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May 2018
Fugitive Economic Offenders Ordinance, 2018
The Central Government in India had introduced the Prevention of Money Laundering Act, 2002 (“PMLA”), to prevent the circulation of laundered money. The Act defines money laundering as any process or activity connected to proceeds of crime, including its concealment, possession, acquisition or use and projecting or claiming it as legitimate property. While the PMLA Act allowed for confiscation and seizure of properties obtained from the laundered money, such actions were still subject to the processes of criminal prosecution. This led to many of the persons accused of money laundering, to flee the jurisdiction of Indian courts to avoid criminal prosecution under PMLA and the consequent confiscation of the properties.
 
On March 12, 2018, the Indian government introduced the Fugitive Economic Offenders Bill, 2018 (“Bill”), in the Lok Sabha, after receiving approval from the Cabinet, to address the issue of such economic offenders avoiding criminal prosecution. The Bill could not be taken up for consideration and passing in the Lok Sabha and there was an urgent and need for its implementation therefore, the Union government promulgated the Fugitive Economic Offenders Ordinance (“Ordinance”) on April 21, 2018 to keep a check on economic offenders who flee the country.  Additionally, On April 24, 2018, the Government of India, also passed rules, under the Ordinance, pertaining to the application for declaration of Fugitive Economic Offender, issuance of provisional and permanent attachment order, search and seizure and the manner of forwarding material to the Special Court, and receipt and management of confiscated properties.
 
The Ordinance  defines a ‘fugitive economic offender’ as any individual against whom a warrant for arrest in relation to economic offences, under various statutes, listed in a schedule to the Ordinance  (“Scheduled Offence”) has been issued, on or after the enactment of this Ordinance , by any Indian court, and who:
 
•    Has left India to avoid criminal prosecution, or
•    Being abroad refuses to return to India to face criminal prosecution.
 
As per the Ordinance, Scheduled Offences refer to those offences specified in the schedule, wherein the value involved in such offences is 100 crores rupees or more.  The total value has been fixed at 100 crores in order to ensure that the courts are not over-burdened with such cases.
 
Pertinently, on March 28, 2018, the PMLA was also amended to expand the definition of “proceeds of crime” to include any property held with in the country or abroad, (or value of such property), so as to make it in line with the definition as provided under the Bill. Earlier, the Enforcement Directorate could proceed only against properties located in India, equivalent in value to the properties located outside India, which were derived or obtained as a result of criminal activity relating to the offences mentioned in the schedule to the PMLA. However, post the amendments, the Enforcement Directorate can proceed against properties located outside the country as well. This is a crucial change, especially since assets of economic offenders fleeing India can now be seized.
 
Powers of the Investigating Officer/Director
 
For the purpose of this Ordinance, the Director or any person authorised by such Director  (“Authorised Officer”), is empowered to make an application to the designated Special Court, for declaration of an alleged offender as a ‘Fugitive Economic Offender’ (“Application”). Such an application must primarily consider the reasons for considering such a person as a fugitive economic offender, information regarding the offender and the properties owned by such an offender.  The Ordinance provides for a special court in order to ensure that banks and financial institutions achieve a speedy confiscation from such fugitive economic offenders.
 
This Ordinance extends to such an Authorised Officer the extraordinary power of ordering, in writing, for the provisional attachment of any property for a period of 180 days, even pending any declaration by the Special Court on an Application. This measure is for preservation of properties, pending the process further to the Application. For exercising such a power, the concerned officer must have reason to believe that (a) the property is derived or obtained, directly or indirectly, from any Scheduled Offence carried out by a fugitive economic offender; and (b) is being or is likely to be dealt with in a manner which will result in the property being unavailable for confiscation.   The principal responsibility of such an Authorised Officer is to prevent any suspected individual from avoiding criminal prosecution by leaving the jurisdiction of Indian courts.
 
