Act provides for the Director can make an Application before the Special Court for a declaration that an individual is a fugitive economic offender on a reasonable belief;
Act enables the attachment of the property of a fugitive economic offender;
Issue of a notice by the Special Court to the individual alleged to be a fugitive economic offender Confiscation of the property of an individual declared as a fugitive economic offender resulting from the proceeds of crime;
The Act states that all the rights and title in the confiscated property shall, from the date of the confiscation order, vest in the Central Government, free from all encumbrances and disentitles the fugitive economic offender from defending any civil claim.
It provides the appointment of an Administrator to manage and dispose of the confiscated property under the Act.
If at any point of time in the course of the proceeding prior to the declaration, however, the alleged Fugitive Economic Offender returns to India and submits to the appropriate jurisdictional Court, proceedings under the proposed Act would cease by law.
All necessary constitutional safeguards in terms of providing hearing to the person through counsel, allowing him time to file a reply, serving notice of summons to him, whether in India or abroad and appeal to the High Court have been provided for in the act so as to maintain the constitutionality of the Act and not to breach the general law and rights of the accused as reiterated by the courts through judicial pronouncements from time to time.
THE POSITIVITIES OF FUGITIVE ECONOMIC OFFENDERS ACT
The Act helps the banks and other financial institutions to achieve higher recovery from financial defaults committed by such fugitive economic offenders, by improving the financial health of such institutions.
The Act has provides for a ‘Special Court’.
The feature of the Act is that it permits the Central Government to confiscate the property of economic offenders absconding from India until they submit to the jurisdiction of the appropriate legal forum.
The Act provides for confiscation of property upon a person being declared an FEO. This differs from other laws, such as Criminal Procedure Code, 1973, where confiscation is final two years after proclamation as absconder.
The FEO provides for the appointment of an administrator to manage and dispose of the confiscated property in order to raise funds which would be utilized for payment to the creditors within a time bound period.
The FEO is expected to re-establish the rule of law as the fugitive economic offender will be forced to return to India and face trial for his offences.
The Fugitive Economic Offenders Act does:
Provides for a method of deterrence for those fraudsters who commit crimes in India and hide in a safe haven in a foreign country.
The act has definitely made an improvement in the criminal prosecution scenario since it is very rampant for economic offenders to flee the country and take advantage of the loopholes in the extradition process of the country.
This act empowers the authorities to confiscate and sell the properties in question to realise the money in default in the fastest possible method.
The act has also included within its ambit, the properties which are situated in abroad as well those which are a part of the benami transactions, thus hastening the process of recovery and realisation.
Further in order to avoid any kind of delays due pendency of cases, the act prevents the FEO from filing any civil claim or defend any claim before the Courts.
To balance such prevention, it has been endowed as a discretionary power on the Courts or Tribunals in India.
Thus "any Court or tribunal in India, in any civil proceeding before it, may, disallow such individual from putting forward or defending any civil claim".
The act also further refers to the creation of a Special Court under the Prevention of Money Laundering Act, 2002 to provide speedy justice to the financial institutions and banks while making their recovery.
Though, at the primary instance, the provisions of the act might seem to violate the rules of Natural Justice.
Under section 15 of the act, the appointed administrator, can dispose off the property on the order of the Central Government.
It is violative of the rule that one is innocent until proven guilty. If the other party does not submit himself to the jurisdiction of Indian Courts, then he does not get an opportunity to defend himself before the courts.
Thus, his inability to submit himself before the court, might lead to a wrongful disposal of the property by the Government, thus also not complying with rule of Audi Altrem Partem.
Further the burden of proof for parties having encumbrances on the properties confiscated lies on the interested parties themselves.
Here, looking at the volume of money involved to be declared as an FEO, it would be taxing for the third parties to prove that interest in the property acquired is bona fide and without the knowledge of the fact that such property constitutes from the proceeds of crime.
Discharging the burden of proof might become an insurmountable challenge for the third party who unknowingly ends up assisting in the execution of such crime without being aware of the same.
Article 21 of the Constitution provides for the Right to access Justice.
Section 14 is in violation of the aforementioned right. It gives the power to any Indian Court or Tribunal to disallow filing or defending of civil claims.
