Guest Post: Day Fines: Re-shaping India’s Broken Criminal Justice System

The Proof of Guilt is happy to have a guest post by Mr. Nishant Gokhale, a recent LLM graduate of the Harvard Law School

By most accounts, India’s criminal process is broken. Criminal courts are plagued by issues of delay and pendency, highly inconsistent legal representation, and outcomes which often result in longwinded appeals and revisions. While attention is focused on some of these issues sporadically, little is discussed or known about the system’s financial health. This post sheds some more light on this aspect, providing a brief background into how the court system is financed, before moving to discuss the concept of “day fines” as an additional tool to help the system run better. 

Who pays for our courts? 

Currently, states contribute at varying levels with the central government investing a majority of funds every year in the budget. It might not surprise you to learn that the judicial budget accounts for little more than 1% of India’s GDP, with much of it being spent on salaries of the judiciary and staff. Budgeting practises have been criticised for being formulaic, and for providing only incremental increases from past outlays, which leave little or no room for developing capacity or implementing new programs. The few other times that judicial budgets are spoken of, it has been in context of the ease of doing business, which does not take into account the chronic underfunding of criminal courts. While the Supreme Court in a 2012 Report had indicated that the financial burdens of operating courts should be shared between the centre and states equally, it remains an open debate. Chronic underfunding undermines nearly every action of the judiciary, and it is urgently necessary to examine new solutions to old problems. 

Fines in India 

One often overlooked approach involves “fines”. Every criminal court in the country has the power to impose a fine, where provided by law, once guilt has been proven or admitted by the offender. Fines have been around since at least 1100 AD in Europe and developed to reduce the dependence on private vengeance to punish criminality. 

How fines in India work in actuality remains a matter of conjecture as no information exists about it. Going by the Indian Penal Code, 1860 (“IPC”) alone, fines are capped at meagre amounts. While one problem is that fine amounts have not been revised to correspond with changing times, that is only the tip of the iceberg. Courts have the unenviable task of dealing with offenders across a wide spectrum of socio-economic means. For economically weak offenders, a higher fine amount would mean a substantial burden or even diverting expenses from basic necessities such as basic nutrition and health. For wealthy offenders, the low fine amounts constitute little more than a slap on the wrist. Increasing the fine amounts marginally would do little. This may explain why there has been little done to revise the monetary values of fines in the IPC which has resulted in this unhappy average. An alternative that some parts of the world have experimented with to deal with this problem is the concept of “day fines”, to which I turn to next. 

What are Day Fines? 

Day fines are a monetary criminal penalty imposed using a two-step procedure which take into account severity of the offence and the offender’s means. The first step involves assigning “day units” to a particular offence. Day units are determined based on how severe the criminal law considers a particular offence. Criminal law routinely grades offences based on severity. For example, rash driving resulting in the loss of life is considered more severe than drunken driving resulting in no actual harm to life or property. Day-unit determinations are divorced from the means available to the defendant. Means are considered in the second step called “day-value” determination. The day-value is determined after accounting for their assets, and liabilities and setting aside a reasonable allowance for their dependants and essential expenses such as nutrition and healthcare. 

The actual amount of day fine is a determined by multiplying day-units and day-value. So while the day-units for an offence of rash driving resulting in loss of life would be the same for rich and poor defendants (say for example 200 day units), the actual amount payable as fine would depend on the means available to the defendant. Using day fines would therefore result in the same relative burden on all offenders. 

Where are day fines used? 

Finland adopted a day fine system in 1921 following post-war fluctuations in the value of its currency. Today, around 60% of sanctions imposed by the Finnish criminal justice system uses day fines. Day units can vary between 1 to 120 units but can extend to 240 units for multiple offences. Germany (then West Germany) adopted day fines in the 1970s and continues to have one of the most nuanced system of day fines today. An estimated 82% of all offences in Germany are dealt with using day fines. In 2010, 94.5% of traffic offences, 86.8% of those sentenced to fraud and embezzlement, 73.3% of property crime offences attracted a day fine. Day units vary between 5 to 360 but day values have been capped between €1 to €30,000. Only 5% of the total number of cases in Germany resulted in actual imprisonment. 

Nearly all countries who had adopted this system continue to follow it till today and this has dramatically reduced incarceration rates. Notably however, the United Kingdom introduced “unit-fines” in 1991 only to repeal them in 1993. Partly responsible for the repeal were magistrates who felt that the system did not account for habitual offenders and public sentiment which felt that the middle class faced a heavy burden of fines while the poor got off lightly. Australia and Canada have unsuccessfully tried to introduce legislation to bring in day fines with a view to reduce incarceration rates. The United States abandoned day fines after some pilot projects as the system was found to be complicated and perhaps would also face resistance from vested interests such as private prison corporations. Some countries like the Netherlands, Norway, Italy, and Iceland have also steadfastly refused to implement day fines and continue with ordinary fines. Their preferred tools are suspended sentences and community service instead of incarceration. 

