By Aditya Jena
With the recent arrest warrant issued against fugitive diamantaire Nirav Modi and recent extradition order of Mr Vijay Mallya passed by the Westminster Magistrate court in UK comes as sigh of relief for the Indian Government and the banks as they were under increased pressure of non-performing assets and many economic offenders escaping the country from the fear of facing legal authorities. The UK court made notable information of Mumbai special court’s decision who declared Mr Vijay Mallya a “fugitive economic offender” under the Fugitive Economic Offenders Act 2018. On January 5,2019 the Special court had declared Mr Vijay Mallya to became the first Indian to be FEO under this law.
Why Fugitive Economic Offenders Act came in to place?
The number of cases on frauds reported by banks were generally hovering at around 4,500 cases a year in the last 10 years which rose to appalling number of 5,835 cases in the year of 2017-18 . Correspondingly, the amount involved in frauds was increasing gradually, followed by a significant increase in 2017-18 to ₹410 billion. The quantum increase in the amount involved in frauds during 2017-18 was on account of a large value fraud committed in gems and jewellery sector, mainly affecting one public sector bank (PSB).
Source: RBI Annual Report 2017-2018.
During 2017-18, PSBs accounted for 92.9 per cent of the amount involved in frauds of more than ₹0.1 million, as reported to the Reserve Bank while the private sector banks accounted for 6 per cent. On March 31st 2018 the total contribution in fraud, PSBs accounted for around 85 per cent, while the private sector banks accounted for a little over 10 per cent. At the system level, frauds in loans, by amount, accounted for more than 75 per cent of frauds involving amounts of ₹0.1 million and above while frauds in deposit accounts were at just over 3 per cent.
According to Ministry of External Affairs report around 31 people who are involved in various financial frauds and scams have been reported to be absconding which are being investigated by Enforcement Directorate and Central Board Of Investigation. It is evident that with increase in fraud cases there was need for stricter implementation of laws and regulations relating to financial scams and other crimes.
There was lot of pressure on the government to bring in a stringent law which could act as a deterrent law while dealing with economic offenders who could escape from India. It was a more hue and cry from the common man and to satisfy the electoral promises meant that this law was being brought in a hurried manner.
Introduction
The Fugitive Economic Offenders Act was enacted on 21st April 2018 and it will act as deterrent for fugitive economic offenders leaving India in order to escape from the process of being tried under India law and to stay safe outside Indian jurisdiction. This act has got some many elements from the Prevention of Money Laundering Act 2002.
Currently there are various provisions which deal with economic offences laws such as Prevention of Money Laundering Act 2002, the benami transactions under The Benami Property Transaction Act 1988 and the Companies Act 2013 also contains laws which deal with unlawful practices and illegal use of shell companies. In addition to civil laws and criminal laws there were very poor implementations of these laws and it was time consuming.
Challenges
There was no specific law which could deal with offenders involved in white collar crimes of high value transactions and who leave India from the fear of facing legal hurdles. This would mean that a lot of offenders have to tried under the Extradition Act and the authorities always had to go through lot of steps in order to extradite persons from foreign countries. The extradition process involves lot of other elements such extradition treaties, nature of offences, and the international relationship between countries etc; so the law needs to enforced judiciously. So this act could as a game changer for India as long as it is implemented strongly. India is considered to be not a favoured country for extradition process and courts have rejected the extradition process on basis of very poor jail infrastructure facilities in India as there was no guarantee for a fair prosecution.
The legal challenges would be of the value of crime of Rs 100 crores being circumvented by using various loopholes by the alleged offender who can do series of default of transaction and still be under the limit. Tax havens are major hurdles as they can used as ways to take citizenship by offender where creating a series of companies in form of investments to governments in return for legal citizenship. “Proceeds of crime and reasonable belief” are major sections where lot of interpretations can be made to delay the proceedings.
Conclusion
This law will became a major challenge for the persons who will think twice before committing these frauds. It empowers the government to seize both local and overseas assets of the fugitive even before they are convicted. The legal experts believe that the law to target the economic offenders will act as a deterrent as the government will retrospectively increase the ambit to include all cases where the defaulter have left nation to evade the criminal proceedings under Indian Jurisdiction. It will also aid the financial institutions and banks to get a chance of increasing higher recovery of unpaid loans by the defaulters thereby improving the economy’s financial health. Creation of Special Courts will help to reduce the burden of the judicial system and try to fast track cases of alleged economic offenders who have absconded to return to India and face criminal charges.
The objective of this law can be fulfilled only when the administrators act in a serious manner and implementation is done in a true manner which will prevent the accused to escape from the laws of the land. Only time will tell whether Modis and Choksis can be extradited by the Indian authorities successfully to repay back the unfulfilled debt.
Business Management 