A man in handcuffs is seated in a car by police in Des Moines, Iowa, U.S. (Photographer: Daniel Acker/Bloomberg)

Cabinet Approves Fugitive Economic Offenders Ordinance

The Union Cabinet on Saturday recommended The Fugitive Economic Offenders Ordinance 2018 to the President of India for promulgation. The ordinance intends to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts. In March, the Cabinet had approved a draft version of The Fugitive Economic Offenders Bill, that would be applicable for offences with a monetary value of over Rs 100 crore. The bill could not be passed in the Budget Session of Parliament due to a logjam over various issues.

Senior Advocate Vikram Nankani had called the draft Bill a populist move by the government.

We can understand that the intent of government is to chase the defaulters and bring them to justice and this seems to be a desperate measure to do it. There are adequate provisions under existing laws which can be used to attach properties of defaulters. So, this is just another leaf of the same book.
Vikram Nankani, Senior Advocate, Bombay High Court

What Is The Existing Law?

Currently, the two laws that already provide for powers to seize proceeds of crime are the Code of Criminal Procedure and the Prevention of Money Laundering Act.

The criminal procedure code has provisions using which a court can declare a person an absconder.

If that person fails to appear before the court, the law allows for attachment of his property.

The anti-money laundering law gives the Enforcement Directorate powers to seize, provisionally attach and freeze properties if it’s a proceed of crime i.e. any property derived or obtained as a result of a criminal activity. Such property can continue to remain in Enforcement Directorate’s custody for a maximum of 180 days unless an order is obtained from the adjudicating authority for extending this time period.

Further, if the Directorate is convinced that a person has committed the crime of money laundering, it can direct confiscation of the property.

But the existing provisions are not sufficient, Senior Advocate Sidharth Luthra had told BloombergQuint. He had pointed out that PMLA applies to a limited list of offences. And under the CrPC assets seized can be released, if they haven’t been sold, once the person returns to the country.

How’s The New Law Different?

The government is yet to notify the final version of the ordinance but the draft, made available last month, defines ‘fugitive economic offender’ as any individual against whom a warrant for arrest in relation to a scheduled offence has been issued by any court in India and who:

  • (i) leaves or has left India so as to avoid criminal prosecution; or
  • (ii) refuses to return to India to face criminal prosecution.

The definition is similar to the ‘proclamation for person absconding’ provision under the criminal procedure code.

If any Court has reason to believe (whether after taking evidence or not) that any person against whom a warrant has been issued by it has absconded or is concealing himself so that such warrant cannot be executed, such Court may publish a written proclamation requiring him to appear at a specified place and at a specified time not less than thirty days from the date of publishing such proclamation.
Section 82(1), Code of Criminal Procedure

The new bill, however, differs from the existing provisions in one aspect and that is what property can be attached and confiscated.

Currently, the PMLA applies to property which is a result of a proceed of crime of money laundering. Under this law, if proceeds of crime is outside of India, the Enforcement Directorate can move against property equivalent in value. Simply put, if property X in London is a proceed of crime, property Y in India which may not be a proceed of crime and of equivalent value, can be attached.

But Luthra had pointed out that investigation agencies have found it hard to implement the equivalence principle.

The argument in relation to proceeds of crime was used to say that if the original asset exists, then you have to go after the original asset and you can’t go for equivalence. It is only when the original asset is extinguished or destroyed or not available—for example money put in share market is lost—only then you can go after equivalence because the original money cannot be gained as the shares may have become valueless.
Sidharth Luthra, Senior Advocate, Supreme Court

The Fugitive Economic Offenders Bill definition includes property which is a proceed of crime – whether or not owned by the fugitive economic offender. It also includes any other property in India owned by a fugitive economic offender.

Luthra had explained that the new bill seeks to fill a gap that exists under PMLA.

Under the new law, the money which is being parked abroad, all you have to show is that money has gone abroad and then you can attach the assets in equivalence in India. You don’t have to prove the non-existence of the assets. You have to prove the non-availability and limited access because it is abroad and that’s the clear distinction in these two pieces of legislation.
Sidharth Luthra, Senior Advocate, Supreme Court

Will Going After The Company Help?

The new law also intends to go after a fugitive economic offender through his or her companies. The draft Bill has proposed that if any promoter, key managerial personnel, or majority shareholder of a company has been declared a fugitive economic offender, that company cannot pursue or defend any civil claim.

Nankani viewed this a legislative sanction for lifting the corporate veil or reverse piercing of the corporate veil.

If you have a person who is defaulter and runaway, so for his act of omission you are trying to penalise the company. This procedure stretches beyond the legal principle that a company and the individual are two separate entities. The company’s property is company’s property and the individuals including the shareholders have no interest in that. This tries to overcome that legal principle.
Vikram Nankani, Senior Advocate, Bombay High Court

AS Chandhiok, former Additional Solicitor General and senior advocate had pointed out that this provision will need reconsideration.

Access to justice is something which I am entitled to. Assume I am a fugitive economic offender or economic offender – how can you bar my company from making a recovery in any civil claim. You can pass a garnishee order but please don’t bar his claim. Who else will do it on the company’s behalf?
AS Chandhiok, Senior Advocate, Supreme Court of India

“You can say that the government will be entitled to confiscate a successful civil claim but you cannot bar the company,” Chandhiok added.