Thus barring these claims may result in the violation of right to access justice, thus further violating the fundamental rights of the FEO.
Further, the act allows for search and seizure of any questionable material as well as search of persons which is same as the Criminal Procedure Code.
Though, in the CrPC, it has been clearly provided by the legislators that in order to arrest someone, an prior arrest warrant has to be obtained as well where a search is being conducted, the presence of witnesses is a must.
The same has been provided by the legislators keeping in mind that the entire process of enquiry and investigation should be free, fair and transparent.
Such steps keeps the authorities at bay and prevents events such planting of evidence which could change the outcome of the entire investigation.
In this act of 2018, such procedural requirements such as presence of witnesses have been done away with the objective of speeding up the entire process of declaration of an individual to be a Fugitive Economic Offender.
Thus, it might lead to misuse of power by the concerned authorities as well lead to serious offence of planting evidence.
KEY ISSUES AND ANALYSIS
Barring persons from filing or defending civil claims may violate Article 21
Under Clause 14, any court or tribunal may bar an FEO from filing or defending any civil claim before it. Further, the Bill allows courts to bar a company from filing or defending any civil claim before it if the promoter, key managerial personnel (such as manager or CEO), or majority shareholder is an FEO. It may be argued that such a bar could violate Article 21 of the Constitution. Article 21 states that no person (or company) can be deprived of their right to life or personal liberty, except by law.Courts have interpreted this to include the right to access justice, which cannot be taken away. This right includes the availability of a forum which aggrieved persons may approach to seek legal remedy. The question is whether a bar on filing and defending claims would violate this right.
For instance, an individual who is declared an FEO may be involved in a marriage suit or inheritance dispute. Under Clause 14, courts are allowed to bar the individual from exercising his right to file or defend such a claim.
Use of sale proceeds from confiscated property not specified
The Act specifies that an FEO’s properties will be confiscated and vested in the central government, free of encumbrances (claims or rights in the property). The central government may dispose of the properties after 90 days. The Act does not specify how the central government will use the sale proceeds. That is, would the government be obliged to share the sale proceeds with persons who may have a claim against the FEO.
Under the Bill, the Special Court may exempt certain properties from confiscation if a person shows his legitimate interest in these properties. For example, this may cover secured creditors who have claims against specific properties of the FEO. The Bill does not require the confiscated properties to be used to settle dues of other claimants (for example, unsecured creditors or persons claiming unpaid wages). In contrast, the Insolvency and Bankruptcy Code, 2016 specifies that sale proceeds from the property of the defaulter will be distributed among all claimants according to an order of priority.
Provisions related to search may not contain safeguards
Under the Bill, authorities may search a person or premises on the belief that a person may be declared an FEO or has proceeds of crime. The Bill allows a search to be conducted without a search warrant or witnesses. This differs from other laws, such as the Code of Criminal of Procedure (CrPC), 1973, which provide certain safeguards.
Section 94 of the CrPC, 1973 permits a search to be conducted only if a warrant has been issued by a Magistrate. Further, Section 100 requires the presence of two or more independent witnesses while authorities search premises. Typically, other laws such as the Prevention of Money-Laundering Act, 2002 and Securities and Exchange Board of India Act, 1992 follow these procedures specified in the CrPC, 1973 in case of a search. These safeguards seek to protect against instances of harassment of persons or cases where evidence may be planted against the accused.
For any democracy to function smoothly it is very important that there are due checks and balances on the functioning of the different law enforcement agencies in the country. In the last few years, the Directorate of Enforcement (ED) has come to light due to its pursuit against the economic offenders in India. This has brought up a lot of issues with respect to the powers and functioning of the ED under scrutiny.
The ED is a multi-disciplinary association delegated with the task of securing proceeds of crime under various financial laws, such as – Foreign Exchange Management Act, 1999 (FEMA) and Prevention of Money Laundering Act, 2002 (PMLA),Fugitive Economic Offenders Act 2018 and more recently the Fugitive Economic Offenders Act, 2018 (FEOA). The main functions of ED under these laws are: -
To Investigate the contravention of provisions of any law resulting in financial fraud/crimes like Hawala transactions, money laundering, financing terrorist activities or others affecting the sovereignty and integrity of the nation;
To Confiscate or attach the properties and other proceeds of crime on sufficient evidences under the FEMA and PMLA;
Prosecuting the suspected offenders and bringing them to justice under all the laws;
Rendering cooperation to the foreign countries regarding fugitive economic offenders according to the recently enacted law of FEOA.
