To rein in wilful defaulters and prevent high-profile economic offenders like Nirav Modi and Vijay Mallya from leaving the country, the Centre has allowed the Serious Fraud Investigation Office (SFIO) powers to request look-out circulars (LoCs) against loan defaulters.
The move comes in the wake of defaulters such as Mallya, Modi, Mehul Choksi and Jatin Mehta fleeing the country after obtaining foreign citizenship. In an official memorandum, the Home Ministry said, “…the request of Serious Fraud Investigation Office (SFIO), Ministry of Corporate Affairs, to include an officer of SFIO not below the rank of additional director (in the rank of director in the Government of India) in the list of officers who can make a request for opening a Look out Circular (LoC) has been considered and approved by the competent authority…”
The SFIO is a statutory body, under the Ministry of Corporate Affairs and investigates matters related to serious fraud in a company. The power to make arrests under Section 212 (8) of the Act by an authorised officer of the SFIO was granted in August last year.
The SFIO recently initiated a probe into the Infrastructure Leasing & Financial Services Limited (IL&FS) that is faced with a consolidated debt of Rs 91,000 crore and is saddled with a severe liquidity crunch.
Quicker detection of crime and faster reaction
As of now, agencies such as the ED and DRI, the departments of Customs and Income-Tax, ministries of Home and External Affairs, and state police authorities can seek a Look-out Circular (LOC) against a suspect to prevent him from leaving the country. However, more white collar crime in recent years has meant commensurately greater involvement of the Serious Fraud Investigation Office (SFIO) in criminal investigations. The SFIO, which functions under the Corporate Affairs Ministry, often begins investigations soon after a crime is detected, ahead of the CBI or Customs. The SFIO had investigated several willful defaulters such as Jatin Mehta, Vijay Mallya or Nirav Modi before the CBI and other agencies stepped in. Had SFIO been empowered to seek an LOC, the escape from the country of these accused could conceivably have been prevented.
Earlier, an LoC to keep watch on the arrival or departure of Indians or foreigners could only be issued at the request of the Home Ministry, External Affairs, Custom and Income Tax, CBI, DRI, Intelligence Bureau (IB), Regional Passport Offices (RPOs) and state police authorities.
These LoCs were valid only for one year until the agency seeking the LoC specified a longer duration. The agency seeking the extension of LoCs after one year will have to inform Indian Check Posts (ICP) with valid documentation, said officials.
Recently, the Home Ministry empowered the chairman or managing director and CEOs of all public sector banks (PSBs) to request LoCs against bank fraud suspects and loan defaulters.
Giving the SFIO similar powers was the next step as it was argued that the LoCs sought by CEOs of public sector bank can be challenged in court in the absence of an FIR or investigations against the suspects, an official said. According to the official, LoCs are broadly classified into three categories and can be changed by the agency at any stage.
Incidentally, the CBI had diluted the LoC against Mallya that later helped the liquor baron flee the country. The first LoC issued by the CBI on October 16, 2015, said that Mallya should be detained if he tried to leave India and was modified on November 24, 2015, when it said that the only action to be taken if Mallya reached any port to leave India was to simply inform the CBI and let the businessman travel.
The third LoC category is mostly used for terror suspects with immediate arrest, said the official. Sources said that an inter-ministerial panel was set up earlier this year to look into various issues and including methods to stop wilful defaulters from fleeing the country.
Later, Parliament passed the Fugitive Economic Offenders Bill, 2018, giving authorities powers to attach and confiscate the proceeds of crime and properties of economic offenders, like bank fraudsters or loan defaulters fleeing the country.