Will the Fugitive Economic Offenders Bill Deliver Justice?

NEW DELHI: The past few years have seen a sharp rise in fugitive economic offenders. People like Vijay Mallya, Mehul Choksi, and Nirav and Lalit Modi have renewed a precedent for escaping the country to avoid prosecution.

The Fugitive Economic Offenders (FEO) Bill, 2018, passed by Parliament in the monsoon session intends to address this problem. The intention behind the Bill is correct but a close analysis shows that it is a redundant piece of legislation, neither ensuring that fugitives do not escape the country, nor compelling them to return to India to face prosecution.

Once a person has escaped the country, it becomes difficult to prosecute them because of the principle of territoriality, by which only courts in the country where the offence was committed have jurisdiction to prosecute the offender. Despite the enactment of the Extradition Act, 1962, and a comprehensive extradition policy, India has a poor record of successful extraditions.

The process of extradition is cumbersome as a request must first be contested in foreign courts, and extradition is granted only if that court positively adjudicates on the matter.

The United Kingdom, where Mallya and Lalit Modi are reported to be living at present, is a prime example of this tortuous process, as evidenced by the UK court’s concerns about ‘the conditions of Indian prisons and chances of an unfair and prejudicial trial’ during proceedings to extradite Mallya.

Choksi, meanwhile, escaped India and smoothly acquired citizenship of Antigua and Barbuda. Claims that he received police clearance and a verification certificate (into which investigations have now been initiated) suggest corruption at high levels and worse, assistance from the authorities to facilitate his escape.

Yet the FEO Bill does not mandate the return of fugitives or impose penalties upon those who refuse to return. It only states that failure to appear for a hearing will result in the person being declared a fugitive economic offender, and his or her property will be liable for confiscation.

It defines an offender as one “against whom a warrant for arrest” has been issued by the court and who has left India to avoid criminal prosecution, or refuses to return for prosecution, when the total value of the offense is at least Rs 100 crores. The empowered authorities and Special Court are the same as those under the Prevention of Money Laundering Act (PMLA).

The Bill applies to certain ‘scheduled offences’ that contain penalties in their parent statute, such as the Indian Penal Code and the Central Excise Act. But there already exist punitive measures for absconders under the Code of Criminal Procedure, which contains provisions permitting the attachment or seizure of the property of absconders who do not arrive at the hearing and have a warrant of arrest issued against them.

This provision can be applied to fugitive economic offenders as well. Therefore, the Bill does not add a new dimension to the existing law.

Nor does the Bill set itself apart as a special legislation addressing offences committed by fugitives; this is already dealt with in other procedural laws. The only, minute difference is that the trial of offences under the Bill would be by the Special Courts rather than the trial courts, and the process of issuing a warrant and attaching property is quicker in the Bill as compared to the time taken by a regular trial court.

Another drawback of the Bill is the prohibition on offenders from contesting any civil claim in civil proceedings instituted before any court or tribunal; any company in which the offender holds a key managerial position is also disentitled to fight such claims. Such a blanket prohibition is against the principles of natural justice. The right to a hearing is given to avoid arbitrary or illegal action, and denial of such a right is unfair as there is no opportunity to defend oneself.

Under Article 21 of the Constitution, the right to access justice comes under the purview of the right to life and liberty. Therefore, disallowing offenders from contesting civil claims can be a violation of the Constitution and the principles of natural justice, rendering actions under the Bill liable to be struck down.

Another problem with the Bill is the harm inflicted upon unrelated parties. Interested parties barring the offender have to prove that the property in question is not “proceeds of the crime” and was acquired through bona fide means. It places an unfair burden upon a third party, which is difficult to discharge.

There are already laws permitting the seizure and attachment of the property of a person who commits corporate fraud. The SARFESI Act, 2002 pertains to the recovery of loans by creditors against secured assets of the borrowing if the borrowers cannot repay the loan. The creditor can also take over management of the borrower’s business. The PMLA too empowers the Enforcement Directorate to attach property that is the proceeds of a crime and which could be concealed, transferred or dealt with in any manner frustrating the proceedings of the confiscation of such property.

The RDDBFI Act, 1993 permits the Debt Recovery Tribunal to recover secured debts by attaching and selling the borrowing if the defendant is attempting to obstruct, delay or frustrate attempts to recover the debt. The Insolvency and Bankruptcy Code, 2016 creates separate insolvency resolution processes for companies and individuals, with a maximum time limit for the resolution process.

Between August and December 2017, financial creditors were able to recover 33.53% of total claims. Since the introduction of the Code, there has been a rise in the recovery of claims and bad loans by creditors and it is an important economic reform to tackle the rise of bad loans.

Therefore, the FEO Bill is redundant and a legislative smokescreen. Existing laws contain provisions to tackle corporate fraud and loan default, and to confiscate the property of absconders. The Bill mirrors the PMLA and does not bring anything new to the table.

Currently the biggest hurdle is the refusal of fugitives to return and the Bill does nothing to solve this pressing issue.

Instead of enacting another law, the government should formulate terms of global cooperation to extradite fugitives back to India, and initiate proceedings for prosecution at the earliest appropriate stage. What is needed urgently is for India to strengthen other governments’ cooperation with Indian investigations into fraud, to enable favourable verdicts from foreign courts, such as UK Judge Andrew Henshaw’s upholding India’s global freezing order on Mallya’s assets worldwide.

(Prachi Dutta is an undergraduate student at the Jindal Global Law School).