The Great Indian Bank Heists & Fugitive Economic Offender’s Bill, 2018

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The Nirav Modi scam

The nation was shaken after a case of $1.77 billion was detected. It was a case of a fraudulent letter of undertakings issued by Punjab National bank employees instructing SWIFT payment from overseas bank branches without being detected in the system. The line of credit allegedly taken to pay import bills was often not used for such purpose. Having conveniently pulled off nothing short of a robbery, Nirav Modi, his wife Ami Modi, brother Nishal Modi, and uncle Mehul Chinubai Choksi are out of India. Minister for State for External Affairs, M. J. Akbar presented a list of 31 financial offenders who have escaped Indian soil to the Lok Sabha. Beside the above names, the list includes top magnates like Vijay Mallya, Surendra Singh, Angad Singh, Harsahib Singh, Pushpesh Kumar Vaidya, Ashish Jobanputra, Harleen Kaur, Sunny Kalra, Nilesh Parikh, Umesh Parikh, Jatin Mehta, Lalit Modi, Varsha Kalra, Hemant Gandhi, Aarti Kalra, Sanjay Kalra, Deepak Talwar. The requests for their extradition for interrogation by the Central Bureau Of Investigation is being sent to the foreign ministries of the countries where these people have evaded.

The proposed Bill

Having looked at the sheer enormity of people connected with financial frauds running away to other territories is cause for concern. India has had a love-hate relationship with extraditions. The offences have taken a huge hit on the financial stability of the economy. The performances of secondary issue markets have suffered grave damage due to shaken investor confidence. Small businesses, start-ups, and medium-scale businesses may be hampered as banks are now in the process of turning stern in their needs for collateral security for lending business credit. In view of this action, the Union Cabinet has cleared the hitherto tabled Fugitive Economic Offender’s Bill, 2018. Finance Minister Arun Jaitley stated that a mockery of law cannot be allowed, and they have a responsible Parliament. It approves the establishment of a watchdog, which is the National Financial Reporting Authority (NFRA). The NFRA, as per Mr Jaitley ‘s statements, is a follow-up exercise from the claims about a similar kind of body made during the announcement of the Union Budget 2017-18.

He also addressed a press conference stating that NFRA will act independently, regulating the auditing profession as per the key change brought in by the Companies Act 2013. Section 132 of the Act for chartered accountants and their firms would include large unlisted companies among listed companies. The limits to this would be listed in the rules.

Key Features

  1. It will deal with only large cases of economic frauds in which amounts of Rs 100 crore or more is involved.
  2. Under the new Act, bodies will be given the authority to confiscate assets in India. There will be a procedure for confiscation of assets outside India, with cooperation from respective country. Benami assets will also be seized.
  3. There is a provision for the establishment of a special court under the Prevention of Money Laundering Act 2002, that will declare a person as a Fugitive Economic Offender(FEO).
  4. To avoid congestion of cases, crime proceeds would be fixed collectively at more than Rs 100 crore at the first instance. The court can declare an accused a fugitive offender if they fail to appear before it despite a warrant. The onus is on the authorities to prove that a person is an FEO.
  5. The Court can declare an accused person a fugitive offender by using the powers given to it under the Act. This can be done if they don’t respond to Government within six weeks. A fugitive offender will be an accused who has avoided criminal prosecution, not appeared before a court and who has left India despite summons issued in their names.
  6. The NFRA shall constitute of a chairperson and authorized members.
  7. The Institute of Chartered Accountants will handle the small cases of financial frauds, while the bigger ones will be transferred to NFRA.
  8. Under the proposed bill, FEOs are debarred from pursuing civil claims at the discretion of any court, including High Court. If prior to such declaration, the offender comes back and submits to the appropriate jurisdictional court, proceedings under this Act will cease by Law.
  9. NFRA, once created can impose a penalty of up to five times the fee that is charged, in a case of professional or other misconduct by individual chartered accountants and up to ten times the fees received by audit firms. It can debar an auditor for up to 10 years.

The Impact

The bill is yet to get a nod from the Law Ministry but will be listed in the budgetary session of the Parliament. The Government is on a clean-up, striking out shell companies, revising corporate governance, listing errant companies and disqualifying directors. The Nirav Modi scam has been a wake-up call for a rotten auditing and banking system. The new bill, coming as a glimmer of hope, strongly relies on the fear of forfeiture of property. This fear can be strong as procedural methods lead to dropping of prices and lesser market demand for such property. But it is to be seen whether economic absconders would be afraid of losing their amassed wealth. Before the liberalization of the economy, we witnessed draconian measures relating to business, attachment of property, smuggling and trade rules. It has been seen that they do not have the desired effect. The Government feels that the existing laws, namely, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFESI), 2002, Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI), and Insolvency and Bankruptcy Code (IBC) have not been enough. Only the future will tell if there will be any more huge scams unearthed after the bill is cleared, and whether it will prove to be a deterrent and faith be restored in financial statements and audit accounts.


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