Neha Lodha and Varsha S. Banta
(Senior Resident Fellows, Vidhi Centre for Legal Policy's Corporate Law & Financial Regulation Team)
Economic offences encompass a wide range of crimes committed either by one or by many and are characterised by an element of financial loss. Conceptually, they are viewed as a subset of crime encompassing criminal acts done with the primary objective of achieving economic gain. A further subset consists of high-value, premeditated offences having an element of concealment or deceit. The erstwhile Indian Penal Code, 1860 (IPC), covered such offences, including criminal breach of trust, cheating, misappropriation, etc. Interestingly, these were not specifically bucketed as ‘economic offences’ under the IPC.
Section 111 of the new Bharatiya Nyaya Sanhita, 2023 (BNS) introduces the statutory concept of ‘economic offences’, as an explanation to the offence of ‘organised crime’. This explanation ‘includes’ criminal breach of trust, forgery, counterfeiting, hawala transactions (i.e., informal money transfers), and mass-marketing frauds. As recognised by Indian courts, the term ‘include’ is generally used as a word of extension. Consequently, its usage within this explanation may enlarge the scope of both the standalone concept and the provision, and encompass the universe of ‘economic offences’ not expressly mentioned under the BNS. This potentially overlaps with the offences identified under special business legislation.
Anatomy of the ‘Economic Offence’ under Indian Business Laws
With the liberalisation of the Indian economy in the 1990s, the business law regime was required to categorically address large financial frauds. The legal framework addressing such offences evolved significantly through special statutes pertaining to anti-money laundering, anti-corruption, financial market frauds and corporate offences. Prosecution under these specialised frameworks was designed to cater to the unique nature of such offences.
Today, Indian company law covers several contraventions encompassing an element of fraud, which may fit the bill for an ‘economic offence’. Notably, substantive decriminalisation for offences under company law was effected through the Companies Amendment Act, 2020, by the removal of ‘imprisonment’ as a punishment for an array of provisions. However, imprisonment for a term beyond 3 years is retained for graver contraventions such as illegal acceptance and non-repayment of public deposits, offences by officers of companies in liquidation, and acts of commission or omission, involving an element of fraud. Given that the nature of activities comprising ‘economic offences’ under BNS is anchored in the principle of ‘fraudulent or dishonest dealings’, the contraventions under company law may be subsumed by the former.
Legislation governing anti-bribery efforts was amended in 2018 to specifically combat corruption by ‘commercial organisations’. The Prevention of Corruption Act, 1988 makes it an offence for persons ‘in charge’ of commercial organisations to give or promise ‘undue advantage’ to a public servant, with the intent to obtain or retain business, or related advantages. This is punishable with a minimum 3 year imprisonment term, along with a fine. Such offences are committed in a concerted manner, and the advantages drawn from their commission may be a potential ‘monetary benefit’ resulting in an ‘economic offence’, under BNS.
In contrast, Indian anti-money laundering law is designed on two levels. First, there must be the commission of a ‘scheduled’ or ‘first-level’ offence under the Prevention of Money Laundering Act, 2002 (PMLA). These include a host of offences under laws on anti-corruption, securities, companies, and customs tax. Second, the act of money laundering must be related to duplicitous acts such as concealment, or acquisition of proceeds of crime which are derived as a result of criminal activity of the first-level offence. Given that the processes and activities relate to first-level offences, persons involved in these processes under the PMLA could also be considered as using ‘unlawful means’ to obtain material benefits, under the BNS.
Double Jeopardy and Constitutionality of Section 111 of BNS
The BNS opens up the possibility of prosecution of economic offences under both the general criminal law and special statutes, despite constitutional safeguards. Article 20(2) of the Indian Constitution enshrines the principle of double jeopardy, and states that, “No person shall be prosecuted and punished for the same offence more than once”. However, the principle offers limited protection against being tried for the same offence twice, unless there is a difference in the nature of trial proceedings.The judicial interpretation of some specialised laws illustrates the permissibility of parallel proceedings under special statutes along with general criminal law. For instance, the Madhya Pradesh High Court in Sunil Mandwani v. State of M.P and the Delhi High Court in S.P. Gupta v. State (NCT of Delhi) has held that ordinary criminal courts retain jurisdiction unless an offence under the Companies Act, 2013 is specifically alleged. The Courts emphasised that the Companies Act, 2013 does not abrogate or repeal the powers of the police to investigate cognizable offences such as fraud or embezzlement under the IPC. Similarly, while addressing the question of multiple proceedings under the IPC and the PMLA, the Orissa High Court in Smt. Janata Jha v. Assistant Director observed that the proceedings under the PMLA shall not amount to double jeopardy, as the procedure and nature of proof are totally different from a criminal proceeding under the IPC.
That being said, there is a greater likelihood of a trigger of dual prosecution in substantive terms. Arguably, this may play out through prosecution and punishment for the same offence under both special law and BNS, with the introduction of a broad and all-encompassing concept of an ‘economic offence’ (which includes a host of offences). In other words, while the offences here may not be identical, they may overlap due to the undefined scope of ‘economic offence’ under BNS.
(One) Crime and (Many) Punishments
Economic offences can be largely differentiated from violent crimes, as they harm the economic stability of society as a whole, as opposed to harming an identifiable victim. While deterrence is a fundamental goal of criminal law, the efficacy of punitive measures must be balanced against restorative measures, achieved most efficiently through the recovery of financial losses.
The expansive scope of ‘economic offences’ under the BNS unconscionably endangers the rights of the accused and exacerbates the strain on the judicial system. For accused businesses seeking lower litigation time and costs, this approach may lead to multiple prosecutions and undermine risk minimisation objectives. For aggrieved businesses, the remedy of economic recovery may be marred by multiple, elongated proceedings, often focussed on deterrence over restitution.
The optimal punishment for economic offences is a sanction in the form of a sufficiently high fine, as opposed to blanket imprisonment, as the former directly targets the financial motivations behind such crimes. Lately, the Government has accorded primacy to financial recovery over imprisonment, in some economic offences through the Companies Amendment Act, 2020, and the Jan Vishwas Act, 2023. The key objective of these measures was, and remains, promoting ease of doing business and enhancing regulatory certainty. In juxtaposition, the new definition of ‘economic offences’ under BNS marks a departure from this approach, potentially raising efficiency concerns for businesses, and possibly, ethical ones for law-makers. There may, as a result, be a need to define economic offences under BNS more restrictively, to avoid potential conflicts with other special legislations.
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