This article is written by B Bhanukesh pursuing LLM from Sardar Patel University of Police Security and Criminal Justice.

Introduction 

Offenders under the Economic Offences are generally not served with the required punishments for the acts done by them. Due to this, the crimes under this Offence were increasing, but the Government of India made the appropriate changes within the existing Acts through Amendments and also introduced new Acts as and when required. This article mainly seeks to give information on what are Economic Offences, History of Economic Offence (with relevant data) the data includes the cases from the year 2014 till 2018 as declared by the NCRB, Impact on the Economy and how it affects the economy, trafficking, and inflation, Relevant case laws are discussed to understand the offence and its offenders, how do the offenders commit the crime and lastly the Laws and Acts dealing under this offence. Famous personalities who are offenders under this crime are also mentioned in this article like Ketan Parekh, Harshad Mehta, and Nirav Modi. The economic crimes have their growth not only in developing nations but also in the mightiest ones. Various acts are also mentioned in this article which broadly deals with different crimes under this vast and perilous offence, these crimes can be Money-Laundering, Tax-Evasion, Frauds(fraud)), Cheating, etc. Departments like Enforcement Directorate and CBI effectively acted and directed the inquiry and investigation when the offences were committed.

Economic offences against women

Economic Offences form a special or different category of a criminal offence. The crime is committed with an intention to cheat and deceive the people (victims). The economic offence has two major impacts firstly it affects the national economy and simultaneously it has monetary and pecuniary losses to the victims. Economic offences are that type of criminal offence which alters the financial status of a country no matter how much wealth that nation has. Economic offences are very unique and carry a distinctive type of characteristic feature due to which the government and other higher authorities are facing difficulties to curb this offence and to establish a new Act that intensely deals with this offence. As there is no particular act which solemnly deals with this crime, it has become very easy to commit and the offenders are escaping without being punished.

What are the Economic Offences?

The economic offence is a vast subject but for understanding the term it means any offence or crime which deals with fraud (chit funds), forgery (cheques; stolen or original), cheating, or deceiving (financial institutes) or counterfeiting of money or money equivalents. The economic offence is also known as a Financial Offence. The reason why it is called a Financial Offence is that the crime (offence) is relating to money and its equivalence which in turn deals with a nation. Corruption is also a part of economic offences. 

History of economic offences

According to the National Crime Records Bureau (NCRB), the history of this offence can be traced back from early 2000 to date that is rising continuously. Many scams and financial offences were committed by various individuals, banking institutes, chit funds, etc during these years. Our main focus will be from the year 2014 to 2018 and how these offences occurred. How did it affect the nation’s GDP and most importantly how did few offenders under this crime escape? According to the NCRB data, the Economic offences in recent years are as follows: 

1. 2014                                    1,42,560 cases
2. 2015                                    1,50,170 cases
3. 2016                                    1,43,524 cases
4. 2017                                    1,48,972 cases
5. 2018                                    1,56,268 cases

*Crime Rate is calculated as a crime per one lakh of population.

As per the data mentioned above it can be seen that Economic Offences is not a small or petty offence this is considerably a mickle/big offence. Not hundreds, not thousands, the number of cases reported by the NCRB is in Lakhs just by the number we can imagine the magnitude and quantum of these offences. Imagine for example in the year 2016 which is the least among the 5 years (of the above data) for the number of cases of scam reported under Economic Offence in India and the base (approx.) The amount of scam in that year is Rs.10,000/- the total amount will be around Rs.143,52,40,000 /-. Now the numbers are dealt in crores, interestingly this amount is well around near to the District Budget (approx.) of a state. 