Implementing Day Fines in India 

Day fines are a concept to which little thought has been given in India. Undeniably, prisons are overcrowded and disproportionately represent religious minorities and socio-economically vulnerable castes and tribal groups. It is however unclear how much of this is due to fines. The IPC provides some safeguards on imposing fines such as monetary caps on fines for some offences and stringent limits for imprisonment for non-payment of fines. Where no upper monetary caps are specified, the IPC does not gives courts discretion to impose fines which are “unlimited” but not “excessive”. While specific fine amounts would require to be done away with in the text of the IPC, several underlying actions would need to be done before pressing day fines into service. 

Firstly, it would need to be clarified that offenders committing the same offences can be charged different amounts. The day units would be the same based on the offence, but what would vary is the day value. Individualised sentencing is a value that the courts recognise in Indian criminal law. For the determinants of day value, some guidance can be taken from the affidavits of income required by the Delhi High Court in matrimonial cases, in motor vehicle accident cases and also mitigating circumstances used in death penalty cases. It would also be important to gradually expand the use of day fines to cases involving corporations as they may require rules and factors other than those applicable to natural persons. In the event that offenders refuse to submit information, contempt of court proceedings can be ordered or the court itself can make an estimation. For determining day-units, a clear severity based grading of offences requires to be done at the legislative level, either by central or state governments. 

Secondly, it must be remembered that day fines are only a means to use criminal justice tools more efficiently and partly subsidise costs, not a way to entirely fund the system. Day fines operate only after guilt-determination and not as a means to ensure compliance with court orders. The United States has shifted the burden of criminal justice debt in the form of penal fines and costs as well as administrative surcharges, user fees, even charges for transport from court to prison to defendants. This was done to provide a “painless” way to protect the tax-payer while also modernising the criminal justice system. It has resulted in untold hardship with indigent defendants being trapped in the criminal justice system’s endless cycle of being incarcerated for failure to pay thereby further impairing their ability to earn pay off the debt. The existence of social security, state healthcare and employment guarantee programs used in Finland and some other countries have generally been found to be more useful in crime-reduction than day fines itself. Therefore effective social welfare programs need to be rolled out along with modifying the system of fines. 

Lastly, given that this is a system which is different from the measures adopted thus far, it would be useful to try using it on a pilot basis. Judges, court staff and parties in the criminal system would need to be familiar with it so that it is not overwhelm them or get misapplied. It could initially be limited to a few courts (geographically) or types of offences (traffic offences or offences punishable by 1 year or less of imprisonment). It is important to safeguard against the possibility that defendants plead guilty to offences for which day fines only to expeditiously conclude criminal proceedings. 

While several substantive, comparative and procedural law issues need to be ironed out before day fines are implemented in India, it may rejuvenate the largely dormant provisions related to fines and help in bringing about meaningful criminal justice reform. 

(During his LL.M., Nishant worked with the Criminal Justice Policy Program at Harvard Law School on the issues of criminal justice debt in the United States, including on day fines. The views expressed in this post are personal and do not represent the views of the Criminal Justice Policy Program or Harvard Law School) 

Useful References (on file with the author): 

• Elena Kantorowicz-Reznichenko, "Day Fines: Should the Rich Pay More?", 11 Rev. Law Econ., No. 3, pg. 481–501 (2015) 
• Sally T. Hillsman; Judith A. Greene, "Tailoring Criminal Fines to the Financial Means of the Offender", 72 Judicature 38, (1988). 
• Joe Pinsker, Finland, "Home of the $103,000 Speeding Ticket", The Atlantic (12th Mar. 2015), available at https://www.theatlantic.com/business/archive/2015/03/finland-home-of-the-103000-speeding-ticket/387484/ (last visited 17th Jun. 2018). 
• Hans-Jorg Albrecht, "Countries in Transition: Effects of Political, Social and Economic Change on Crime and Criminal Justice - Sanctions and their Implementation Special Issue on the 21st Criminological Research Conference", 7 Eur. J. Crime Crim. L. & Crim Just. 448 (1999).
• Tapio Lappi-Seppala, "Criminology, Crime and Criminal Justice in Finland", 9 Eur. J. Criminology 206 (2012).

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.