Introduction 

The Specific Relief (Amendment) Act, 2018, which came into effect on October 1, 2018, marked a paradigm shift in the Indian contractual enforcement landscape. For decades, specific performance was treated as an exceptional remedy, available only when monetary compensation was deemed inadequate or impossible to ascertain. The 2018 Amendment fundamentally reversed this position, establishing specific performance as a general rule rather than an exception. This legislative transformation has had profound implications for business agreements in India, altering negotiation strategies, dispute resolution approaches, and judicial attitudes toward contractual enforcement. This article examines the evolving jurisprudence on specific performance in business agreements following the 2018 Amendment, analyzing landmark judgments, identifying emerging judicial trends, and evaluating the practical impact on various categories of commercial contracts. Through analysis of post-Amendment case law, the article aims to provide insights into how courts have interpreted and applied the amended provisions, particularly in the context of complex business transactions where monetary damages were traditionally considered the primary remedy.

The 2018 Amendment: A Paradigm Shift

Key Statutory Changes

The Specific Relief (Amendment) Act, 2018 introduced several crucial changes to the enforcement regime for contracts:

1. Section 10 was substantially reframed, removing the traditional limitations on specific performance and establishing it as the default remedy. The amended section states: “The specific performance of a contract shall be enforced by the court subject to the provisions contained in sub-section (2) of section 11, section 14 and section 16.”

2. Section 11(1) was deleted, removing the court’s discretion to deny specific performance where monetary compensation was deemed adequate.

3. Section 14 was restructured to narrow the categories of contracts that cannot be specifically enforced, significantly reducing judicial discretion to deny the remedy.

4. Section 20 was substituted with provisions enabling courts to engage experts for contract performance supervision.

5. New Sections 20A, 20B, and 20C were introduced, providing for substituted performance at the cost of the defaulting party.

These amendments collectively signaled legislative intent to prioritize actual performance over monetary compensation, addressing longstanding concerns about the effectiveness of damages as a remedy in the Indian context.

Legislative Intent and Objectives

The Statement of Objects and Reasons accompanying the Amendment Bill articulated several key objectives:

“The specific relief Act, 1963 is an Act to define and amend the law relating to certain kinds of specific relief. It contains provisions relating to contracts which can be specifically enforced by the courts and contracts which cannot be specifically enforced… The Act did not originally support the specific performance of contracts as a general rule…

[The Amendment aims] to do away with the wider discretion of courts to grant specific performance and to make specific performance of contract a general rule than exception subject to certain limited grounds… It is, therefore, proposed to do away with the wider discretion of courts to grant specific relief to ensure that the contracts are implemented efficiently.”

This explicit articulation of legislative intent to reduce judicial discretion and establish specific performance as the general rule has been frequently cited in subsequent judgments interpreting the amended provisions.

Judicial Interpretation: Landmark Post-Amendment Decisions

Supreme Court’s Early Take on Specific Performance

The Supreme Court first substantively addressed the amended provisions in Wockhardt Ltd. v. Torrent Pharmaceuticals Ltd. (Civil Appeal No. 7741 of 2019, decided on August 23, 2019). While not directly applying the Amendment due to the cause of action arising earlier, the Court acknowledged the legislative shift:

“The recent amendments to the Specific Relief Act, 1963 reflect Parliament’s intent to move toward a contractual enforcement regime where performance, rather than compensation, is the default remedy. This marks a significant departure from the traditional common law approach that viewed damages as the primary remedy with specific performance as an exceptional relief.”

In Vikas Kumar Agrawal v. Super Multicolor Printers (P) Ltd. (2023 SCC OnLine SC 202), the Supreme Court more directly engaged with the amended provisions, observing:

“The 2018 Amendment has fundamentally altered the judicial approach to contractual remedies. Where previously courts exercised wide discretion to determine whether damages would provide adequate relief, the amended provisions mandate specific performance subject only to the limited exceptions explicitly enumerated in the Act. This reflects a legislative policy choice prioritizing actual performance over monetary substitutes.”

High Courts on Amended Section 10

Various High Courts have provided more detailed interpretations of amended Section 10, particularly its impact on judicial discretion. In RMA Builders Pvt. Ltd. v. ETA Star Properties Development Pvt. Ltd. (2021 SCC OnLine Del 1654), the Delhi High Court observed:

“The amended Section 10 fundamentally transforms the jurisprudential approach to specific performance. The erstwhile provision enshrined judicial discretion as the guiding principle, with specific performance available only when the court deemed it appropriate. The amended provision reverses this paradigm, establishing specific performance as the default remedy with judicial discretion constrained to the specific exceptions enumerated in Sections 11(2), 14, and 16.”

