Friday, June 8, 2018

The Fugitive Economic Offenders Ordinance: Gearing Up for Challenge?

It has been over a month since the Fugitive Economic Offenders Ordinance [FEO] was passed by the Indian President. In what is rather common fashion, the Ordinance was passed without the necessary rules having been prepared, and this past month has slowly seen the Government get its act together and notify those rules that make the wheels of the Ordinance turn (see here, and here). The stage is nearly set for the first set of cases to be brought under this Ordinance, which one expects would be against Nirav Modi and Vijay Mallya, the two bogeymen used to pilot the law through in the first place. What this also means, hopefully, is that the legal defence teams for both Mr. Modi and Mr. Mallya will bring up what many commentators including myself (mostly before the Ordinance, for instance see here, here, here, and here) have imagined as the expected legal challenge to the constitutionality of that Ordinance. In eager anticipation of that legal challenge, which I sincerely hope does take place for a Court to clarify the issues, this post highlights what are perhaps the weakest parts of the Ordinance legally. It then moves beyond these previously argued points to point out a serious change brought about by the Ordinance in how its invested law enforcement agents with seriously broad powers to investigate routine offences.

The Mechanics of the FEO Ordinance
Bear with me, as I quickly run through what the FEO Ordinance does, before moving to what many have considered as its potential pitfalls if a legal challenge comes before court. The FEO Ordinance is a measure passed by the Government to "deter" alleged fraudsters from hastily fleeing the jurisdiction of Indian law enforcement agencies, which stalls any potential criminal proceedings against these persons. Who is an FEO? It is a person against whom a warrant has been issued, and who either left India to evade it, or if outside India, remained outside to evade arrest [Section 2(f)]. The Government admittedly had the examples of Mr. Modi and Mr. Mallya in mind, and so it has made the Ordinance applicable to persons who might already be FEOs before the Ordinance came in force [Section 3].  

How does the FEO Ordinance work? It can be used by Officers of the Enforcement Directorate [ED] in cases where they allege a person is an FEO and that sums more than Rs. 100 Crores were involved [Section 2(m)]. Based on these ED allegations, the Ordinance allows the Government to confiscate the property of an FEO at the initial stage itself. To triggers this process, an application consisting of these allegations (why is she an FEO, where is she, what property is sought) must be filed by the ED [Section 4]. The Court then issues a notice the alleged FEO, and any other persons with interest in the property, to appear and answer the allegations. The persons must have at least six weeks to appear, but this calculated from the date of issuing notice and not its receipt. Effectively, it will be lesser, as the Government has up to two weeks to get that notice served [Section 10]. If the person comes herself then proceedings under the Ordinance terminate. If, she appears through counsel, then the Court can give up to a week to file a reply. But if she does neither, and the Court is satisfied that notice was properly served, then it will hear the merits of the Government application [Section 11]. If the Court finds is convinced of the Government claim, then it will declare the person an FEO, and pass orders for confiscation [Section 12]. Thus, it should be clear that the ED can't get "immediate confiscation" as some news reports wrongly suggest."

Previously Argued Pitfalls
Confiscation of assets is not new under Indian laws. But confiscation at the pre-trial stage, with such rapidity and only on the basis of initial allegations levelled by an admittedly biased investigating agency, is definitely new. Thus, it has been argued that the Ordinance procedures could be challenged as unreasonable under Article 21 of the Constitution. Most commentators argue that a prominent issue with the Ordinance lies in the variety of drastic measures it seeks to impose on a person declared an FEO. Specifically, Section 14 of the Ordinance has been attacked. This allows any court to disallow the FEO herself or entities in which the FEO holds a key managerial position to advance or defend any civil claims. The provision is dangerously overbroad: any civil claims includes property disputes, matrimonial claims, company disputes, writ petitions, and a host of other potential claims. Certainly, the FEO Ordinance cannot take away the right of a person to seek writ remedies, or approach the Supreme Court under Article 136? Beyond Section 14, it has been argued that a problem lies in the Ordinance failing to explain what happens if a person successfully appeals against an FEO declaration under Section 17. Will the Government have to return confiscated property? Will it have to make monetary refunds for property where it has already been sold? The failure to elucidate any of this raises a question of whether the deprivation of personal assets, part of my right to life under Article 21, is being done via procedure established by law. This is not inconsequential, for while the Supreme Court has upheld pre-trial confiscation of property for a State Law in Odisha and Bihar (wrongly, in my view), both those statutes had provided compensation in case of a successful appeal.

