This article is written by Siddharth Kumar.
The Parliament of India has passed the Fugitive Economic Offenders Act, 2018 (hereinafter referred to as the “Act”) in its Monsoon Session in 2018. The Act represents the Government’s ambitious endeavour to buttress the multitudinous peril of economic offenders who cheat and defraud the country and its constituents only to seek haven outside of India, in an attempt to evade prosecution. The past is replete with instances of such offenders who have more or less successfully fled from justice under Indian laws subsequent to benefiting off of scams that have cost the country billions of dollars and have led to a sharp downfall in investor confidence in the country.
Now that this law is in force, the question of its constitutionality is no longer merely an intellectual analysis but a pertinent question that, no doubt, finds a home in the minds of the individuals and entities negatively affected by the Act.
Overview of the Act
The Act sets out primarily by defining a “Fugitive Economic Offender” under Section 2(f) as an individual against whom a warrant has been issued in relation to a scheduled offence under the Act and who has consequently left India to escape criminal prosecution or being abroad, refuses to return to India, to face such prosecution. In the course of further provisions, the Act sets out the modalities of declaring an individual as an FEO by the Special Courts along with the legal repercussions to be borne by such an individual at various stages, under its provisions. The aforementioned repercussions are in the nature of, firstly, the pre-trial attachment of properties, secondly, the confiscation of potentially all of the properties of the FEO upon being declared the same and, lastly, the bar on filing or defending any civil claims before any court or tribunal in India along with similar provisions to the same effect against a company whose majority shareholder, promoter or a key managerial person is an FEO.
The relevant offences that circumstance the invocation of the Act are stipulated under the Schedule to the Act and are derived from the Indian Penal Code, 1860; the Negotiable Instruments Act, 1881; Securities and Exchange Board of India Act, 1992; Companies Act, 2013; Central Goods and Services Tax Act, 2017; etc..
1. Constitutionality of the power to confiscate the offender’s property under Section 12(2)(b)
Under Section 12(2)(b) of the Act, the Special Court is empowered to order to the effect that any properties or benami properties other than the proceeds of the crime, in India or abroad, are to vest with the Central Government, with all rights of the properties free from all encumbrances upon the individual being declared a Fugitive Economic Offender. This provision presents a contentious question as to whether the Government is justly empowered to lay claim over properties extending beyond the proceeds of crimes in question or whether the same would be a violation of the Offender’s Article 14 right to equality before law?
The relevant test in the abovementioned analysis was affirmed by the Hon’ble Supreme Court of India in the case of State of Jammu & Kashmir Vs. Shri Triloki Nath Khosa and Ors. where it laid down the two pronged test of classification that must be based on an intelligible differentia and having a rational nexus to the object of the law, being sought to be achieved. In the present analysis, the author submits, the Act does pass muster these tests under Article 14 of the Constitution.
• Saving of the Provision
Firstly, the differentia between a Fugitive Economic Offender and a non-Fugitive Economic Offender is manifestly clear as the former has evaded from criminal prosecution under the Indian jurisdiction by staying abroad, upon the issue of an arrest warrant in his name, as against the latter who has not made such an international evasion. Secondly, the classification previously mentioned has a rational nexus to the object of the Act that is sought to be achieved that is manifest from a bare perusal of the Preamble of the Act which affirms it to be, to provide for measures to deter fugitive economic offenders from evading the process of law in India by staying outside the jurisdiction of Indian courts, to preserve the sanctity of the rule of law in India and for matters connected therewith or incidental thereto. Under this Act, what is sought is not to punish the FEO but to create a position/pressure which would prevent the FEO to effectively stay abroad and thereby, to return back to India to face prosecution and the order of confiscation of his property beyond what constitutes proceeds of crime is an integral in necessitating such a return.
The abovementioned rational nexus has the effect of saving from unconstitutionality, some other provisions of the Act including the attachment of properties upon suspicion of them being siphoned off under Section 5 and the imposition of preponderance of probabilities as standard of proof applicable to the determination of the facts by the Special Court which are made essentially in relation to criminal offences by way of Section 16(3) of the Act.
Illustratively, the confiscation of properties beyond the proceeds of the alleged crime against the offender under the Prevention of Money Laundering Act, 2002 would be violative of Article 14 of the Constitution as there is no rational nexus between the confiscations of properties beside the proceeds of crime of the offender and the object of the Act which is, to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto. The aforementioned object in and of itself, imputes a limitation upon such a confiscation in its implications.