And all other powers of investigation like summons, search and seizure etc conferred on an Income Tax Authority under the IT Act, 1961.
To realize penalties imposed on conclusion of adjudication proceedings.
To provide and seek mutual legal assistance to/from contracting states in respect of attachment/confiscation of proceeds of crime as well as in respect of transfer of accused persons under PMLA.
The ED established under Sec 36 of FEMA is empowered to exercise powers and discharge duties as provided under Sec 37 of the said Act, which stipulates the extent of such powers of the officers, as observed by the High Court of Delhi in Suman Sehgal vs Union Of India (UOI) And Anr.
For smooth functioning of ED office, Central Government under Sec 49 of PMLA can appoint the authorities as Director, Additional Director, Joint Director or Assistant Director etc. to exercise the powers and discharge duties conferred under Sec 50 of the Act, subject to limitations by Central Government. Delhi HC in Virbhadra Singh & Anr vs Enforcement Directorate & Anr. observed that it could be assessed that the scheme of PMLA is to create a machinery for investigation and enforcement outside the general system of investigation of crimes by police agencies. The powers of survey, search and seizure, search of persons, retention of property or of records, to issue summons to enforce attendance of any person and compel him to give evidence or produce records, discovery or inspection, as indeed the power to arrest, as conferred by various provisions of PMLA on the investigative agency created by the law equip such agency with all the necessary tools to conduct an effective investigation without the aid or assistance of police. For purposes of criminal prosecution, the initiative is placed in the hands of the authorities established by PMLA, the cognizance by the court mandatorily required to be on their complaint.
What counts as arbitrary power?
Indiscriminate, Uninformed & Subjective exercise of the power, entrusted by law results in domination by the authority, making them use such powers in a non-judicious and arbitrary manner. While drafting the laws, an important caution taken by a legislator is to prevent any abuse and misuse of power under the enacted law.
The powers of enforcement are inevitably attached to the duties of caution, due diligence, prima facie evidence against the suspect or an immediate danger to the investigation to take necessary stringent action against the suspected offender. But when these powers are not enforced in their limits, it results in undue harassment to the innocent people, without no fault of their own. One such example is the Banking sector.
In the case of State Bank of India vs The Joint Director, ED, where even after due diligence and compliance with all mandatory RBI guidelines, the bank, as a matter of practice, was advancing loans against mortgage of property. This as per them was their primary source of recovery in case the repayment is not done on time. But the ED in the ongoing case kept on attaching such property without so much as a consideration towards the financial repercussions of this on the banks, who have that property as a security of their loan amount. However, when the matter was appealed, the judgment of the appellate tribunal came as a big relief to the banking sector as it was held that the banks have a priority over the mortgaged property to recover its loan amount unless there is an illegality in the title of the borrower/ suspect. The ED cannot per se attach any such property mortgaged to banks, especially in case where the transaction with the bank took place way before the alleged crime thus implying the property as not being a proceeds of crime and has a proper documentation and a clear title in the name of borrower.
This puts the conduct of banks under the light of bonafide and at the same time puts an extra onus on the banks, in today’s digital era of fake documentations, to show its due diligence and exercise detailed verification of the source of acquisition of impugned property. At the same time ED should keep a check on the abuse of its powers and must establish a strong reason to believe against the suspected offender to proceed against him. Officers of the ED who have been designated with powers under the PMLA are a creation of the statute and have to perform their duties and execute their powers within the confines of the Act.
As a practice, while analysing a few judgments the ED has been given the power to take the custody/ remand of the offender considering the gravity of offence in the garb of effective investigation, ignoring completely the fact that EDs are not covered under the definition of ‘Police Officer’ under the Police Act, 1861.
Further, in a 2018 judgment by Delhi High Court, ‘an important question was referred to the higher bench that are the powers of a Police Officer to get information and investigate under the provisions of Cr.P.C. apply to the enforcement authority under PMLA and to what extent?’ which still remains a question to be settled by the court.