How this affects the Country

Economic offences affect the nation at large in various ways that can be understood by just studying the data mentioned above, as it can be seen that only in the year 2016 a large number of cases (which indeed is the least compared to the 5years) were reported. Money Laundering (Illicit trafficking), Uneven Distribution of Available Resources, Creation of Parallel Economy, High Inflation, No Circulation of Money, Tax Evasion, etc., all these factors either directly or indirectly affects the growth of the Economy in our Nation (mostly leads to Depletion of Economy). Interestingly when we compare the different offences under the Economic Offence, we see a lot of similarities between them which is nothing but MONEY and MONETARY related crimes. All these offences are in some way or the other linked with Money and its Equivalents. 

Black Money is again one of the most dangerous and vastly recognized offences not only in India but across the Globe (world). Swiss Bank holds most of the Black Money which the Offenders earn illegally. The offenders open accounts in this bank because of the privacy and anonymity which they maintain, thus making it a reliable and legal source for keeping the money. India ranks 74th in the number of clients who hold an account in Swiss Bank, this was not the case in the early years i.e. during 2007 where India ranked among the Top 50, the good news about the present position of India is that it slipped one position down from the last year and approximately 6% of the clients in 2018 (2nd least total from the past 2 decades). Now comes the bad news which is that in August 2010 the Indian Government revised the Double Taxation Avoidance Agreement to permit investigation into matters of Swiss accounts of Indians. The Swiss Bank was not in the policy of Banking Secrecy but in the year 2011, several representations were given to Swiss Bankers Association officials by Indian officials to disclose the amount of Black Money deposited by Indian clients in Swiss Bank. This was active from the year 2012 since then, accounts of Indian clients in Swiss Bank were slowly reducing. Now imagine what would be the position of India when this policy or agreement was entered before 2000, the nation’s economic situation would be far superior to the present one.  Now we’ll discuss how the offence affects the Nation:

1. Nationally 
2. Globally 

Nationally this offence will affect the Demand and Supply of all kinds of Goods and Services, as the Demand of the products increases the Supply decreases as a result of this the prices go up, which the economists call as INFLATION and at last this affects the poor people and the poverty line will start increasing. It reduces the Gross Domestic Product (GDP) of the Nation which forces the nation to take loans and borrow money (Financial Crisis) from other Monetary Institutions and lastly it also affects the belief (faith) in the system of economic governance which leads to Internal Disturbance within the Nation, as there is no proper authority to take care as they are not in a situation to control it and()) finally recession takes place. As the Offenders take a huge amount of loans and borrowings from the banks and the amount is not paid back to the banks, the interest on the principal amount accumulates, and this directly affects the status of the banks. The banks will later be in a situation where it is very difficult to get back the money from the offenders as they escape from the Nation and cause a financial and economic crisis. 

Globally this offence affects the  Financial status of the country which later on affects the Import and Export services of the Nation, as there will be no import and export business, there will be no revenue for the government and this makes the nation economically poor and the loans which the nation had taken before will not be repaid. Due to this, no Multinational Companies (MNCs) and other Foreign Companies will participate either to establish or start a new branch and lastly the nation will not develop any further and thus affects the Globalization and Modernization. In simple terms, the nation will become a “Living Dead Nation”.

Cases under the economic offences in India

The cases under Economic Offences are in large numbers. Following are the cases that brought substantial changes in the existing acts and introduced new laws. These cases are:

1. Hiten Dalal                                                            In the Year 1991-1992
2. Harshad Mehta                                                      In the Year 1992-1993
3. Ketan Parekh                                                         In the Year 2001-2002
4. Saradha Chit Fund                                                 In the Year 2013
5. Vijay Mallya                                                          In the Year 2016
6. Nirav Modi                                                            In the Year 2018

Hiten Dalal Case 

In this case, the offender was a Stock Broker for Standard Chartered Bank (SCB) and entered into a transaction with various other banks such as Bank of Karad (BoK), Metropolitan Cooperative Bank (MCB) and HSBC Bank. The SCB received neither the bank receipts nor the securities from April 1991 to May 1992 i.e. one (1) full Financial Year. The Bank filed a complaint to CBI in June 1992 confessing that Rs 1,239 crores were allegedly duped by the Broker (Accused) by entering into false transactions and giving false securities to the respective banks. The court passed a judgment in favour of the SCB and the Accused was punished for imprisonment for 2yrs in SECURITIES SCAM.

