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3 Economic Offences and Its Impact On Economy.
3 Economic Offences and Its Impact On Economy.
This article is written by B Bhanukesh pursuing LLM from Sardar Patel University of Police Security and Criminal Justice.
Table of Contents
1. Introduction
2. Economic offences against women
3. What are the Economic Offences?
4. History of economic offences
5. How this affects the Country
6. Cases under the economic offences in India
6.1. Hiten Dalal Case
6.2. Harshad Mehta Case
6.3. Ketan Parekh Case
6.4. Saradha Chit Fund Case
6.5. Vijay Mallya scam
6.6. Nirav Modi Case
7. What were the changes made in the laws by the Government after committing these Economic Offences
8. Who are economic offenders?
9. How do they commit the Crime?
10. Laws relating to the economic offence (Prevention)
11. Conclusion
Introduction
Offenders under the Economic Offences are generally not served with the required punishments for the acts done by them. Due to this, the
crimes under this Offence were increasing, but the Government of India made the appropriate changes within the existing Acts through
Amendments and also introduced new Acts as and when required. This article mainly seeks to give information on what are Economic
Offences, History of Economic Offence (with relevant data) the data includes the cases from the year 2014 till 2018 as declared by the
NCRB, Impact on the Economy and how it affects the economy, trafficking, and inflation, Relevant case laws are discussed to understand the
offence and its offenders, how do the offenders commit the crime and lastly the Laws and Acts dealing under this offence. Famous
personalities who are offenders under this crime are also mentioned in this article like Ketan Parekh, Harshad Mehta, and Nirav Modi. The
economic crimes have their growth not only in developing nations but also in the mightiest ones. Various acts are also mentioned in this
article which broadly deals with different crimes under this vast and perilous offence, these crimes can be Money-Laundering, Tax-Evasion,
Frauds(fraud)), Cheating, etc. Departments like Enforcement Directorate and CBI effectively acted and directed the inquiry and investigation
when the offences were committed.
Economic offences against women
Economic Offences form a special or different category of a criminal offence. The crime is committed with an intention to cheat and deceive
the people (victims). The economic offence has two major impacts firstly it affects the national economy and simultaneously it has monetary
and pecuniary losses to the victims. Economic offences are that type of criminal offence which alters the financial status of a country no
matter how much wealth that nation has. Economic offences are very unique and carry a distinctive type of characteristic feature due to
which the government and other higher authorities are facing difficulties to curb this offence and to establish a new Act that intensely deals
with this offence. As there is no particular act which solemnly deals with this crime, it has become very easy to commit and the offenders are
escaping without being punished.
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As per the data mentioned above it can be seen that Economic Offences is not a small or petty offence this is considerably a mickle/big
offence. Not hundreds, not thousands, the number of cases reported by the NCRB is in Lakhs just by the number we can imagine the
magnitude and quantum of these offences. Imagine for example in the year 2016 which is the least among the 5 years (of the above data)
for the number of cases of scam reported under Economic Offence in India and the base (approx.) The amount of scam in that year is
Rs.10,000/- the total amount will be around Rs.143,52,40,000 /-. Now the numbers are dealt in crores, interestingly this amount is well
around near to the District Budget (approx.) of a state.
Black Money is again one of the most dangerous and vastly recognized offences not only in India but across the Globe (world). Swiss Bank
holds most of the Black Money which the Offenders earn illegally. The offenders open accounts in this bank because of the privacy and
anonymity which they maintain, thus making it a reliable and legal source for keeping the money. India ranks 74th in the number of clients
who hold an account in Swiss Bank, this was not the case in the early years i.e. during 2007 where India ranked among the Top 50, the good
news about the present position of India is that it slipped one position down from the last year and approximately 6% of the clients in 2018
(2nd least total from the past 2 decades). Now comes the bad news which is that in August 2010 the Indian Government revised the Double
Taxation Avoidance Agreement to permit investigation into matters of Swiss accounts of Indians. The Swiss Bank was not in the policy of
Banking Secrecy but in the year 2011, several representations were given to Swiss Bankers Association officials by Indian officials to disclose
the amount of Black Money deposited by Indian clients in Swiss Bank. This was active from the year 2012 since then, accounts of Indian
clients in Swiss Bank were slowly reducing. Now imagine what would be the position of India when this policy or agreement was entered
before 2000, the nation’s economic situation would be far superior to the present one. Now we’ll discuss how the offence affects the Nation:
1. Nationally
2. Globally
Nationally this offence will affect the Demand and Supply of all kinds of Goods and Services, as the Demand of the products increases the
Supply decreases as a result of this the prices go up, which the economists call as INFLATION and at last this affects the poor people and the
poverty line will start increasing. It reduces the Gross Domestic Product (GDP) of the Nation which forces the nation to take loans and
borrow money (Financial Crisis) from other Monetary Institutions and lastly it also affects the belief (faith) in the system of economic
governance which leads to Internal Disturbance within the Nation, as there is no proper authority to take care as they are not in a situation
to control it and()) finally recession takes place. As the Offenders take a huge amount of loans and borrowings from the banks and the
amount is not paid back to the banks, the interest on the principal amount accumulates, and this directly affects the status of the banks. The
banks will later be in a situation where it is very difficult to get back the money from the offenders as they escape from the Nation and cause
a financial and economic crisis.
