28 March, 2018
The Central Government in India had introduced the Prevention of Money Laundering Act, 2002 (“PMLA”), to prevent the circulation of laundered money. The Act defines money laundering as any process or activity connected to proceeds of crime, including its concealment, possession, acquisition or use and projecting or claiming it as legitimate property. While the PMLA Act allowed for confiscation and seizure of properties obtained from the laundered money, such actions were still subject to the processes of criminal prosecution. This led to many of the persons accused of money laundering, to flee the jurisdiction of Indian courts to avoid criminal prosecution under PMLA and the consequent confiscation of the properties.
On March 12, 2018, the Indian government introduced the Fugitive Economic Offenders Bill, 2018 (“Bill/Proposed Act”), in the Lok Sabha, after receiving approval from the Cabinet, to address the issue of such economic offenders avoiding criminal prosecution.
The Bill defines a ‘fugitive economic offender’ as any individual against whom a warrant for arrest in relation to economic offences, under various statutes, listed in a schedule to the Bill (“Scheduled Offence”) has been issued, on or after the enactment of this Bill, by any Indian court, and who:
- Has left India to avoid criminal prosecution, or
- Being abroad refuses to return to India to face criminal prosecution.
Pertinently, in 2015, the definition of proceeds of crime in the PMLA was amended to include property equivalent to proceeds of crime held outside the country.
Powers of the Investigating Officer/Director
For the purpose of this Bill, the Director or any person authorised by such Director[1], is empowered to make an application to the designated as the Special Court this Bill, for declaration of an alleged offender as a ‘Fugitive Economic Offender’ (“Application”). The principal responsibility of such Authorised Officer is to prevent any suspected individual from avoiding criminal prosecution by leaving the jurisdiction of Indian courts.
This Bill extends such an Authorised Officer the extraordinary power of ordering, in writing, for the provisional attachment of any property for a period of 180 days, even pending any declaration by the Special Court on an Application. This measure is for preservation of properties, pending the process further to the Application. For exercising such a power, the concerned officer must have reason to believe that (a) the property is derived or obtained, directly or indirectly, from any scheduled offence carried out by a fugitive economic offender; and (b) is being or is likely to be dealt with in a manner which will result in the property being unavailable for confiscation.[2]
Additionally, the Authorised Officer, is also empowered to search the person, and may even detain such individual, provided that the alleged offender is produced before the nearest Gazetted Officer superior in rank to the Authorised Officer, or a Magistrate’s Court within 24 hours of such detainment. [3] These powers aresimilar to the powers of a police officer when executing a warrant of arrest under the Criminal Procedure Code, 1973.[4]
The Bill provides that, the concerned officer shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 in respect of the following:
- Discovery and inspection.
- Enforcing the attendance of any person, including any officer of a reporting.
- Entity and examining him on oath.
- Compelling the production of records.
- Receiving evidence on affidavits.
- Issuing commissions for examination of witnesses and documents.
- Any other matter, which may be prescribed.
The Director conducting the investigations also has extensive powers to survey the activities of the individual under investigation, and of search and seizure even before an individual is declared a fugitive economic offender.
Special Court under the PMLA and Rules of Evidence
Under the Proposed Act, the ‘Special Court’ may declare an individual as a ‘fugitive economic offender’ on an Application made by the investigating officer/Director. Under the Bill, civil courts are barred from entertaining any suit or proceeding in respect of any matter that the Special Court is empowered to determine.[5] Further, all courts and authorities are barred from passing any orders of injunctions in respect of actions taken/to be taken under this Proposed Act.
The Special Court hearing an Application is required to issue a notice of not less than 6 weeks to the alleged fugitive economic offender, and to any other person who has any interest in the property mentioned in the Application. If the said alleged offender appears in person, the Special Court may terminate the proceedings initiated further to the Application.
The Special Court has been provided powers to identify and confiscate the properties in India and abroad that are,
- the proceeds of crime in India or abroad, whether or not such property is owned by the fugitive economic offender; and,
- any other property or benami property in India or abroad, owned by the fugitive economic offender.
The Special Court will first try to identify the properties which are the proceeds of crime, failing which they shall quantify the proceeds of crime. The Special Court is empowered to separately list any other property owned by the fugitive economic offender which may be confiscated. For properties outside India, the Special Court is empowered to write to contracting states requesting a court or authority in such state to execute such an order.
