Explainer: What is the Fugitive Economic Offenders Bill and will it bring Nirav Modi back?

The Union Cabinet on Thursday gave its assent to a Bill that is aimed at punishing those who are accused of committing financial crimes in India and then fleeing the country, as in the cases of jeweler Nirav Modi and industrialist Vijay Mallya. The Bill, first announced in Finance Minister Arun Jaitley’s 2017 Budget speech, is likely to come up in Parliament in the second half of the Budget Session, which begins on Monday, and there are additional indications that the government will promulgate it as an ordinance if it cannot make its way through the legislature.

“We will try and make sure that this is passed as fast, as expeditiously as possible because we can’t allow people to make a mockery of the law, that you first indulge in loot and then refuse to submit to the jurisdiction of our legal system, and I think we have a very responsible Parliament,” Jaitley said on Thursday.

The move is one of a series of efforts over the last week in which the government has tried to seize control of the narrative after weeks in which it has been criticised for not having done enough to prevent scams like the Nirav Modi case, in which the jeweller is alleged to have got unsecured loans of more than Rs 11,000 crore from a public-sector bank. Prime Minister Narendra Modi, in particular, has been criticised for not being able to prevent alleged criminals from leaving the country, the most prominent being Nirav Modi and Kingfisher head Vijay Mallya.

The Fugitive Economic Offenders Bill is aimed squarely at the likes of Modi and Mallya.

Who is a ‘fugitive economic offender’?

According to the draft Bill, a fugitive economic offender is “any individual against whom a warrant for arrest in relation to a schedule offence has been issued by any court of India who, either leaves or has left India to avoid criminal prosecution or refuses to return to India to face criminal prosecution”. Attached to the draft are the list of offences, which include cheating, forgery, fraud, corruption, insider trading, customs evasion and more.

How is someone declared a ‘fugitive economic offender’?

The draft law says that officials, referred to as directors or deputy directors under the Prevention of Money Laundering Act, can file an application to a Special Court for a declaration that they are a fugitive economic offender. This application should

• give the court the reasons for why it should declare the person a fugitive offender
• provide information about the current whereabouts of the person
• provide a list of properties believed to be the proceeds of the crime
• provide a list of properties which the government believes should be confiscated and,
• provide a list of other persons who may have some interest in those properties.

As soon as such an application is filed, the government can attach – meaning prevent the trading or selling of – any properties mentioned in it for 180 days. Once the application is done, the Special Court will send a notice to the person and anyone else who has interests in the attached property.

The notice to the person involved will require them to appear at a specific place and time no less than six weeks from the date of the notice. If they refuse to appear for up to six weeks, the Special Court can take up the case and label the person a fugitive economic offender.

What happens next?

Once a fugitive economic offender has been declared, the government can confiscate the “proceeds of the crime”, even if it is not owned by the fugitive offender, and any other properties they own as well. The Special Court could exempt from confiscation any property that may be the proceeds of a crime but has another investor, as long as that person’s interest was acquired without knowledge of the fact that the property was the proceed of a crime. In other words, the properties that the fugitives have left behind are then controlled by the state if they don’t turn up within the stipulated time period.

The more controversial matter is what follows. The Bill also says that, once a person has been declared a fugitive economic offender, any court in India can disentitle any individual from filing or defending a civil claim regarding that property. Put simply, that means that even before the case has been adjudicated by the court, with a judge deciding guilty or not guilty, once the person has been declared a financial offender the government becomes full custodian of any attached property.

This disentitlement even applies to companies, with the law saying even they will not be permitted to file or defend civil claims if “any promoter or key managerial personnel or majority shareholder of the company has been declared a fugitive economic offender.”

Following this, the government is meant to appoint an administrator to deal with this property and help settle the claims of other stakeholders.

Will it bring Nirav Modi and Vijay Mallya back?

Analysts have asked questions about whether the law can be applied retrospectively, to the alleged crimes of people like Nirav Modi and Vijay Mallya. The draft Bill does not exactly spell this out, saying only that “the Act applies to any individual who is, or becomes, a fugitive economic offender on or after the date of coming into force of this Act”. Since the definition of a fugitive economic offender covers anyone against whom a warrant for arrest for certain offences has been issued, it seems likely that it should be applicable to people like Nirav Modi and Mallya.

Jaitley, in his briefing, also suggested as much, saying the law would apply to all cases, “old and new.”

The law cannot force either Nirav Modi or Vijay Mallya to return – that is more dependent on extradition processes – but it is aimed at being so harsh that it either convinces alleged offenders to return to India or, by taking away their property, it ensures that the stalled investigation does not mean assets that might be leveraged by a bank are not simply frozen.

Is there a catch?

The Bill first began circulating in around August 2017. At the time, a number of commentators spoke about portions of it that might end up being seen as unconstitutional. The government has been trying to rebut this, saying on Thursday that “all necessary constitutional safeguards in terms of providing hearing to the person through counsel, allowing him time to file a reply, serving notice of summons to him, whether in India or abroad and appeal to the High Court have been provided for”.

Abhinav Sekhri, a lawyer writing in the Caravan in 2017 said there is a “high chance” that the Bill would not pass muster before a court. He pointed to the fact that it allows the government to take control of property based only on allegations of wrongdoing, with no conviction. It also disentitles entire companies from defending themselves in civil cases, meaning all those invested would be at risk if even just one of them has been accused of a crime. And moreover, it allows for the seizure of all of the declared offender’s property in India, regardless of whether the value of that exceeds the amount that they will have to pay their liabilities.

Writing at IndCorpLaw, Malcolm Katrak noted that the Supreme Court has in the past supported harsh laws based on allegations alone. But even with this background, he writes that the section related to disentitlement are faulty and unlikely to survive judicial review, since “the discretion given to courts to bar an offender to proceed or defend any civil case overreaches the basic principles of natural justice”.