The Fugitive Economic Offenders Ordinance, 2018 was given the assent by President of India, Ram Nath Kovind.
This Ordinance has been brought to crack down on economic fugitives like Nirav Modi, Vijay Mallya and others and to confiscate their properties.
The Ordinance is to have an instantaneous effect and is prospectively applicable to offences across the country.
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When & How can the Ordinance be invoked?
The Ordinance comes into play when a designated authority makes an application under Section 4 of the Ordinance (‘Section 4 application’) to declare a person a Fugitive Economic Offender.
The designated authority here is a Director or Deputy Director as defined under the Prevention of Money Laundering Act (PMLA), 2002.
As per Section 2 of the Ordinance, a “Fugitive economic offender” means any individual against whom a warrant for arrest in relation to a Scheduled Offence has been issued by any Court in India who-
- has left India so as to avoid criminal prosecution; or
- being abroad refuses to return to India to face criminal prosecution
The Schedule to the Ordinance lays down offences under various statutes as falling within the scope of the Ordinance including the following i.e.,
- Indian Penal Code (1872),
- Negotiable Instruments Act (1881),
- Reserve Bank of India Act (1934),
- Central Excise Act (1944),
- Customs Act (1962),
- Prohibition of Benami Property Transactions Act (1988),
- Prevention of Corruption Act (1988),
- Securities and Exchange Board of India Act (1992),
- Prevention of Money Laundering Act (2002),
- Limited Liability Partnership (LLP) Act (2008),
- Foreign Contribution (Regulation) Act (2010),
- Companies Act (2013),
- Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act (2015),
- Insolvency and Bankruptcy Code (2016), and
- Central Goods and Services Tax Act (2017)
Declaration of a Fugitive Economic Offender
In order to declare an individual a Fugitive Economic Offender (FEO), the Director or a person authorised by the Director and not below the rank of Deputy Director should make an application under Section 4 of the Ordinance to the designated Special Court.
The Section 4 application should be made in prescribed form, recording the authority’s reasons for believing that the person against whom it is sought is an FEO.
The Special Court is then required to issue a notice to the alleged FEO, as per Section 10. Notice is also issued to any other person having interest in the property likely to be confiscated under the Ordinance. Further, notice is also to be forwarded, a directed by the Central government, for effecting service in a contracting state, if required.
The notice is issued to warn the alleged FEO that if he fails to appear before the authority at the specified time and place, he will be declared an FEO under the Ordinance.
If such person fails to appear as intimated, he can be declared an FEO through the issuance of an order under Section 12 of the Ordinance.
However, if the person appears through his counsel within the time prescribed, Section 11 (1) provides that the Special Court may, in its discretion, give a period of one week to file a reply to the Section 4 application made by the Director/authorised officer.
If such person appears on time before the authorities, the Special Court may terminate proceedings under the Ordinance.
Proceedings before the Special Court
If the person against whom a notice is issued fails to appear, either in person or through counsel, before the authority on time, the Special Court may proceed to hear the Section 4 application.
As per Section 11 (3), the Court may proceed to hear the application after it is satisfied that (a) the notice was duly served upon the person, or (b) the notice could not be served despite best efforts because the person has evaded the service of the notice.
The burden to prove guilt in such proceedings lies upon the Director or authorised officer filing the Section 4 application. Notably, the burden of proof to be discharged under the ordinance is the civil law standard of preponderance of probabilities.
After the proceedings are concluded, if the Special Court finds that the person is not an FEO, then the Court will order the release of all property confiscated under the Ordinance to the person entitled to receive it.
However, as per Section 12 (10), even if such order is passed by the Special Court, the Director or authorised officer may withhold the release of the property for a further period of 90 days, if he feels that the property would be required for appeal proceedings.
As per Section 17, appeals, if any, should be made to the High Court within 30 days of the Special Court’s judgement. However, the limitation period can be extended by the High Court for sufficient reasons. The appeal can be made on both facts and law.
Attachment of Property of an FEO
Once the Special Court proceeds to hear a Section 4 application, it may order that the property of the declared FEO stands confiscated by the Central Government.
The authorities may attach property listed as having been obtained illegally or with the proceeds of criminal activity, with the permission of the Special Court.
Property outside India found to fall under this category can also be so confiscated as per Section 5. If the property lies abroad in a contracting state, the Special Court may issue a letter of request to the contracting state for the execution of such order, as per Section 12 (5).
However, if the Director/concerned authority has reason to believe that any property may be rendered unavailable for confiscation, a written order can be issued to confiscate such property before filing the application before the Special Court as well. In such cases, the property will remain attached for a period of 180 days. The Special Court may extend this period before its expiry.
Further, during this period, any other person enjoying any interest in the immovable property so confiscated can continue to enjoy the property.
Protection of persons having bonafide interest in immovable property
Section 12 (7) provides that in issuing property confiscation orders, an exemption may be provided to property which is a proceed of crime in which any other person, other than the fugitive economic offender, has an interest.
This exemption comes into play where such interest was acquired bonafide and without knowledge of the fact that the property was a proceed of crime.
The burden to prove such bonafide interest lies upon the person claiming it, as per Section 16 (2).
Process of Inquiry
Section 7 (1) allows the Director/concerned officer to enter places relevant for the purpose of an investigation, as assigned to him. In this regard, such authority can request that he may be afforded with necessary cooperation and facilities to inspect records, verify proceeds of crime or related transactions, obtain information relevant to the proceedings etc.
If required, Section 8 also allows for the authorities to enter buildings, vessels, vehicles and aircrafts, break open seals, lockers, safes etc. and seize property discovered thereby for the purpose of investigation. To this end, relevant persons can also be examined on oath.
Notably, Section 9 empowers authorities, authorised by the Central Government by general or special order to search persons to carry out the investigation.
- The provision however also provides certain protections to the persons about to be searched.
- Reasons to conduct the search of persons have to be recorded in writing before such search is carried out.
- If such person requires, the authority shall take such person within twenty-four hours to the nearest Gazetted Officer, superior in rank to him, or a Magistrate.
- The search of persons should be carried out only in the presence of two or more witnesses.
- If any property is seized in the course of a search, the witnesses are also required to sign off on a list prepared to record the property so confiscated.
- Only a female officer can search a female person.
- Bar on Civil proceedings
Section 14 (a) provides that once an individual has been declared an FEO, any Court or tribunal in India, in any civil proceeding before it, may disallow such individual from putting forward or defending any civil claim.
Similarly, Section 14 (b) bars civil claims involving companies or LLPs where a declared FEO acts on behalf of the company or the LLP in such case.
Further, Section 18 also makes it clear that no civil court shall have jurisdiction to entertain proceedings falling within the scope of the Ordinance.
{The author is a Company Secretary in Practice & can be reached at (M) 9811888288 (E) mail@csdeepikashukla.com}
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