Additionally, the Authorised Officer, is also empowered to search the person, and may even detain such individual, provided that the alleged offender is produced before the nearest Gazetted Officer superior in rank to the Authorised Officer, or a Magistrate’s Court within 24 hours of such detainment.   These powers are similar to the powers of a police officer when executing a warrant of arrest under the Criminal Procedure Code, 1973.  
 
The Ordinance provides that, the concerned officer shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 in respect of the following:
 
•    Discovery and inspection.
•    Enforcing the attendance of any person, including any officer of a reporting.
•    Entity and examining him on oath.
•    Compelling the production of records.
•    Receiving evidence on affidavits.
•    Issuing commissions for examination of witnesses and documents.
•    Any other matter, which may be prescribed.
 
The Director conducting the investigations also has extensive powers to survey the activities of the individual under investigation, and of search and seizure even before an individual is declared a fugitive economic offender.
 
Special Court under the PMLA and Rules of Evidence
 
Under the Ordinance, the ‘Special Court’ may declare an individual as a ‘fugitive economic offender’ on an Application made by the investigating officer/Director. Under the Ordinance, civil courts are barred from entertaining any suit or proceeding in respect of any matter that the Special Court is empowered to determine.   Further, all courts and authorities are barred from passing any orders of injunctions in respect of actions taken/to be taken under this Ordinance.
 
The Special Court hearing an Application is required to issue a notice of not less than 6 weeks to the alleged fugitive economic offender, and to any other person who has any interest in the property mentioned in the Application. If the said alleged offender appears in person, the Special Court may terminate the proceedings initiated further to the Application. However, in situations where such an offender does not appear in person or through a counsel, the Special court has the power to hear such an application on an ex-parte basis as per Section 11(3) of the Ordinance.
 
The Special Court has been provided powers to identify and confiscate the properties in India and abroad that are:
 
•    the proceeds of crime in India or abroad, whether or not such property is owned by the fugitive economic offender; and,
•    any other property or benami property in India or abroad, owned by the fugitive economic offender. The Special Court will first try to identify the properties which are the proceeds of crime, failing which they shall quantify the proceeds of crime.
 
The Special Court is empowered to separately list any other property owned by the fugitive economic offender which may be confiscated. For properties outside India, the Special Court is empowered to write to contracting states requesting a court or authority in such state to execute such an order.
 
Where the Special Court concludes that the individual is not a fugitive economic offender, the Special Court shall order release of the property or record attached or seized hereunder to the person entitled to it.  However, despite such an order, the Authorised Officer may withhold the release of any such property or record for a period of 90 days from the date of receipt of such order, if the officer is of the opinion that such a property is relevant for appeal proceedings.
 
Scope of Seizure and Appeals from Order of Declaration as a Fugitive Economic Offender
 
Once an individual is declared as a fugitive economic offender, the Special Court may order the Central Government to confiscate: (a) proceeds of crime, whether or not such property is owned by the fugitive economic offender; (b) any other property in India or abroad or benami property,  owned by the fugitive economic offender. The Special Court may, while making the confiscation order, may exempt from confiscation any property that is a proceed of crime in which any other person other than the fugitive economic offender has an interest, provided it is shown that such interest was acquired without knowledge of the fact that the property was a proceed of crime.  Any individual aggrieved by an order in relation to declaration as a fugitive economic offender, may appeal to the High Court within 30 days from the date of the order, and with sufficient cause may file such appeal within a maximum of 90 days.
 
The scope of seizure and attachment is much wider in the Ordinance when compared to the PMLA act. As per the PMLA Act, confiscation of assets is possible only after the completion of trial.  On the other hand, the Ordinance permits for the confiscation of assets even without the completion of trial. In fact, an individual proclaimed as a fugitive economic offender is required to submit to the jurisdiction of the court to protect his assets from confiscation.  Further, the Ordinance permits for the confiscation of properties which are located overseas as well.  Therefore, it is evident that the Ordinance has a much wider deterrent effect than the PMLA act.
 