Globally this offence affects the Financial status of the country which later on affects the Import and Export services of the Nation, as there
will be no import and export business, there will be no revenue for the government and this makes the nation economically poor and the
loans which the nation had taken before will not be repaid. Due to this, no Multinational Companies (MNCs) and other Foreign Companies will
participate either to establish or start a new branch and lastly the nation will not develop any further and thus affects the Globalization and
Modernization. In simple terms, the nation will become a “Living Dead Nation”.
He continued this business from 1998 – 2001 and in the latter year, he was caught and arrested. On March 1st, 2001 just after the Union
Budget was finalized, the BSE crashed by 176 points. After seeing this massacre downfall of the BSE, the NDA government was asked to
inquire about this market reaction. Subsequently, RBI refused to clear pay orders that have been given by Ketan Parekh to Bank of India
(BOI), as they found them suspicious. The RBI issued an investigation against Ketan Parekh. Ketan Parekh to escape the punishment,
cleverly tried to dump the K-10 shares and was opposed by a cartel of bear brokers in Mumbai. As there was no option left or open for Ketan
Parekh he sold off his entire shares of K-10 stocks to Madhavpura Mercantile Cooperative Bank (MMCB) and Global Trust Bank (GTB). Due to
this dumping, the share market collapsed the following day and large-scale investors and other promoters were at loss. And at last, Ketan
Parekh was arrested and the amount of scam, in this case, is still UNKNOWN. Ketan Parekh was barred from accessing the Stock Market by
SEBI, but he had a lot of influence and was still accessing the stock market by investing with other companies. At last, in 2009 he was
arrested by CBI for cheating and was sentenced to imprisonment for 2 years by the special court.
Enforcement Directorate (ED): Section 3 (offence of Money laundering) and 4 (Punishment for Money laundering) of the Prevention of
Money-laundering Act, 2002 for the loans taken by him. The amount was nearly Rs 3,500 crores.
Central Bureau of Investigation (CBI): Sections 120B (Criminal Conspiracy) and 420 (Cheating) under the Indian Penal Code (IPC), 1860
and Sections 13(1) and 13(2) of the Prevention of Corruption Act, 1988 which deals with Criminal Misconduct by a Public Servant and
Punishment for it.
Securities and Exchange Board of India (SEBI): Banned him from Accessing the Stock Market till 2021.
Vijay Mallya, to escape punishment and penalties from the allegations made against him by the above organizations, absconded himself
(flew) to the UK and the Supreme Court of India declared him as a Fugitive Economic Offender under the Fugitive Economic Offenders Act
(FEO), 2018
These scams can be more than evident and the quantum of money involved can lead to depletion of the economy like it creates some sort of
fear in the minds of the people and they will not invest their money in any kind of Securities or Shares let it be the G-Sector itself and will
not participate in Stock Exchange Markets. The citizens will also lose faith and trust in the Justice Systems as they are not able to punish the
Offenders due to lack of proper evidence or proof against them.
What were the changes made in the laws by the Government after committing
these Economic Offences
Many new acts, provisions, and amendments to the existing acts were implemented and changed by the Government after the above
offences and a few others as well. The Government introduced new acts such as:
Securities and Exchange Board of India, 1992: SEBI is a non-statutory body and was introduced after the scams done by Hiten Dalal and
Harshad Mehta. The act was established in the year 1992 and lots of changes were made to the existing stock market like:
1. Power to dispose of, seize and hold the property of the offenders.
3. The act had its own tribunals called Securities Appellate Tribunal.
4. The act also provided punishments and other penalties for the offenders.
SEBI was given statutory power in the year 1992 through the same act. The act was amended in the year 2014 after the Saradha chit fund
case. The major amendment done under this act was, SEBI now had the powers to search, ask for call records and obtain any other
information. SEBI has also widened the definition of the Collective Investment Scheme (CIS) in this amendment.