The Bombay High Court, in Madhuri Properties Pvt. Ltd. v. Shri Sajjan India Ltd. (Commercial Suit No. 231 of 2020, decided on March 19, 2021), further elaborated:

“The amendment has effectively replaced the ‘adequacy of damages’ test with a presumption in favor of specific performance. Previously, the plaintiff bore the burden of establishing that damages would not provide adequate relief. Now, specific performance must be granted unless the defendant establishes that the case falls within the enumerated statutory exceptions. This represents not merely a procedural shift but a fundamental reorientation of contractual remedy jurisprudence.”

The Calcutta High Court, in Bengal Ambuja Housing Development Ltd. v. Sugato Ghosh (2020 SCC OnLine Cal 1893), emphasized the reduced scope for judicial discretion:

“The amended provisions deliberately constrain judicial discretion that previously allowed courts to deny specific performance on broad equitable grounds. The legislative intent is clear: to establish a more predictable enforcement regime where contractual obligations are actually performed rather than monetarily compensated, subject only to specifically enumerated exceptions.”

Interpretation of Amended Section 14

Section 14, which enumerates contracts that cannot be specifically enforced, was significantly narrowed by the Amendment. The Delhi High Court, in Ashok Kumar Sharma v. Union of India (2020 SCC OnLine Del 684), provided a comprehensive analysis of these changes:

“The Amendment has substantially contracted the categories of contracts exempt from specific performance. Particularly significant is the deletion of former Section 14(1)(c), which excluded contracts ‘which are in their nature determinable.’ This removes a previously significant barrier to specific performance of many commercial agreements, including distribution agreements, franchise arrangements, and certain types of service contracts that courts had often characterized as ‘determinable in nature.'”

The Bombay High Court, in Epitome Residency Pvt. Ltd. v. Ambiance Developers & Infrastructure Pvt. Ltd. (2022 SCC OnLine Bom 304), further observed:

“The amended Section 14 reflects a legislative judgment that the categories of contracts intrinsically unsuitable for specific performance are narrower than previously recognized. Agreements requiring constant supervision or involving personal service remain excluded, but the broader exemption for ‘determinable’ contracts has been deliberately removed, expanding the scope for specific enforcement of various business arrangements.”

These interpretations confirm the legislative intent to expand the range of business agreements eligible for specific performance, removing previously significant barriers to the remedy.

Specific Performance in Business Agreements

Real Estate and Construction Contracts

Real estate and construction contracts have seen particularly significant impacts from the Amendment. In M/s Shanti Conductors Pvt. Ltd. v. Assam State Electricity Board (2019 SCC OnLine SC 1515), the Supreme Court noted:

“Real estate and construction contracts, traditionally subject to specific performance even under the pre-Amendment regime, now enjoy reinforced protection. The Amendment strengthens the position of purchasers and project owners seeking actual performance rather than damages that may inadequately compensate for project delays or non-completion.”

The Delhi High Court, in Parsvnath Developers Ltd. v. Rail Land Development Authority (2023 SCC OnLine Del 1234), specifically addressed construction contracts:

“Construction contracts, which often involve complex, continuing obligations previously viewed as challenging to specifically enforce, now fall more clearly within the ambit of specific performance under the amended provisions. While supervision challenges remain, the legislation explicitly empowers courts to appoint qualified persons to oversee performance where necessary, removing a significant practical barrier to specific enforcement.”

These decisions suggest that the traditionally strong position of real estate and construction agreements in specific performance jurisprudence has been further strengthened by the Amendment.

Share Purchase and Business Acquisition Agreements

Courts have also addressed the impact of the Amendment on share purchase and business acquisition agreements. In Jindal Steel & Power Ltd. v. SAL Steel Ltd. (Commercial Appeal No. 12 of 2021, Gujarat High Court, decided on September 15, 2021), the court observed:

“Share purchase agreements, particularly those involving significant or controlling stakes in companies, represent a category of transactions where the amended provisions have particular significance. The unique nature of corporate shares, representing ownership interests rather than mere commodities, makes monetary compensation inherently inadequate in many cases. The amended provisions reinforce this understanding, establishing a presumption in favor of specific performance in such transactions.”

The Bombay High Court, in Brookfield Asset Management Inc. v. Hotel Leela Venture Ltd. (2022 SCC OnLine Bom 1257), addressed complex business acquisition agreements:

“Complex business acquisition agreements involving multiple interconnected obligations—including share transfers, intellectual property rights, and ongoing business relationships—present precisely the scenario where the legislative policy shift toward specific performance is most relevant. The amended provisions recognize that the unique combination of assets, relationships, and opportunities involved in such transactions makes adequate monetary compensation frequently impossible to calculate.”

