The government appears to have strengthened its resolve to push ahead with the proposed Fugitive Economic Offenders Bill that, once enacted, will enable the government to confiscate assets of offenders who flee the country. There is little doubt that the Nirav Modi and Mehul Choksi cases have had a hand in this. What the government is planning can only be welcomed, especially against the backdrop of the latest banking scam. One question remains — whether a new law and differential treatment between offenders who escape abroad and those who do not will make a difference to the banking system.
What India needs is an overhaul of the processes dealing with economic offences. For that, the law must make a distinction between a genuine business failure and cheating. While in both cases money lent by banks turns bad, in the case of a genuine failure even the promoter loses his shirt, but in instances of cheating the banks suffer the losses. It is important to make a distinction because failures do take place in business. They have happened in the past and will happen in the future, both locally and globally. At this point of time, though, there are no specific provisions in the law making a distinction between the two. It is dependent on the investigative agency on how they treat it. That brings in the element of subjectivity and where there is subjectivity there is an element of corruption.
In cases like this, where the stakes are high and it is important to establish the credibility of the banking system, the law must be unequivocal to the point of not allowing too much room to individual opinion. And, when the matter goes to the courts, evidence would play its designated role.
There is another point to consider. The delay in the judicial processes is enough to kill the real value of the amount which the government or banks are supposed to recover. An example will illustrate the point. If, for instance, a bank or the government has to recover Rs 1,000 crore from an economic offender, and the case is decided in favour of the government after 10 years, in real terms the value of the recovered amount would be a fraction of what had been originally lent.
Only last week, photographs of luxury cars belonging to Nirav Modi that had been seized by investigative agency were splashed across media. Under current laws, it is case property, it cannot be sold, but what would be the value of these cars by the time the cases are decided and they can be sold. But if they are to be sold today, at least some value can be realised. This is a good time to remember the Harshad Mehta story. Have the banks and the government been able to recover the money which they were supposed to get? Policy makers need to understand that there is a time value attached to money and decay takes place with time.
In forensic audit, it is not tough to identify the money trail and whether the money has been lost due to genuine business reasons or siphoned off by promoters. If there has been a genuine business failure, it is the job of the Reserve Bank of India and not the Central Bureau of Investigation to take the bank concerned to the task on why it was not able to do a proper credit risk assessment. Laws should be framed in a manner that at stage one of the investigation, the nature of the case is clear so that not only are the guilty punished but the economic value of money is not diminished and tax payer money is protected.