A Challenge to the Broad Powers of Enforcement - Routinising Exceptionalism
In the existing commentary on the FEO, both while it was a pending Bill and the present Ordinance, little has been said about what it allows the Government to do beyond confiscating property. By this I mean the powers of survey, search, seizure, etc. [Sections 7-9] that have been conferred on ED officers. These are extremely broad powers. Survey powers allow them to enter any establishment and legally compel proprietors or employees to furnish documents and other materials, and even take their statements. Search and seizure, though common to law, requires court sanction unless there is grave exigency. Not anymore, as Section 8 authorises ED officers to conduct warrantless searches of places without any need for exigency. Section 9 similarly allows searches of persons, obviously not the FEO, for finding evidence. 

Now, these powers are not unknown to Indian laws. Nearly identical provisions are present in the Prevention of Money Laundering Act 2002 [Sections 16-18], and are definitely the source for the FEO Ordinance. Similar powers of search are also under the Unlawful Activities Prevention Act 1967 [Section 43A]. But, at the cost of sounding obvious I must say this, Money Laundering is one of the most serious offences out there today, and the UAPA deals with terrorism. Money laundering carries links with terrorism, and nation states argue that it offers one of the most serious threats to economic stability. We can all disagree about this assessment (I certainly do), but that is the line that India and other nations have taken. Is the FEO Ordinance only dealing with Money Laundering? No! It isn't! While allegations of Money Laundering offences can trigger the FEO, it is also a mechanism for dealing with many more standard offences when the allegations involve sums of over Rs 200 Crores. So, one finds that Cheque Bouncing Offences are part of the Schedule, as are nearly all the property-related offences of the Indian Penal Code, 1860. So, the ED can bust your house without a warrant for high-value cheque bouncing or cheating cases. You might say that wait, these are huge sums involved. Rs. 200 Crores is not chump change, and these are persons fleeing the country. I agree. But are there really these sums involved, and do we really have absconders? No. Remember, the FEO Ordinance powers can be used based purely on the untested allegations of the ED. Moreover, the law contains the vague language, that the ED officers can use these powers on the suspicion that a person may be an FEO. So there is no objective basis to be certain of how fairly these powers are used. 

To give some context, go look at the Narcotics, Drugs and Psychotropic Substances Act 1985, one of the more draconian statutes that we have at our disposal. Even that law does not permit a warrantless search and seizure except in cases of exigency. Thus, what the Government has done, is to confer perhaps the most serious and rights-limiting style of enforcement powers our legal system has, to deal with cases of cheque bouncing. It offers a drastic instance of routinising exceptional powers that the law confers under the guise of fear-mongering and scare politics. Sure, you can go challenge the unannounced raid and deprivation of your property in Court later. But the damage is already done by then, and is certainly done by the time you might get a hearing in the slow Indian criminal justice system. 

Conclusion: A Serious Problem Needing Judicial Attention
The FEO Ordinance must come up before a Court. The problems that have been highlighted in terms of its consequential provisions are serious and, in some cases, seemingly unconstitutional. That the Government went ahead with these provisions despite persistent adverse commentary makes one wonder just what it thinks is a legal justification behind them? But far more troubling is this resort to exceptional enforcement powers in dubious fashion. Why does the Government need terrorism-level enforcement powers to deal with loan defaulters, cheque bouncing, cheating, and bank fraud cases? No mention of this aspect was found in the Ordinance, the Bill, or the Parliamentary Debates on the Bill, and that should concern us. This cannot become the new normal that we slowly slide towards. In any potential legal challenge, a court will have the chance to arrest that slide, and it must. 

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