Harshad Mehta Case

This case is also known as the “Bombay Stock Exchange Scam”, in this case, the offender was a Stock Broker the same as the “Hiten Dalal” and was known as the big bull of the Dalal street. He was alleged to engage in a massive stock manipulation scheme financed by worthless Bank Receipts (BR) in which his firm used to enter into Ready Forward (RF) transactions between various banks. The accused made the Stock investors believe insecurities and made them enter into the stock market. The seller of the securities gave the buyer of the securities a BR and it confirms that the securities were sold. It also acted as a receipt for money received by the bank i.e. nothing but Bank Receipt. Like this, he continued the operation with banks like BoK and MCB. The total amount of scam, in this case, was approximately Rs 4000-5000 crores which took place at the Bombay Stock Exchange (BSE). Beside Harshad Mehta, there was one more person who was involved in this scam, Ashwin Mehta, who is the brother of the Accused. Interestingly there were 27 criminal charges against him and the last case is still under the trail.

Ketan Parekh Case   

After the Harshad Mehta’s scam, the Stock Market was in a vacuum as the market did not have a proper stockbroker and space was needed to fill. Ketan Parekh (KP) was the one who filled this empty space and was the new Stock Broker in Dalal street.  Ketan Parekh was also known as K-10. The reason behind this is that during his peak time (1998) he used to run a pack of 10 stocks which came to be known as K-10. These included names like Global Tele systems, Zee Telefilms, HFCL, Silverline, Satyam Computers, Aftek Infosys, DSQ Software, Ranbaxy, Penta media Graphics and Visual Soft, Digital Global and SSI were also dubbed as K- 10 stocks. During the year 1998, the traders were not in a position to buy the share of companies like WIPRO and INFOSYS and their promoters were also not that co-operative. Then the accused decided to create his own stock or trade indicator for which he received funds from managers and Foreign Institutional Investors (FIIs). During the same period, the promoters were facing problems with the liquidity of money; the banks were rigid and did not provide loans and they were unable to raise money. Then came Ketan Parekh who Rigged the share prices and provided the required liquidity to the promoters and earned a good amount of money.

He continued this business from 1998 – 2001 and in the latter year, he was caught and arrested. On March 1st, 2001 just after the Union Budget was finalized, the BSE crashed by 176 points. After seeing this massacre downfall of the BSE, the NDA government was asked to inquire about this market reaction. Subsequently, RBI refused to clear pay orders that have been given by Ketan Parekh to Bank of India (BOI), as they found them suspicious. The RBI issued an investigation against Ketan Parekh. Ketan Parekh to escape the punishment, cleverly tried to dump the K-10 shares and was opposed by a cartel of bear brokers in Mumbai. As there was no option left or open for Ketan Parekh he sold off his entire shares of K-10 stocks to Madhavpura Mercantile Cooperative Bank (MMCB) and Global Trust Bank (GTB). Due to this dumping, the share market collapsed the following day and large-scale investors and other promoters were at loss. And at last, Ketan Parekh was arrested and the amount of scam, in this case, is still UNKNOWN. Ketan Parekh was barred from accessing the Stock Market by SEBI, but he had a lot of influence and was still accessing the stock market by investing with other companies. At last, in 2009 he was arrested by CBI for cheating and was sentenced to imprisonment for 2 years by the special court.

