(On 21 April 2018, the President gave his assent to the Fugitive Economic Offenders Ordinance 2018. The Ordinance, which will be in place for six months, is worded the same as the Bill which was sought to be introduced in Parliament, as a response to the Nirav Modi-PNB scam. In light of this development, The Quint is reposting this article which analyses the legality of the Bill, as the same flaws are found in the ordinance as well.)
Vijay Mallya. Lalit Modi. Nirav Modi. Mehul Choksi. Jatin Mehta. Ritesh Jain.
The list of such defaulters who’ve committed vast financial fraud and are now refusing to return to India to face justice, grows longer every day, it seems. With the unearthing of every new scam, the massive damage to the financial health of our banks becomes ever more apparent, and the government has been coming under increasing pressure to do something about all of this.
In response, the Fugitive Economic Offenders Bill 2018 (FEO Bill) was introduced in the Lok Sabha on 12 March 2018. The draft Bill was floated last year, but it has been projected as a strong response to the Rs 12,700 crore PNB scam. The government claims that it will:
"Deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts… to ensure that fugitive economic offenders return to India to face the action in accordance with law."
This would seem like a cause for celebration. Unfortunately, the proposed law contains some seriously problematic provisions that will surely lead to it being challenged in the courts and maybe even struck down for violating the Constitution and basic principles of natural justice.
What are the Problematic Provisions in the Bill?
1. Pre-Trial Confiscation of Property
When the Bill was introduced in Parliament, BJD MP Bhartruhari Mahtab opposed it, saying that: “Anyone can be prosecuted or property can be acquired without the person being found guilty. These provisions are against fundamental rights”.
He was making a reference here to the flagship provision of the Bill, which allows the Central Government to confiscate all properties belonging to a person declared as a “fugitive economic offender”. A fugitive economic offender is defined in section 2(f) as an individual:
- against whom an arrest warrant has been issued by any Indian court;
- for any offence listed in the schedule to the Bill (a collection of economic offences including cheating under the IPC, corruption under the Prevention of Corruption Act and corporate fraud under the Companies Act), where the value of the offence is Rs 100 crore or more; and
- who has left India so as to avoid criminal prosecution or refuses to return to India to face criminal prosecution.
Under section 12(2) of the Bill, once a person is declared a fugitive economic offender by a Special Court, that Special Court can order that any property of the offender, whether in India or abroad, is confiscated and belongs to the Central Government. This applies not only to properties which are the proceeds of the crimes committed by the fugitive economic offender, but also to other properties or benami properties owned by the offender.
While this may seem fair, especially since it involves a declaration from a Special Court, the reason Mahtab has pointed this out is because the whole process of declaration and confiscation can take place without the offender being tried and convicted of anything.
Note that this is not just attachment of property, where the CBI or ED seize properties while carrying out investigations so that the accused can’t sell off things involved in a crime. Confiscation means that the Central Government has the right to sell the properties, even those jointly owned by other people who are not fugitive economic offenders. Most worryingly, the ‘offender’ can’t even claim it back if eventually acquitted.
2. Disallowing Civil Claims
Citing a Supreme Court judgment from 2016, Mahtab also pointed out that “no one can be denied access to justice which is a facet of right to life under the Constitution.” Here, he was referring to the other significant problem in the Bill – taking away a person’s right to make or defend a civil claim in court.
Under section 14 of the Bill, courts and tribunals across the country will be given the power to disentitle anyone declared as a fugitive economic defender from filing or defending any civil case – even if that case has nothing to do with their alleged economic offence. This means that they can’t file cases, say, for breaches of contract against them. To make it worse, they can’t even defend themselves if someone else files a civil case against them, for instance for defamation or nuisance, which would mean they would automatically lose those cases.
On top of this, the Bill also says that if any representative, promoter, key managerial personnel, majority shareholder or owner of a controlling interest in a company or LLP is declared a fugitive economic offender, then the company or LLP can’t file or defend cases either. Again, this can be the case even if the company has nothing to do with whatever offence the fugitive is alleged to have committed.
Do These Provisions Make the FEO Bill Unconstitutional?
Commenting on the viability of the Bill, Mahtab said: “Prima facie, the provisions may seem very novel but it is unlikely to pass judicial scrutiny as it is based on premises of guilty till proved innocent as against innocent until proved guilty.”
His own opposition to the introduction of the Bill was unsuccessful for procedural reasons, but he is right to point out that the Bill could very easily run into legal trouble. What is interesting is that these criticisms have been around ever since the draft Bill was circulated, and yet the government has not seen fit to correct these issues.
Back in August 2017, advocate Abhinav Sekhri criticized the initial draft of the Bill for including these two provisions in The Caravan, and these concerns were also raised on the reputed legal blog India Corp Law in December 2017.
The Law Ministry and Cabinet, however, feel that the Bill does not fall foul of any constitutional issues, and that it has sufficient safeguards. Who’s got it right then?