After a conjoint reading of various judgments and considering various provisions of both the laws, it was observed that the provisions of Cr.P.C. apply to the PMLA so far as they are not inconsistent with the procedure under the PMLA Act and thus the ED is also bound by the duties of a Police Office, while making arrests, though they cannot be deemed to be a police officer in absence of any effective provision in this regard.
The process of complaint and adjudication
“PLMA Act is a complete Code which overrides the general criminal law to the extent of inconsistency establishing its own enforcement machinery and other authorities with adjudicatory powers and jurisdiction. The enforcement machinery is conferred with the power and jurisdiction for investigation, such powers being quite exhaustive to assure effective investigation and with built-in safeguards to ensure fairness, transparency and accountability at all stages. The powers conferred on the enforcement officers for purposes of complete and effective investigation include the power to summon and examine any person.”
When a complaint in writing is filed before the adjudicating authority by an authorised officer, an inquiry is conducted against the person who is alleged to have contravene the provisions of FEMA. The said person is given a reasonable opportunity of being heard by a notice, to show cause within a specified period, usually not less than 10 days, as to why the authority should not proceed against him under Sec 13 of FEMA by imposing penalties. If the authorities are not satisfied with the reply, a summon may be issued to the said person for requiring his presence before the said Assistant Director or for presenting any document or evidence as considered relevant for the inquiry.
“Summons” means a call of authority to appear before a Judicial Officer. If the said person fails to appear before the adjudicating authority on such summons, they may proceed in his absence and on being satisfied with the evidence, may impose penalty under Sec 13 of FEMA and in addition to that may direct any currency, security or property to be confiscated to the Central Government.
When the Director or Assistant Director of the ED summons an individual under Section 37(3) of FEMA, the individual summoned cannot challenge the issuance of the summons by the ED in the Court of law by way of a writ petition.
The Madras High Court in KA. Manshoor Vs. Assistant Director, Enforcement Directorate, Government of India has stated that, “the attempt by the petitioner to stall the summons issued by the ED has to be necessarily rejected”.
Inability to appear on summons before the ED would prompt serious punishment under Section 13 of FEMA for having negated the provisions of Section 37 of FEMA by the suspect. A Show Cause Notice is issued to the individual who has previously neglected to appear before the ED, by the Adjudicating Authority. Section 13 enforces a penalty of up to thrice the sum involved in case of breach of any provision of FEMA where such amount is assessable, or up to two lakh rupees where the amount is not assessable, and where such breach is an ongoing one, further penalty, which may range to five thousand rupees for every day after the first day during which the breach continues.
Issues and Challenges
As the guiding principle of our courts “Let a hundred guilty be acquitted, but one innocent should not be convicted” goes, the powers of ED if are not constrained, must at least not be used arbitrarily, else it can easily turn into harassment of innocent citizens.
The Enforcement Directorate is obliged to establish that defense is not prejudiced in any way. Any discrepancies, contradictions and vagueness apart from non-adherence to principles of natural justice has not affected the due process of fair investigation and trial. Sufficient evidence and a reason to believe must exist before sending a show cause notice. The power to provisionally attach, seize or freeze a property can only be exercised, if the officer has enough material in his possession with a reason to believe and only after recording the reason in writing that such property is a ‘proceeds of crime’ or related to crime.
The parliament did not confer upon the ED any powers to attach or freeze assets on a mere suspicion. The authorities cannot bypass the legislative intent using the tool of arbitrary discretion but should abide by the legal provisions. After the inquiry and investigation, if no charges are found against the suspect, the ED is liable to return the confiscated money and property back to him.
As shown in the above stated case laws, although the legislators have tried to create a clear demarcation as to what are the extent of powers to be used by the authorities, the Enforcement Directorate have time and again become blatantly ignorant towards it.
Section 65 of PMLA has been under scrutiny for long, it being one of the means of exploitation by the authorities. It gives them the opportunity to pick and choose the provisions they want to apply as convenient to them either under CrPC or PMLA.