Saradha Chit Fund Case

The Saradha Scheme was introduced by the Saradha Group and they operated the business through a network of more than 100 companies. The group was incorporated in the year 2006. The group hired brokers or agents who acted as per the instructions given to them and they were paid a commission for this work which was of around 25-40% of the business. The whole group (chit fund) was operated by Mr Ramakrishna Paramhamsa and the scheme was named after his wife “Saradha Devi”. He and His wife were recognized as a prominent individual, who had many followers and also deep respect among the citizens of Bengal. The group started collecting money from the investors in the schemes and promised them a guarantee of high returns. The scheme soon expanded to other states like Odisha, Assam, and Tripura and the number of investors in the scheme increased to 1.7million. The group cleverly used the money from the new investors and paid the old investors (previously enrolled) with the money received, rather than from the income generated through investments. The interesting part here is that many MLAs and MPs of the Trinamool Congress (TMC) were also a part of this scam and were questioned by the Central Bureau of Investigation (CBI). Apart from these individuals Congress leader Matang Singh and Assam BJP leader Himanta Biswa Sharma, who was with the Congress at that time were also involved in this scam. Finally, in 2012 the Securities and Exchange Board of India asked Saradha to stop taking and accepting funds from the investors and demanded to obtain the regulator’s certificate to carry on the schemes. And at last, in the year 2013, the inflows and outflows of funds were not matching as a result of this the scheme which the Saradha Group launched as a complete and outraged Scam with the public at rem becoming victims. In simple terms, the “Scheme was a Scam”. The quantum of money involved in this scam was measured approximately between 1200-4000 crores.

Vijay Mallya scam

Vijay Mallya one of the most famous personalities in India, a businessman and a former Member of Parliament (Rajya Sabha). Vijay Mallya was a successful business tycoon and was the former owner of Kingfisher Airlines (defunct now), Royal Challengers Bangalore cricket team and former co-owner of Force India a Formula-1 team. He was also the Ex-Chairman of United Spirits and also had a business in the Alcohol Industry. He was mainly accused of fraud and Money laundering of Rs 9000 crores which were not paid back to banks from which he has taken loans. All these banks were led by the State Bank of India (SBI). Mallya was charged for fraud, money laundering, criminal conspiracy, and cheating. Organizations like ED, CBI, SEBI charged Mallya under different sections and Acts which are as follows: 

• Enforcement Directorate (ED): Section 3 (offence of Money laundering) and 4 (Punishment for Money laundering) of the Prevention of Money-laundering Act, 2002 for the loans taken by him. The amount was nearly Rs 3,500 crores.
• Central Bureau of Investigation (CBI): Sections 120B (Criminal Conspiracy) and 420 (Cheating) under the Indian Penal Code (IPC), 1860 and Sections 13(1) and 13(2) of the Prevention of Corruption Act, 1988 which deals with Criminal Misconduct by a Public Servant and Punishment for it.
• Securities and Exchange Board of India (SEBI): Banned him from Accessing the Stock Market till 2021.
• Vijay Mallya, to escape punishment and penalties from the allegations made against him by the above organizations, absconded himself (flew) to the UK and the Supreme Court of India declared him as a Fugitive Economic Offender under the Fugitive Economic Offenders Act (FEO), 2018

Nirav Modi Case      

Nirav Modi was a successful businessman and most of his business was related to Diamonds. He was the jeweller and as well as designer of the diamonds. Nirav Modi, his maternal uncle Mr Mehul Choksi, few relatives and some employees of the Punjab National Bank (PNB) were the offenders in this scam. The bankers used fake Letters of Understandings (LoUs) in this scam. The bank started (opened) its new branches only at a few favourite places for the import of pearls and diamonds for a period of one year. Like this, the import was carried on and the overseas branches of the Indian banks ignored the guidelines laid down by the RBI. This led to the failure of sharing of documents from one end (overseas) to the other end (PNB), which they were supposed to send for availing the credit from them. Nirav Modi got his 1st fraudulent guarantee certificate from PNB in the month of March 2011 and managed to get more than 1200 certificates from thereon. This resulted in fake transactions of funds and nearly an amount of Rs 10,000 crores was collected by the accused. The scam came into the limelight in the month late January and then PNB filed a complaint to CBI against Nirav Modi that false LoUs were used to transfer the amounts from one place to another. PNB named 3 diamond firms, Diamonds R Us, Solar Exports Diamonds and Stellar Diamonds. In the month of May 2018, the money involved in this scam was Rs 14,000 crores. Soon after the scam broke out Nirav Modi’s brother Nehal Modi erased all the data (transactions) from devices and other media and even the server located in UAE. Before the scam was uncovered, Nirav Modi had already escaped from India with his relatives just like Vijay Mallya escaped from punishments and penalties.