Pre-Trial Confiscation of Property
India has a long history of draconian provisions for suspected economic offences. These include preventive detention under the Maintenance of Internal Security Act (MISA) and the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act (COFEPOSA), as well as the confiscation of suspected illegal properties under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act (SAFEMA).
The Supreme Court has also refrained from holding such provisions to be unconstitutional. In 2015, the apex court upheld the validity of Orissa’s Special Courts Act, which allowed for confiscation of suspected disproportionate assets from individuals being investigated for corruption charges.
However, the FEO Bill has been drafted so poorly that it actually manages to outdo even those notorious legislations. While the right to property is not a fundamental right in India, it is a legal right, and under Article 300A of the Constitution, a person can only be deprived of their property save by authority of the law. There are two main reasons to think the FEO Bill fails on this count.
First, it involves very little scrutiny before confiscation can kick in. A person can be declared a fugitive economic offender after a very short period, and very little opportunity to defend themselves. Once an application is made to a Special Court from the authorities, the Court issues a notice to the alleged offender to appear before them and explain themselves within six weeks. If the offender sends a lawyer, another week can be tacked on.
After hearing the authorities and the alleged offender (if he turns up), the Court decides whether to declare the person a fugitive economic offender or not. If they do, they can then allow confiscation of the properties. While the declared offender can appeal to a High Court, the Bill prevents any court in the country from issuing a stay on the declaration or confiscation.
This is all in stark contrast to COFEPOSA or SAFEMA, for instance. Under COFEPOSA, the detention had to be reviewed within three months of being initially imposed, and that too by highly qualified legal experts. Under SAFEMA, only properties of persons who had previously been convicted of smuggling offences could be confiscated.
Secondly, the FEO Bill doesn’t make any provision for situations where the person is later acquitted. The key reason why the Supreme Court upheld the Orissa Special Courts Act’s confiscation scheme in 2015 was that it wasn’t actually a pre-trial confiscation, as it only really kicked in after conviction. It included express provisions which prevented the confiscated properties from being sold, and said they would be returned to the owner if acquitted. The FEO Bill fails to do either of these things, and so could lead to properties being taken away even from an innocent person.
Disallowing Civil Claims
Mahtab rightly pointed out that a Constitution Bench of the Supreme Court in 2016 held that access to justice is part of the fundamental right to life. In Anita Kushwaha vs Pushap Sudan,former CJI TS Thakur held that not only was this a constitutional right under Article 21, but that to deprive a citizen of access to a court or tribunal would violate the right to equality under Article 14 of the Constitution as well.
The provision in the FEO Bill that takes away a declared fugitive economic offender’s right to file or defend civil cases is an absolutely unacceptable and unconscionable violation of these fundamental rights, and makes a mockery of basic principles of natural justice. Yes, the government can limit special cases to special courts or tribunals, which means that they can, for instance, only allow applications for declarations to be heard by the Special Court. However, this is subject to stringent conditions as laid down by the Supreme Court and in any case this cannot apply to any other case which the alleged offender might be involved.
Not only this, the drafters have gone way too far by applying this bar to a company or LLP related to the fugitive economic offender. The company or LLP may have nothing whatsoever to do with the offence, and is still liable for punishment, punishing the entity, its employees and its shareholders for no fault of their own. Even if this were applied without malice, this is a gross abuse of legal rights, and it also has tremendous potential for misuse.
An Exercise in Futility?
If one or even both these provisions is found to be unconstitutional, this doesn’t mean the whole law would be struck down. Without them, however, the Bill adds nothing really to the law.
Even with them, it can be argued, the Bill doesn’t amount to much. BJD MP Tathagat Satpathy says:
"These are all show-off legislations, which will eventually just get misused by the bureaucrats. Unless you get the banking system in order, no amount of threat is going to help anybody. Once there is connivance, no threat is going to worry the person doing these things. If you talk to doctors, their whole credo is prevention is better than cure. This is a cure thing you’re doing. You’re not addressing the problem."
Indeed, the claim that existing law is insufficient to deal with the problems of these kind of fugitive offenders isn’t really borne out. Existing law already allows for attachment and, upon conviction, confiscation of properties and assets. None of this is as draconian as the provisions of the FEO Bill, but as pointed out, that’s why the existing law is constitutional.
Moreover, the Bill does nothing to resolve the crux of the problem with such fugitive offenders – getting them to return from that foreign country. As examined in detail here, India’s extradition record is absolutely dismal, thanks to inept handling from the relevant authorities, whether the CBI or the Ministry of External Affairs, and systemic problems with our prisons and judgment system make countries unwilling to hand over absconding scamsters.
Similarly, while Special Courts may order the confiscation of an offender’s property located abroad, there’s very little reason for the country where the property is located to comply with any request made about it. Even after convictions in India, those countries aren’t willing to allow us to seize those assets – improving this requires improving our relations with foreign countries and international arrangements, not new overzealous domestic laws.
Unfortunately, the Centre has decided to press ahead with this misguided legislation. The only good thing is that its worst elements are unlikely to see the light of day, whether opposed in the Rajya Sabha or struck down by the courts. In sum, an utterly futile waste of time, money and effort.
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