‘Preponderance of Probability’ and Rules of Evidence
 
The Ordinance requires the Director, or any person authorised by the Director to file the Application, to discharge the burden of proof for establishing that an individual is a ‘fugitive economic offender’, the said Director is only required to establish a ‘preponderance of probabilities’, i.e. an act which is proved when the court either believes it to exist, or if it considers its existence so probable that a prudent man ought, in the circumstances, to act upon the supposition that it exists.  This is a is a lower bar than the one set by the Evidence Act, 1872, which requires proof beyond reasonable doubt for the prosecution of criminal offences.
 
Further, the Ordinance places the burden of proof on third parties to prove that the property was acquired bonafide and without knowledge of the fact that such property constitutes the proceeds of a crime. This is particularly onerous because the Ordinance widely defines ‘proceeds of crime’ to include property which may have been derived, directly or indirectly, as a result of criminal activity relating to a Scheduled Offence. The Ordinance also covers the properties taken outside the country.
 
Conclusion: Areas of Concern
 
The Ordinance seeks to disentitle an individual who has been declared as a fugitive economic offender, from putting forward or defending any civil claim. Further, in its current form, the Ordinance also stipulates that any civil court or tribunal may disallow a company or limited liability partnership from putting forward or defending any civil claim if:
 
•    the person filing claims on behalf of the company is declared a fugitive economic offender; or
•    the company’s promoter, key managerial person , or a majority shareholder of the company; or a person with controlling interest in a limited liability partnership is declared a fugitive economic offender
•    This provision does not provide any protection to other persons associated with or invested in such companies/limited liability partnerships, who may not have benefitted/knowingly benefitted from proceeds of a crime.
 
Further, the interested parties in properties that are considered ‘proceeds of crime’ now bear the burden of proving that such properties were acquired bonafide, and that they did not have knowledge that such properties were ‘proceeds of crime’. Discharging such burden of proof is likely to be cumbersome for third parties who are not Indian residents or who have perfunctory connections to the alleged criminal activity. In addition to this, the Ordinance has also faced extensive criticism on account of the fact that the assets can be confiscated even before the completion of the trial. This discretion, in essence violates the criminal law principle of “innocence until proven guilty”.
 
Nonetheless, the implementation of this Ordinance was necessary considering the current lacuna in the legal framework that existed. However, certain modifications for its effective implementation are necessary.

Author

Faraz Sagar

Partner, Cyril Amarchand Mangaldas

About Cyril Amarchand Mangaldas

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Cyril Amarchand Mangaldas was founded on May, 2015 and takes forward the legacy of the erstwhile 100-year old Amarchand & Mangaldas & Suresh A. Shroff & Co., whose pre-eminence, experience and reputation of almost a century has been unparalleled in the Indian legal fraternity.

 

Tracing its professional lineage to 1917, the Firm of Cyril Amarchand Mangaldas is the largest full-service law firm in India, with over 650 lawyers, including 100 partners, and offices in India’s key business centres at Mumbai, New Delhi, Bengaluru, Hyderabad, Chennai and Ahmedabad. The Firm advises a large and varied client base that includes domestic and foreign commercial enterprises, financial institutions, private equity funds, venture capital funds, start-ups and governmental and regulatory bodies.

 

The firm was recently awarded “India: National Law Firm of the Year” by Chambers and Partners at the Chambers Asia Pacific Awards 2018. Firm was named “Most Innovative Firm of the Year: India” by IFLR Asia Awards 2018 & “India Deal Firm of the Year” by ALB SE Asia Law Awards, 2016 & 2015. Ranked no. 1 amongst India’s top 40 law firms in 2015 as per RSG India report as well as ALB on Asia’s Top 50 Largest Law Firm report in 2015 and topped recent league tables namely Bloomberg, Merger Market, Dealogic, Thomson Reuters.

 

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