These scams can be more than evident and the quantum of money involved can lead to depletion of the economy like it creates some sort of fear in the minds of the people and they will not invest their money in any kind of Securities or Shares let it be the G-Sector itself and will not participate in Stock Exchange Markets. The citizens will also lose faith and trust in the Justice Systems as they are not able to punish the Offenders due to lack of proper evidence or proof against them.

What were the changes made in the laws by the Government after committing these Economic Offences                    

Many new acts, provisions, and amendments to the existing acts were implemented and changed by the Government after the above offences and a few others as well. The Government introduced new acts such as:

• Securities and Exchange Board of India, 1992: SEBI is a non-statutory body and was introduced after the scams done by Hiten Dalal and Harshad Mehta. The act was established in the year 1992 and lots of changes were made to the existing stock market like: 

1. Power to dispose of, seize and hold the property of the offenders. 
2. Compulsory registration of Stockbrokers, sub-brokers and share transfer agents, etc. 
3. The act had its own tribunals called Securities Appellate Tribunal.
4. The act also provided punishments and other penalties for the offenders.      

SEBI was given statutory power in the year 1992 through the same act. The act was amended in the year 2014 after the Saradha chit fund case. The major amendment done under this act was, SEBI now had the powers to search, ask for call records and obtain any other information. SEBI has also widened the definition of the Collective Investment Scheme (CIS) in this amendment.

Extradition Act, 1962: The purpose of the extradition act is to send back the convicted offenders who flew (absconded themselves) from their respective nation after committing an offence, to ensure justice to the victims and punishment for the offender(s), this act was introduced in the year 1962. The act was amended in the year 1993 and widened not only the scope but also the definition of Fugitive. Offenders and their return from foreign states. The main difference between the Extradition Act, 1962 and Fugitive Economic Offenders Act, 2018 is that the latter deals with the identification and detecting of these offenders whereas the other act deals with the return and extradition of fugitive offenders. 

Fugitive Economic Offender Act, 2018: This was established after two main scams the first one being Vijay Mallya’s loan scam and the latter one being Nirav Modi’s diamond and loan scam. These two offenders were involved in huge amounts of money and the quantum of money which these two offenders looted was not in lakhs but were in crores. As soon as the offender’s crime was revealed they managed to escape the nation and absconded themselves. This act empowers the court (special) to confiscate or seize all the properties and assets of the offenders who have been escaped from the nation and are charged for economic offence measuring the amount of spam being more than 100crores and above. The purpose of this act is simple i.e. to have extra-territorial jurisdiction of the Indian Courts.

Who are economic offenders?

Based on the above cases it can be seen that famous personalities and well-recognized individuals are the Offenders under this crime. Starting from the 1st case and to the last case in this Article, all the persons were involved in some or the other scams which in many ways targeted the innocent minds of the people by gaining the trust initially and later on playing with their hard-earned money. Due to a lack of knowledge of the victims and trusting the accused blindly, leads to the offence. As the offenders are qualified, experienced, and are at a level of committing these crimes. Powerful personalities are also one of the offenders in this crime, this power can be Political, Pecuniary, and Professional. White-Collar Criminals are one of the examples of Economic offenders.   

How do they commit the Crime?