Extradition Act, 1962: The purpose of the extradition act is to send back the convicted offenders who flew (absconded themselves) from
their respective nation after committing an offence, to ensure justice to the victims and punishment for the offender(s), this act was
introduced in the year 1962. The act was amended in the year 1993 and widened not only the scope but also the definition of Fugitive.
Offenders and their return from foreign states. The main difference between the Extradition Act, 1962 and Fugitive Economic Offenders Act,
2018 is that the latter deals with the identification and detecting of these offenders whereas the other act deals with the return and
extradition of fugitive offenders.
Fugitive Economic Offender Act, 2018: This was established after two main scams the first one being Vijay Mallya’s loan scam and the latter
one being Nirav Modi’s diamond and loan scam. These two offenders were involved in huge amounts of money and the quantum of money
which these two offenders looted was not in lakhs but were in crores. As soon as the offender’s crime was revealed they managed to escape
the nation and absconded themselves. This act empowers the court (special) to confiscate or seize all the properties and assets of the
offenders who have been escaped from the nation and are charged for economic offence measuring the amount of spam being more than
100crores and above. The purpose of this act is simple i.e. to have extra-territorial jurisdiction of the Indian Courts.
Money laundering: Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in
any process or activity connected proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as
untainted property shall be guilty of the offence of money-laundering (Section 3 of PMLA, 2002). And the law or the Act governing this
offence is the Prevention of Money-laundering Act, 2002.
Tax Evasion and Corruption: Goods and Services Tax, 2016. Introduced by the Constitutional Amendment (101st) under Article 246(A).
Prevention of Corruption Act, 1988. Fraud: Defined under Section 17 of the Indian Contracts Act, 1872. ‘Fraud’ means and includes any of
the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or
his agent, or to induce him to enter into the contract.
Forgery: Defined under Section 463 of the Indian Penal Code, 1860. Whoever makes any false documents or false electronic record or part
of a document or electronic record, with intent to cause damage or injury], to the public or to any person, or to support any claim or title, or
to cause any person to part with property, or to enter into any express or implied contract, or with intent to commit fraud or that fraud may
be committed, commits forgery.
Cheating: Defined under Section 415 of the Indian Penal Code, 1860. Whoever, by deceiving any person, fraudulently or dishonestly induces
the person so deceived to deliver any property to any person or to consent that any person shall retain any property, or intentionally induces
the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission
causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to “cheat”.
A person is said to be a “counterfeit” who causes one thing to resemble another thing, intending by means of that resemblance to practise
deception, or knowing it to be likely that deception will thereby be practised. [Explanation 1. It is not essential to counterfeiting that the
imitation should be exact. Explanation 2. When a person causes one thing to resemble another thing, and the resemblance is such that a
person might be deceived thereby, it shall be presumed, until the contrary is proved, that the person so causing the one thing to resemble
the other thing intended by means of that resemblance to practise deception or knew it to be likely that deception would thereby be
practised.]
Criminal Breach of Trust: Defined under Section 405 of the Indian Penal Code, 1860. Whoever, being in any manner entrusted with property,
or with any dominion over property, dishonestly misappropriated or converts to his own use that property, or dishonestly uses or disposes of
that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract,
express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits “criminal
breach of trust”. Extradition Act, 1962 deals with the Meaning, Definition, Terms, and Conditions, Return and Extradition of Criminals or
Offenders from one nation to another. Fugitive Economic Offenders Act, 2018 deals with Meaning, Definition, and Declaration of the
Offenders.
Conclusion
As the appropriate changes were made and new Acts and Amendments were brought by the Appropriate Authority (CG) of our Nation the
crime rate under this Offence is getting reduced, but the harsh reality is that they are not completely wiped off from the Nation and are still
lacking few Policies. The Statutory body of India shall improve the laws so that the offenders who are escaping the punishments by
absconding themselves to other Nations shall stop and the maximum amount of punishment shall be given to them so that no one in the
future will think of committing such crime not only this but the act should also contain provisions to protect victims by giving them money as
compensation for the damages they’ve been through. Acts like IPC, PMLA, etc., play their part but the act which only depends on this crime
will have a larger impact than the existing acts. “The Deterrent theory of punishment shall be implemented”.
The nation should enter into more number of treaties and agreements with other nations, so that the offenders cannot escape and shall go
through the punishment for the offence committed, even by fair means or foul the offenders escape, he/she can be sent back to the nation if
the relationship between our nation and other nations are “STRONG”. And finally, connections with Interpol should also be made respectively
so that it will be easy to force or to charge an inquiry or investigation against the offender and it can also help to search and arrest the said
offender. The powers to the External Affairs Minister should also be increased i.e. only to the extent of Extradition matters.
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