Updated: Aug 2, 2020
The article has been authored by Mohanish Parikh, a current third year student at Gujarat National Law University, Gandhinagar.
Introduction: The Increasing Cases of White-Collar Crimes and its Impact
In our country, the instances of economic offences have been constantly rising in past few years which has severely hit the public confidence in the Indian economy. It is an incontestable fact that such economic offences, intertwined with buttress from deeply rooted and complex political nexuses, resulting into irreparable losses, has become a serious concern for the country.. The irreparable loss is caused not only to an individual or a certain group of individuals but rather to the entire interest of the society and the nation at the large in the long term. It is even more loathsome that such economic offenders after committing financial crimes, involving enormous amounts of funds belonging to other stakeholders, easily escape from the reach of the courts by absconding from the country. In the last five years, 27 economic offenders have fled the country after committing serious economic offences involving huge sums of money.
Fugitive Economic Offenders Act, 2018
The Fugitive Economic Offenders Act, 2018 (“the Act”) is a landmark legislation specifically designed to deal with such people, referred in the act as fugitive economic offender, who after committing such listed economic offences specified under this Act, leave the country to avoid facing criminal prosecution in India. The Act defines “fugitive economic offenders” as individuals against whom an arrest warrant has been issued by any of the courts in India for commission of any Scheduled Offence(s) and who have left India to avoid criminal prosecution or who being abroad refuse to return to India to face prosecution. A “Scheduled Offence” is an offence enlisted in the schedule annexed with the Act wherein the total value involved in such offence is more than hundred crores. Section 4(3) of the Act prescribes the investigation authority [which is same as the one specified under Prevention of Money Laundering Act, 2002 (“PMLA”) i.e. Directorate of Enforcement]. Further special court established under PMLA is the judicial authority under the act.
Once a person has been declared a “fugitive economic offender”, he would face stringent consequences and restrictions under the provisions of the Act. Section 5 provides for attachment of properties which form part of the proceeds of the crime and any other Benami property which the offender may possess. Interestingly, Section 14 of the Act puts a bar on the civil courts for entertaining any fresh civil claim against the offender. The meticulously drafted legislation creates strong deterrence to the fugitive economic offender by supplementing the existing mechanism for money laundering under the PMLA and widening its scope to a great extent.
Ensuring Strict Economic Deterrence – Understanding the Purpose and Requirement
Large-scale white-collar crimes were on the rise because there were no strict provision in the law which deterred such offenders. It is indisputable that the commission of white collar crimes cause grave financial and economic injury to innocent victims who have lent or invested their money. The victims of economic offences are not only innocent individuals but it is also the nation at large. In Ram Narayan Popli v. CBI, the Supreme Court held that the rise in white collar crimes has damaged the fiber of country’s economic structure and it is nothing but private gain at the cost of public leading to economic disasters. It has been held by the Supreme Court in the case of Parbatbhai Aahir v. State of Gujarat that economic offences impact the social and economic well-being of the State and the system and hence they cannot be treated in the same manner as a private dispute between private parties. Therefore, for creating strict economic deterrence to such economic offenders, legislations like the Fugitive Economic Offenders Act, 2018 are required to serve the interests of the society.
Constitutionality of the Special Class of Offenders
The Act has classified the Scheduled Offence as an offence which is enlisted in the Schedule annexed to the Act wherein the total money involved is more than one hundred crore rupees. The Act therefore creates a special class of persons who can be prosecuted under the Act. The entire Act is centered around the fugitive economic offender who is the person committing the Scheduled offence.
In S. Seshachalam v. Bar Council of T.N., the Supreme Court has held that the principle embodied in the right to equality under Article 14 of Constitution forbids class legislation but permits reasonable classification based on real and substantial grounds and also sharing a just and reasonable relationship with the object sought to be achieved by the said legislation. In the case of Subramanian Swamy v. CBI, the Supreme Court held that the Constitution has itself permitted the State to make such classification through the medium of legislation where such classification is rational rather than artificial or evasive and the differentia on which the classification is based has a sound and a reasonable relationship with the object of the Act. In State of Mysore v. P. Narasinga Rao, the Supreme Court has held that there are two tests for testing the validity of any provision on basis of Article 14: the first is that the classification should be based on intelligible differentia which differentiates certain persons or things in a group from other persons in the said group and second test is that the differentia must have a reasonable relation to the purpose or object desired to be achieved by the said provision in the statute.
Now in the case of fugitive economic offenders, the law has differentially treated two categories: one is the person committing a scheduled offence being valued over hundred crore rupees and second is those committing the similar nature of offence but involving an amount of less than hundred crore rupees. While a person in the former category can be prosecuted under the stringent provisions of the Act, the persons in the latter category would be saved from the application of these provisions. The legislation creates separate classes based on the amount involved in the economic offence(s) committed by the said person. In order to pass the test of reasonable classification, it must be established that the creation of a class based on the amount involved in the offence has a direct and reasonable relation to the object of the Act.
The objective enshrined in the Act is to deter the fugitive economic offenders who stay outside the jurisdiction of the Indian courts to avoid prosecution and to thereby preserve the rule of law in India. But as per definition of fugitive economic offender, it only includes such person who has committed an offence involving an amount of above hundred crore rupees. Therefore, even if the amount of the offence is slightly lower than hundred crore rupees, the fugitive offender would escape the rigors of the provisions of the Act.
It would be unconstitutional if the law permits a classification that differentiates offenders in such a way that only one set of offenders, above a single limit of amount of money involved in the offence and fleeing judicial process, should face stricter charges. There appears to be no rationale from the composition of the Act regarding such a classification being intended to achieve any specific purpose of the Act. The basis of differentia is the amount involved in the offence and it does not have any direct or even a reasonable relation to the object of the Act which seeks to deter all those economic offenders who try to evade the judicial process of India. Therefore, it appears that such a financial differentiation for the purpose of the application of provisions of the Act does not seem to pass the test of reasonable classification and violates Article 14.
Hence, the creation of the limit of amount involved in the offence as to hundred crore rupees is unreasonable because there may be offenders who may have committed an offence of significantly large amount though below hundred crore rupees. These individuals are also equally responsible for blatantly abusing the rule of law in the country by not following the judicial processes. Therefore, having such an unreasonable limit may have a negative impact on the deterrence created amongst those fugitive offenders committing an offence below hundred crore rupees. On the other hand, to permit such a category of offenders below the financial limit of offence to escape the rigors of this Act would be unfair and discriminatory to those who are implicated under the Act. Although, the law may try to focus on those economic offenders involving large sums of money, it may be done through creating different classes of offender based on amount of money involved and the nature of the offence rather than one single limit. These different classes must include even those offences which involve amount lesser than one hundred crores. Severity of punishments and implications may be prescribed differently for each class of offenders. Such a structure would definitely help to apply the Act more widely and ensure greater and stricter deterrence to the perpetrators of white-collar crimes thereby protecting the interests of the society and the nation at large.