2. Constitutionality of the bar on civil claims under Section 14
The stipulation of Section 14 of the Act is that the Fugitive Economic Offender, so declared by the Special Court under Section 12 of the Act, would, subject to the discretion of the relevant Court or Tribunal, be disallowed from putting forward or defending any civil claim before it. This bar finds application upon any and all civil claims, including civil proceedings which have no nexus with the offence(s) in question including but not limited to divorce proceedings, succession petitions, suits relating to family disputes, consumer complaints etc.. Further, under Section 14(b) of the Act, a Company or LLP would suffer the same fate where an FEO either files a claim on its behalf or is a promoter or key managerial personnel or majority shareholder of the Company or having a controlling interest in the LLP.
The bar so stipulated under the Act is elementally different from an Order of Moratorium under the Insolvency and Bankruptcy Code, 2016 as while the latter stipulates the halt on all relevant proceedings for both litigants, the former has the effect of disabling the FEO from filing or defending any and all civil claims. This has the implication of essentially ex-parte proceedings where the FEO/Company/LLP (as the case may be), only to his/its prejudice, has no voice to make any and all representations.
In following with the expansive interpretation of Article 21 of the Constitution as was affirmed by it in the case of Maneka Gandhi Vs. Union of India, the Hon’ble Supreme Court of India in its decision in the case of Anita Kushwaha Vs. Pushap Sudan has held that the Right to life inheres in itself the Fundamental Right of Access to Justice. The bar on the FEO/Company/ LLP under the impugned provision has the effect of disabling him/it from having access to any form of civil justice both as its seeker or its respondent. Therefore, in so far as Section 14 of the Act limits the right of the impugned persons from seeking access to justice, this bill would stand in violation of this Fundamental Right guaranteed under Article 21 of our constitution.
• Saving of the provision
The violation of the Fundamental Right of Access to Justice under the Act cannot result in the Act being struck down de-facto, as the Hon’ble Courts must keep in view the compelling state interest behind such a law in the ultimate analysis of its constitutionality.
Recently, in its landmark decision in the case of Justice K S Puttaswamy (Retd.) and Anr. Vs. Union of India and Ors., the Hon’ble Supreme Court of India has held that while adjudging constitutionality under Article 21, the court must have view of the reasonable restriction upon these rights imposed in pursuance of compelling social, moral, state and public interest.
In the case of this Act, there is compelling state and public interest that is ought to be furthered. These are, firstly, to deter economic offenders from evading the jurisdiction of Indian courts, secondly, to bring to justice Fugitive Economic Offenders. These recurring incidences of fugitive escapes by economic offenders have led to a sharp fall in investor confidence and the abuse of the due-process of finance and business along with huge losses caused to the persons and companies of the country.
The subject speaks of its own importance, comprehending within its consequences nothing less than the future and growth of the Indian economy that is pestered with these frivolous and fraudulent misdeeds which have only led to harsh roadblocks in its trajectory of growth. The author submits that this Act does therefore, pass muster the test of Constitutionality under Article 21 of the Constitution in view of the compelling state and public interest furthered by this law.
Further, the Act does also pass muster the test of Constitutionality under Article 14 (as aforementioned) as the classification is based on an intelligible differentia and such classification has a rational nexus with the object sought to be achieved by the Act in the same manner as Section 12(2)(b).
In recent times, the Hon’ble Supreme Court has given due regard to matters of compelling public, social, moral and state interests along with other reasonable restrictions to uphold the constitutional validity of various laws. For example, it had upheld the constitutional validity of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 and Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 which stipulate for preventive detention consequent to certain offences under the Act and the forfeiture of the illegally acquired properties of smugglers and foreign exchange manipulators, respectively. The Hon’ble Supreme Court upheld the constitutionality of COFEPOSA and SAFEMA in the case of Attorney General for India Vs. Amratlal Prajivandas. Further, in the case of Dropti Devi and Anr. Vs. Union of India and Ors., R M Lodha, his lordship as he then was, held that the menace of these economic offences needs to be curbed. Notwithstanding the disadvantages that measures such as preventive detention may entail, and though Article 21 holds a fundamental position under the Constitution of India, it is paramount to assess the validity of these laws keeping in view, the gravity of the offence or evil that is sought to be countered by way of such a measure.
The Fugitive Economic Offenders Act, 2018 aims to tackle a peril of today that has far reaching implications upon the core of investor confidence and the well-being of the economy. The disdain and disregard shown by the Fugitive Economic Offenders is of such a nature that is representative of a deeply worrying state of affairs and a growing community of individuals who seek not to make a living honestly, but to make one, essentially based upon wrongful gains derived by way of scams and fraudulent enterprises, who seek a safe exit from the consequent liability of their actions by evading the grasp of justice. The Act represents an efficacious endeavor to curb the far reaching menace that are, Fugitive Economic Offenders.