Most of the offenders in this Crime introduce themselves as trustworthy agents and few other offenders use the well-established name of their or their family members. All these offenders portrayed(portrait)) themselves in a very competent and nullified manner and gained the trust of the people. Most of the offenders commit this offence either by introducing new Schemes in the market or making people invest in their company’s Securities or Shares. At the beginning of the crime, the offenders render their services to their clients based on Know Your Client (KYC), providing them (victims) with maximum returns in case of Chit Funds and with high Share value in case of Securities or Shares. As money plays an important role in every citizen’s life, the victims get easily fooled by the conditions of the schemes or securities or shares, with this the victims get the money in a short period and are satisfied but in the long run, the victims face a serious breach of trust and the offenders have the last laugh, and by the time the victims realize the scam it is already too late and the crime is committed. Because of this reason, this offence has become a cakewalk and the offenders are committing the crime without any difficulty. 

Laws relating to the economic offence (Prevention)

Various Acts and laws are dealt with different types of offences under the common offence called Economic Offence which are:

Money laundering: Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of the offence of money-laundering (Section 3 of PMLA, 2002). And the law or the Act governing this offence is the Prevention of Money-laundering Act, 2002.

Tax Evasion and Corruption: Goods and Services Tax, 2016. Introduced by the Constitutional Amendment (101st) under Article 246(A). 

Prevention of Corruption Act, 1988. Fraud: Defined under Section 17 of the Indian Contracts Act, 1872. ‘Fraud’ means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract.

Forgery: Defined under Section 463 of the Indian Penal Code, 1860. Whoever makes any false documents or false electronic record or part of a document or electronic record, with intent to cause damage or injury], to the public or to any person, or to support any claim or title, or to cause any person to part with property, or to enter into any express or implied contract, or with intent to commit fraud or that fraud may be committed, commits forgery.

Cheating: Defined under Section 415 of the Indian Penal Code, 1860. Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to “cheat”.

Counterfeit: Defined under Section 28 of the Indian Penal Code, 1860.

A person is said to be a “counterfeit” who causes one thing to resemble another thing, intending by means of that resemblance to practise deception, or knowing it to be likely that deception will thereby be practised. [Explanation 1. It is not essential to counterfeiting that the imitation should be exact. Explanation 2. When a person causes one thing to resemble another thing, and the resemblance is such that a person might be deceived thereby, it shall be presumed, until the contrary is proved, that the person so causing the one thing to resemble the other thing intended by means of that resemblance to practise deception or knew it to be likely that deception would thereby be practised.]

Criminal Breach of Trust: Defined under Section 405 of the Indian Penal Code, 1860. Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriated or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits “criminal breach of trust”. Extradition Act, 1962 deals with the Meaning, Definition, Terms, and Conditions, Return and Extradition of Criminals or Offenders from one nation to another. Fugitive Economic Offenders Act, 2018 deals with Meaning, Definition, and Declaration of the Offenders. 

Conclusion

As the appropriate changes were made and new Acts and Amendments were brought by the Appropriate Authority (CG) of our Nation the crime rate under this Offence is getting reduced, but the harsh reality is that they are not completely wiped off from the Nation and are still lacking few Policies. The Statutory body of India shall improve the laws so that the offenders who are escaping the punishments by absconding themselves to other Nations shall stop and the maximum amount of punishment shall be given to them so that no one in the future will think of committing such crime not only this but the act should also contain provisions to protect victims by giving them money as compensation for the damages they’ve been through. Acts like IPC, PMLA, etc., play their part but the act which only depends on this crime will have a larger impact than the existing acts. “The Deterrent theory of punishment shall be implemented”.

The nation should enter into more number of treaties and agreements with other nations, so that the offenders cannot escape and shall go through the punishment for the offence committed, even by fair means or foul the offenders escape, he/she can be sent back to the nation if the relationship between our nation and other nations are “STRONG”. And finally, connections with Interpol should also be made respectively so that it will be easy to force or to charge an inquiry or investigation against the offender and it can also help to search and arrest the said offender. The powers to the External Affairs Minister should also be increased i.e. only to the extent of Extradition matters.

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