New Delhi, March 2, 2018

Aiming to deter economic offenders like Nirav Modi and Mehul Choksi from fleeing the country, the Union Cabinet on Thursday approved the Fugitive Economic Offenders Bill, which provides for attaching properties of alleged fraudsters who do not respond to summons for questioning or trial.

The Cabinet also cleared a proposal, under Section 132 of the Companies Act, to set up the National Financial Reporting Authority (NFRA) to regulate chartered accountants (CAs). While the Bill will be sought to be introduced in the post-recess Budget session of Parliament, the NFRA will be notified under the existing Companies Act,  Finance Minister Arun Jaitley told journalists after the meeting.

The fugitives Bill will cover those whose alleged proceeds from a crime are over Rs 1 billion. The NFRA will regulate accountants of listed companies and big unlisted companies. The Ministry of Corporate Affairs (MCA) will define the latter entities. Small unlisted companies will be regulated by The Institute of Chartered Accountants of India (ICAI).

“The person who does not appear in front of the special court or does not respond to a summons will be declared an economic offender,” Jaitley said. All the offender’s assets will be confiscated, not only those from the alleged crime’s proceeds.

“Even benami (concealed under other names) assets will be confiscated. The next step is a mechanism of international cooperation, which will enable the authorities to confiscate foreign assets of the person declared an economic offender. Which country the person’s assets are in, that country’s cooperation will be needed. We will make appropriate arrangements,” Jaitley said. He added the offender would not be able to file any civil claim in Indian courts.

According to the Bill, a special court will have the power to declare a person an economic offender. An administrator will be appointed to manage and dispose of the confiscated assets, including helping banks recover any defrauded amount.

As reported in Business Standard earlier, if the Bill does not pass in the Budget session, the government plans to issue it as an ordinance. “We will try and make sure the Bill passes in the Budget session. We cannot allow people to make a mockery of the law,” Jaitley said.

The second half of the Budget session starts on Monday and is expected to go on till April 6. Also on the agenda are the Finance Bill, the Triple Talaq Bill, stuck in the Rajya Sabha, and one to give the National Commission on Backward Classes a constitutional status.

The Bill was first proposed by Jaitley in his 2017-18 Budget. Currently, confiscation can be done through multiple laws but is a complicated process.

Even existing cases could come under the proposed law, which means cases relating to Vijay Mallya, Nirav Modi and Mehul Choski should be covered.
The Bill also proposes more powers to investigative agencies. It allows quicker attachment and disposal of properties.

As of now, the laws under which such offenders are tried are the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, the Recovery of Debts Due to Banks and Financial Institutions Act, and the Insolvency and Bankruptcy Code.

The rules for NFRA  will be notified soon, while the establishment of the actual authority will take some time, said people in the know. It is felt that the ICAI has failed to satisfactorily regulate CAs.

The proposed authority will have a chairperson and 15 members. The NFRA will oversee the quality of service of professionals associated with ensuring compliance, monitoring and enforcing the compliance with accounting standards, and making recommendations to the central government on the formulation of accounting and auditing policies.

According to the Companies Act, the NFRA will have the same powers as vested with a court under the Code of Civil Procedure. These could be related to discovery and production of books of account and other documents, summoning and enforcing the attendance of persons and examining them on oath, inspection of any books, registers and other documents. Parliament’s standing committee on finance had in 2012 specified the need for a quasi-regulatory body to supervise audit quality.

Vishesh Chandiok, national managing partner at financial consultants Grant Thornton India, says: “India remains the only major economy where the audit profession is still considered self-regulated. The NFRA will help build reinstate trust in the profession, undoubtedly tarnished with recent events.”

[The Business Standard]