All You Need to Know About The Fugitive Economic Offenders Act 

Vijay Mallya is the first victim of the Fugitive Economic Offenders Act, 2018. But what does this law set out to do?

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Explainers
4 min read
Vijay Mallya is the first tycoon to be declared a ‘fugitive economic offender’.
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Snapshot

On 5 January, a special anti-corruption court declared debt-ridden liquor baron Vijay Mallya a ‘fugitive economic offender’ under the provisions of a new law, which sought to bring to book big-ticket tycoons and businessmen who have left the country to escape indictment.

Seen as the first major win for the Fugitive Economic Offenders (FEO) Act – that was passed last August – Mallya will now be subject to the provisions of the law, which means that his property and assets will be confiscated and brought under the control of the Union government.

Mallya had first left the country in 2016 after he was accused of defaulting on loan payments to the tune of thousands of crores. At present, he is wanted for having unpaid dues amounting to Rs 9,000 crore in India.

All You Need to Know About The Fugitive Economic Offenders Act 

  1. 1. What Does the Fugitive Economic Offenders Act, 2018 Aim to Do?

    Coming close on the heels of the Nirav Modi-Punjab National Bank multi-crore bank fraud in 2018, the Act, at the time, was viewed by the government as a strong measure to come down on economic offenders who used their wealth and connections to avoid prosecution by fleeing the country.

    According to PRS, a legislative research organisation, the law applies to somebody:

    • against whom there is an arrest warrant issued for offences where the value exceeds Rs 100 crore
    • who has exited the country and refuses to return to face criminal proceedings

    In order to declare a person a FEO, the agency will have to file an application in a special court and attach the details of all the property to be confiscated.

    Expand
  2. 2. How Did the Act Take Shape?

    In 2017, the Ministry of Finance released a draft Bill to address cases of high-value economic offenders fleeing the country to avoid prosecution. While various laws existed to deal with offences related to fraud, counterfeiting, money-laundering and other economic offences, it observed that a new legal framework was required as the current civil and criminal laws do not contain specific provisions to deal with such offenders who fled the country to evade justice. Such cases were also observed to be time-consuming and the time taken to deal with such cases affected the financial health of the banks involved.

    In March 2018, the Ministry of External Affairs stated that over 30 businessmen, under investigation by the Central Bureau of Investigation and the Enforcement Directorate, had fled the country to avoid facing prosecution by Indian courts.

    The Bill was introduced in Lok Sabha on 12 March. Subsequently, an Ordinance containing similar provisions was promulgated on 21 April.

    The Bill was passed by the Rajya Sabha on 25 July last year.

    (Source: PRS)

    Expand
  3. 3. Important Features of the Act

    Under the Act and upon declaration as FEO, the properties and assets may be confiscated and vested by the Centre. This includes not just the properties directly owned by the FEO and affiliated organisations but also any and all benami properties owned by the offender.

    The FEO is also immediately barred from filing or defending any civil claim, even those that have nothing to do with their economic offences. They are disallowed from approaching the court to seek any legal remedy or to defend themselves in a case where they may have been wrongfully charged.

    The Act provides for immediate confiscation of property upon a person being declared a FEO.  According to PRS , in other similar laws governing economic offences, such confiscation is final only two years after said declaration.

    Expand
  4. 4. Why is It Considered Problematic?

    Lawyers and lawmakers have spoken out against certain ‘unconstitutional’ aspects of the Act. They believe that it violates not just the Constitution but also certain principles of natural justice.

    For instance:

    • Pre-trial confiscation of property

    While this may seem fair, especially since it involves a declaration from a special court, it is worth noting that 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 the 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 FEOs. Most worryingly, the ‘offender’ can’t even claim it back if eventually acquitted.

    • Disallowing civil claims

    Courts and tribunals across the country have the power to disentitle anyone declared as a FEO 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 Act 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 FEO, 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.

    (The Quint is available on Telegram. For handpicked stories every day, subscribe to us on Telegram)

    Expand

What Does the Fugitive Economic Offenders Act, 2018 Aim to Do?

Coming close on the heels of the Nirav Modi-Punjab National Bank multi-crore bank fraud in 2018, the Act, at the time, was viewed by the government as a strong measure to come down on economic offenders who used their wealth and connections to avoid prosecution by fleeing the country.

According to PRS, a legislative research organisation, the law applies to somebody:

  • against whom there is an arrest warrant issued for offences where the value exceeds Rs 100 crore
  • who has exited the country and refuses to return to face criminal proceedings

In order to declare a person a FEO, the agency will have to file an application in a special court and attach the details of all the property to be confiscated.

How Did the Act Take Shape?

In 2017, the Ministry of Finance released a draft Bill to address cases of high-value economic offenders fleeing the country to avoid prosecution. While various laws existed to deal with offences related to fraud, counterfeiting, money-laundering and other economic offences, it observed that a new legal framework was required as the current civil and criminal laws do not contain specific provisions to deal with such offenders who fled the country to evade justice. Such cases were also observed to be time-consuming and the time taken to deal with such cases affected the financial health of the banks involved.

In March 2018, the Ministry of External Affairs stated that over 30 businessmen, under investigation by the Central Bureau of Investigation and the Enforcement Directorate, had fled the country to avoid facing prosecution by Indian courts.

The Bill was introduced in Lok Sabha on 12 March. Subsequently, an Ordinance containing similar provisions was promulgated on 21 April.

The Bill was passed by the Rajya Sabha on 25 July last year.

(Source: PRS)

Important Features of the Act

Under the Act and upon declaration as FEO, the properties and assets may be confiscated and vested by the Centre. This includes not just the properties directly owned by the FEO and affiliated organisations but also any and all benami properties owned by the offender.

The FEO is also immediately barred from filing or defending any civil claim, even those that have nothing to do with their economic offences. They are disallowed from approaching the court to seek any legal remedy or to defend themselves in a case where they may have been wrongfully charged.

The Act provides for immediate confiscation of property upon a person being declared a FEO.  According to PRS , in other similar laws governing economic offences, such confiscation is final only two years after said declaration.

Why is It Considered Problematic?

Lawyers and lawmakers have spoken out against certain ‘unconstitutional’ aspects of the Act. They believe that it violates not just the Constitution but also certain principles of natural justice.

For instance:

  • Pre-trial confiscation of property

While this may seem fair, especially since it involves a declaration from a special court, it is worth noting that 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 the 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 FEOs. Most worryingly, the ‘offender’ can’t even claim it back if eventually acquitted.

  • Disallowing civil claims

Courts and tribunals across the country have the power to disentitle anyone declared as a FEO 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 Act 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 FEO, 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.

(The Quint is available on Telegram. For handpicked stories every day, subscribe to us on Telegram)

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