In the immediate aftermath of the $2 billion PNB fraud caused by Nirav Modi of Firestar Diamonds, the government has approved the draft of the Fugitive Economic Offenders Bill in the cabinet. This is a far-reaching bill and gives the government broader powers to punish fugitives who have defaulted on loans and fled the country. That includes the likes of Vijay Mallya, Nirav Modi and Mehul Choksi. The big challenge will be to prevent hounding of businesses!
The story of Firestar, so far…
Firestar Diamonds, owned by Nirav Modi, has already filed for bankruptcy under Chapter 11 of the US Bankruptcy Code. Interestingly, Firestar has not even listed PNB as its creditor in its filing in the US, while it has named other banks in the filing. When a US based company files for bankruptcy under Chapter 11, the US Court gives them immunity from being chased by debt collectors. This virtually closes the doors for Indian banks to pursue Modi in a very big way. The Fugitive Economic Offenders Bill will give the Indian government much wider powers in such specific cases. Under the clauses of the Bill, the government can not only attach property owned by the fugitive and his family members, but also benami property. This will plug a major loophole as fugitives have used the benami and the proxy method to escape assets being attached by the government of India. Now that will not be possible!
Surely, it will be a deterrent…
Needless to say, this Bill will be a major deterrent for promoters who adopt the easy route of skipping town. This has been a grey area in Indian legal parlance as many defaulters like Vijay Mallya and Nirav Modi had foreign passports and that almost made it impossible for India to pursue them beyond a point. But let us remember that this Bill could also become an instrument for harassing genuine businessmen. Not all defaults happen due to promoters skipping town. There have also been defaults due to business down-cycles, which need to be treated differently. Since the Fugitive Economic Offenders Bill will be a preventive bill, the officers will have the powers to pre-empt such moves through preventive attachments of property. That should be used carefully and not for hounding businesses.
Try persuasive diplomacy…
What India needs to use more effectively in cases like Mallya and Nirav Modi is persuasive diplomacy. Singapore used that with Germany in the case of Nick Leeson. Most nations will not be too keen to harbor fugitives at the cost of their economic relations with a rapidly growing nation like India. India needs to leverage on this advantage and use persuasive diplomacy more effectively in such cases. With India’s growing clout, that should definitely work!
