2017 - Fugitive Economic Offenders Bill (Download PDF)

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The Union Cabinet approved the Fugitive Economic Offenders Bill, 2017 that seeks to protect the interest of lenders left high and dry by absconding corporate defaulters. Once voted into law, the new legislation will empower investigating agencies to confiscate, and vest with themselves, any property of the absconding offenders without encumbrances.

Image of Fugitive Economic Offenders Bill, 2017

Image of Fugitive Economic Offenders Bill, 2017

Image of Fugitive Economic Offenders Bill, 2017

  • The Fugitive Economic Offenders Bill is aimed at addressing these drawbacks. It will allow quicker attachment and disposal of property and assets helping recovery of defrauded or defaulted amount.

  • It will also act as a deterrent for offenders to flee the country.

Who is a Fugitive Economic Offender?

  • “A person who has an arrest warrant issued in respect of a scheduled offence and who leaves or has left India so as to avoid criminal prosecution, or refuses to return to India to face criminal prosecution. “

Offences Covered in the Bill?

  • The draft Bill covers a wide range of offences including wilful loan defaults, cheating and forgery, forged or fraudulent document of electronic records, duty evasion, and non-repayment of deposits among others.
  • The Bill also seeks to bar an absconder from bringing forward or defending any civil claim. This could effectively take away the fugitive offender’s rights to reclaim the assets.

Reason for Introducing the Bill

  • The proposed law comes in the backdrop of the alleged Rs. 12, 636-crore defrauding of Punjab National Bank (PNB) —India’s second largest public sector bank—by diamond merchant Nirav Modi and his uncle and promoter of Gitanjali Gems, Mehul Choksi.

  • Both Modi and Choksi have left the country and are believed to be somewhere in Europe.

  • The Modi heist comes even as the government continues its effort to Mallya back from London. The liquor baron faces charges of bank loan defaults worth an estimated Rs. 9, 000 crores.

Key Facts

  • The Bill’s provision is compatible with the provisions of United Nations Convention against Corruption (ratified by India in 2011) that recommends “non-conviction-based asset confiscation for corruption-related cases”.

  • In order to ensure that courts are not over-burdened with such cases, only those cases where the fraud amounts to at least Rs. 100 crores will fall within the purview of this Bill.

  • The Bill makes provisions for a court of law—a ‘Special Court’ under the Prevention of Money Laundering Act (PMLA) —to declare a person a “fugitive economic offender”.

  • While the PMLA allows the Enforcement Directorate (ED) —the government’s main agency that tracks foreign exchange movements—to seize an accused, the law did not allow complete “non-conviction” based asset attachment without any encumbrances.

Current Rules

  • Under current rules, the ED is entitled to provisionally attach a defaulter’s property “pending trial subject to confirmation by the adjudicating authority and appeal”.

  • On conviction in the trial, the property stands confiscated, free from all encumbrances, to the central government.

  • These existing provisions have drawbacks when applied to high-value economic offenders.

  • In large defaults, criminal proceedings are likely to be in several criminal courts across the country where assets are located. This multiplicity of proceedings may lead to conflicting orders of attachment by different courts.

  • A court is unlikely to attach property outside its jurisdiction in the first place without the procedure for endorsement being followed. Because of such delays, such offenders can continue to remain outside the jurisdiction of Indian courts for a considerable period.

Nirav Modi Case

  • Billionaire jeweller Nirav Modi acquired fraudulent letters of undertaking from one of PNB branches for overseas credit from other Indian lenders.
  • Based on these transactions other banks advanced money to these customers abroad. In the Bank these transactions are contingent in nature and liability arising out of these on the Bank is decided based on the law and genuineness of underlying transactions
  • Through SWIFT trail one ‘junior level’ branch official unauthorisedly and fraudulently issued Letter of Undertakings (LoUs) on behalf of some companies belonging to Nirav Modi Group viz. Solar Exports, Stellar Diamonds and Diamond R US for availing buyers credit from overseas branches of Indian banks. “
  • None of the transactions were routed through the CBS system, thus avoiding early detection of fraudulent activity.

Vijay Mallaya’s Case

Mallya, faces several cases in India, where his companies have defaulted on loans of around Rs. 9, 000 crore from Indian banks. Here are the main cases:

  • CBI case on IDBI Bank loan to Kingfisher Airlines: The case pertains to defrauding of public sector banks under the Prevention of Corruption Act, 1988. A CBI court has issued a non-bailable warrant against Mallya in relation to the loan default case.

  • Enforcement Directorate case on money laundering: The Enforcement Directorate issued an order under the Prevention of Money Laundering Act (PMLA) to attach various properties belonging to Mallya and his associate firms. A Special PMLA court has issued non-bailable warrant to Mallya.

    The agency had also secured a special court order to invoke the India-UK Mutual Legal Assistance Treaty (MLAT).

  • Service tax evasion case: In 2011 - 12, the service tax department had issued a notice to Kingfisher Airlines for dues of Rs87.5 crore, which the airline had likely collected from passengers but not deposited with the department.

  • SFIO investigation into financial irregularities: The Serious Fraud Investigation Office (SFIO) is investigating Kingfisher Airlines for financial irregularities and fund diversion since September 2015

  • Provident fund investigation: In March 2016, retirement fund body Employees’ Provident Fund Organisation (EPFO) formed an enforcement squad to investigate anomalies and irregularities in provident fund dues to Kingfisher Airlines employees. The labour ministry is also examining such anomalies.

  • GMR Hyderabad Airport cheque bounce case: GMR Hyderabad International Airport Ltd filed a case against Mallya and former Kingfisher Airlines CFO after cheques issued by the airline for payment of fees for using airport facilities bounced. Five non-bailable warrants have been issued by a local court in Hyderabad against Mallya.

  • AAI case: In July 2016, a Mumbai metropolitan court issued a non bailable warrant against Mallya in a case of cheque bouncing filed by the Airports Authority of India (AAI). AAI has alleged that cheques issued by Kingfisher Airlines totalling Rs100 crore were not honoured.

  • Case related to non-payment of TDS: The income-tax department had moved the Karnataka high court in 2013 seeking dues amounting to Rs325 crore owed by Kingfisher Airlines relating to three fiscal years-2009 - 12.

  • Debt recovery tribunal case: In January, the Debt Recovery Tribunal (DRT) in Bengaluru ruled in favour of creditors allowing them to recover more than Rs9, 000 crore in unpaid loans they extended to Kingfisher Airlines Ltd

  • Supreme Court hearing: On 16 March 2016, a consortium of banks led by SBI moved the Supreme Court to restrain Mallya from leaving the country.

  • Sebi order on United Spirits: The Securities and Exchange Board of India (Sebi) in January barred Mallya and six former executives of United Spirits from accessing the securities market for alleged violations of the listing agreement, diversion of funds and fraud. Sebi’s order said funds from United Spirits were diverted to some group companies of United Breweries Ltd, including Kingfisher Airlines.

- Published/Last Modified on: July 23, 2018

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