The 2019 PMLA Amendment Act deletes the proviso contained in Sections 17(1) & 18(1) and empowers the ED to enter any property for purpose of conducting search and seizure even in the absence of a report under Section 157 of CrPC i.e. reporting of a scheduled offence to a Magistrate or any other competent authority in this regard. This amendment broadens the existing powers of the ED under PMLA by bringing Sections 17 and 18 at par with Section 19 – where there is no pre-condition to forward a report under Section 157 CrPC or to seek warrants from the Court for making an arrest. An arrest can be made for an offence under the PMLA even in the absence of a First Information Report (FIR). This calls for necessary supervision over the exploitation by the hands of the enforcement authority thereby not giving more ammunition to an already igniting flame.
COMPARISON OF FEO AND EXISTING LAWS ProvisionThe Fugitive Economic Offenders Bill, 2018Current LawsAbscondingA person may be declared an FEO if he leaves the country and refuses to return to face prosecution. He may be asked to appear at a specified place at least six weeks after notice.CrPC: Section 82 allows a Court to issue a proclamation requiring a person evading a warrant to appear at a specified time and place at least 30 days after notice.AttachmentA person’s property may be attached for 180 days. Attached properties may include those believed to be proceeds of crime and benami properties.CrPC: Section 83 allows properties of absconders to be attached. PMLA: Section 8 allows attachment of properties which are proceeds of crime.Confiscation or recoveryAn FEO’s property may be confiscated and vested in the central government, free of encumbrances. The central government may dispose this property only after 90 days. The Special Court may exempt certain properties from confiscation where any other person has a genuine interest. CrPC: Section 85 allows attached property to be sold by the state government after six months. It will have to return the property or proceeds if the absconder returns within two years. PMLA: Section 8 allows a person’s property to be confiscated upon conviction, or if trial cannot be concluded. Such property will be vested in the central government, free of encumbrances. SARFAESI: Under SARFAESI, creditors can take possession of collateral without court intervention.Search and seizureAuthorities may search premises and persons on the belief that a person may be an FEO, or has proceeds of crime, among others. They may also seize documents. While searching a person, if the person requires, authorities may take him to a gazetted officer or a Magistrate, within 24 hours.CrPC: Under Section 100, authorities may conduct a search. The search will have to be conducted in the presence of two witnesses, upon issuance of a search warrant. Provisions related to search under CrPC followed in other laws such as: (i) the PMLA, (ii) the Securities and Exchange Board of India Act, 1992, (iii) the Central Excise Act, 1944, (iv) the Companies Act, 2013, and (v) the Central Goods and Services Tax Act, 2017. PMLA: While searching a person, if he so requires, authorities may take him to a gazetted officer or a Magistrate, within 24 hours.
The Fugitive Economic Offenders Act has been enacted to facilitate the functioning of the Prevention of Money Laundering Act, 2002. The proceedings commenced under the former will come to an end as soon as the economic offender submits himself before the jurisdiction of the Indian Courts.
Thus, this is an act, to bring back the economic offenders to the country. The act facilitates the recovery of dues from these economic offenders by empowering the investigative agencies to confiscate and sell the properties.
It has come as a ray of hope for the banks and financial institutions who are primary victims of such offences. The Prevention of Money Laundering Act also provides for reciprocal arrangements and agreements with foreign countries to bring back these absconders. The primary setback behind the already existing law is that the same is very cumbersome and slow.
As a result, the recovery is delayed and banks are left with Non Performing Assets for years. The FEO legislation provides for the confiscation of property which is situated abroad. This piece of legislation would be ineffective unless the Government makes appropriate and suitable arrangement by means of treaties or other formal measures.
The Ministry of External Affairs has provided a list of 39 countries with whom India shares Mutual legal assistance treaties used for servicing all kinds of judicial documents. Thus, in order, to expedite the process of confiscation, more of such facilitation is required.
Further, special care also requires to be given to the extradition laws and treaties of the country to attain the objective of the act. To summarize, Government's initiative of introducing measures encapsulated under the FEO, can be regarded as the need of the hour. However, certain amendments/clarifications may be welcomed for effective implementation as it prescribes for a wholesome approach rather than concentrating on recovery from foreign assets.
Whether all this could have been achieved by making adequate/suitable amendments to the existing host of laws or aptly another law as proposed is required to efficiently tackle this menace.