Where the Special Court concludes that the individual is not a fugitive economic offender, the Special Court shall order release of the property or record attached or seized hereunder to the person entitled to it. However, despite such an order, the Authorised Officer may withhold the release of any such property or record for a period of 90 days from the date of receipt of such order, if the officer is of the opinion that such a property is relevant for appeal proceedings.
Scope of Seizure and Appeals from Order of Declaration as a Fugitive Economic Offender
Once an individual is declared as a fugitive economic offender, the Special Court may order the Central Government to confiscate: (a) proceeds of crime, whether or not such property is owned by the fugitive economic offender; (b) any other property in India or abroad or benami property,[6] owned by the fugitive economic offender. The Special Court may, while making the confiscation order, exempt from confiscation any property that is a proceed of crime in which any other person other than the fugitive economic offender has an interest, provided it is shown that such interest was acquired without knowledge of the fact that the property was a proceed of crime. Any individual aggrieved by an order in relation to declaration as a fugitive economic offender, may appeal to the High Court within 30 days from the date of the order, and with sufficient cause may file such appeal within a maximum of 90 days.
‘Preponderance of Probability’ and Rules of Evidence
While the Bill requires the Director, or any person authorised by the Director to file the Application, to discharge the burden of proof for establishing that an individual is a ‘fugitive economic offender’, the said Director is only required to establish a ‘preponderance of probabilities’, i.e. an act which is proved when the court either believes it to exist, or if it considers its existence so probable that a prudent man ought, in the circumstances, to act upon the supposition that it exists.[7] This is a is a lower bar than the one set by the Evidence Act, 1872, which requires proof beyond reasonable doubt for the prosecution of criminal offences.
Whereas the Bill places the burden of proof on third parties having any interest in properties that are deemed ‘proceeds of crime’. This is particularly onerous because the Bill widely defines ‘proceeds of crime’ to include property which may have been derived, directly or indirectly, as a result of criminal activity relating to a Scheduled Offence.[8]
The Bill also covers the properties taken outside the country.
Conclusion: Areas of Concern
The Proposed Act seeks to disentitle an individual who has been declared as a fugitive economic offender, from putting forward or defending any civil claim. Further, in its current form, the Bill also stipulates that any civil court or tribunal may disallow a company or limited liability partnership from putting forward or defending any civil claim if:
- the person filing claims on behalf of the company is declared a fugitive economic offender; or
- the company’s promoter, key managerial person[9], or a majority shareholder of the company; or a person with controlling interest in a limited liability partnership is declared a fugitive economic offender
This provision does not provide any protection to other persons associated with or invested in such companies/limited liability partnerships, who may not have benefitted/knowingly benefitted from proceeds of a crime.
Further, the interested parties in properties that are considered ‘proceeds of crime’ now bear the burden of proving that such properties were acquired bona fide, and that they did not have knowledge that such properties were ‘proceeds of crime’. Discharging such burden of proof is likely to be cumbersome for third parties who are not Indian residents or who have perfunctory connections to the alleged criminal activity.
* The author was assisted by Namrata Zaveri and Karishni Khanna and Srishti Singhania, Associates
[1] But not below the rank of the Deputy Director (Director/Authorized Officer) as appointed under Section 49 (a) of the PMLA
[2] However, such officer is required to file an Application before the Special Court within 30 days of such provisional attachment, which the Special Court may extend beyond the prescribed 180 days based on reasonable cause.
[3] Section 9 of the Fugitive Economic Offenders Bill, 2018
[4] Section 76 of the Criminal Procedure Code, 1973
[5] Section 18 of the Fugitive Economic Offenders Bill, 2018
[6] “benami property” means any property which is the subject matter of a benami transaction and also includes the proceeds from such property. A “benami transaction” means a transaction or an arrangement—(a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and (b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration. A “benamidar” means a person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who lends his name.
[7] Section 3, the Indian Evidence Act, 1872, Emperor vs Shafi Ahmed Nabi Ahmed (1929) 31 BOMLR 515; P.Mohandas Panicker vs K.K.DakshayaniKerala High Court 19 October, 2005.
[8] See section 2(k) of the Fugitive Economic Offenders Bill, 2018
[9] As defined in the Companies Act, 2013 at section 2(51)
For further information, please contact:
Faraz Alam Sagar, Partner, Cyril Amarchand Mangaldas
faraz.sagar@cyrilshroff.com