These decisions indicate the courts’ recognition that share purchase and business acquisition agreements often involve unique subject matter where the Amendment’s presumption in favor of specific performance is particularly appropriate.

Specific Performance in IP and Tech Licensing

Intellectual property licensing and technology agreements present distinctive challenges for specific performance. In Microsoft Corporation v. Anil Gupta & Anr. (CS(COMM) 556/2022, Delhi High Court, decided on December 7, 2022), the court examined the implications of the Amendment for technology licensing agreements:

“Technology licensing agreements occupy an interesting position under the amended specific performance regime. While they involve intellectual property rights that are unique and often irreplaceable—characteristics traditionally supporting specific performance—they also frequently require ongoing cooperation and potentially supervision. The amended provisions, particularly the new Section 20 enabling appointment of experts to supervise performance, provide courts with enhanced tools to address these complexities.”

The Madras High Court, in Ascendas IT Park (Chennai) Ltd. v. M/s. Sak Abrasives Ltd. (2021 SCC OnLine Mad 1675), further observed:

“The Amendment’s removal of the ‘determinable contract’ exception from Section 14 has particular significance for intellectual property and technology agreements, which were previously sometimes characterized as determinable in nature. The legislative policy choice now favors specific enforcement even of relationships that may require ongoing coordination or have termination provisions, provided they do not fall within the narrower exceptions retained in the amended Section 14.”

These decisions suggest evolving judicial approaches to intellectual property and technology agreements under the amended framework, with greater receptiveness to specific performance despite the potential complexities of supervision.

Specific Performance in Distribution & Franchise Agreements

Distribution and franchise agreements, which often combine elements of service contracts with property rights, have received specific attention in post-Amendment jurisprudence. In Hindustan Unilever Ltd. v. Modi Naturals Ltd. (CS(COMM) 530/2020, Delhi High Court, decided on March 12, 2021), the court observed:

“Distribution and franchise agreements often involve both service elements and unique intellectual property components. Pre-Amendment, such agreements were frequently characterized as ‘determinable’ and thus exempt from specific performance under former Section 14(1)(c). The Amendment’s deliberate removal of this exception significantly expands the potential for specific enforcement of such agreements, particularly where they involve licensed trademark usage or proprietary business systems that cannot be adequately valued for damages purposes.”

The Bombay High Court, in Subway Systems India Pvt. Ltd. v. Hari Karani (2022 SCC OnLine Bom 456), specifically addressed franchise agreements:

“Franchise agreements represent a hybrid contractual form combining licensing, service obligations, and property interests. The Amendment’s impact is particularly significant for such arrangements, as the removal of the ‘determinable contract’ exception and the emphasis on performance over compensation aligns with the reality that franchise relationships often involve unique business systems and brand associations that monetary damages cannot adequately address.”

These decisions indicate a significant expansion in the potential for specific enforcement of distribution and franchise agreements under the amended provisions, addressing a category of business relationships previously often excluded from the remedy.

Procedural and Practical Developments in Specific Performance

Substituted Performance: Sections 20A-20C

The introduction of substituted performance provisions in Sections 20A, 20B, and 20C represents a significant innovation in the Indian contractual enforcement landscape. In Ramninder Singh v. DLF Universal Ltd. (CS(COMM) 1234/2019, Delhi High Court, decided on February 18, 2021), the court examined these provisions:

“Sections 20A to 20C introduce a powerful alternative mechanism enabling the aggrieved party to arrange for performance through a third party at the defaulter’s cost, after providing notice. This represents a practical middle ground between waiting for judicial enforcement of specific performance and accepting inadequate damages. The provision recognizes that timely performance, even if by a substitute provider, often better serves commercial interests than protracted litigation.”

The Calcutta High Court, in Bengal Ambuja Housing Development Ltd. v. Sugato Ghosh (2020 SCC OnLine Cal 1893), further observed:

“The substituted performance provisions reflect legislative recognition that time is often of the essence in commercial contexts. The mechanism enables aggrieved parties to mitigate losses through prompt alternative performance while preserving the right to recover costs, addressing a significant practical limitation of the traditional specific performance framework that often involved substantial delays.”

These decisions highlight the practical significance of the substituted performance provisions as a complement to the strengthened specific performance remedy.

Expert Supervision Under Amended Section 20

The revised Section 20, which explicitly empowers courts to engage experts for supervising performance, addresses a traditional practical barrier to specific performance. In Jaypee Infratech Ltd. v. Axis Bank Ltd. (Company Appeal (AT) No. 353 of 2020, NCLAT, decided on March 24, 2021), the tribunal noted:

“Amended Section 20 provides courts with enhanced tools to address supervision challenges in complex performance scenarios. By explicitly authorizing expert appointment, the provision removes a significant practical barrier that previously led courts to deny specific performance for agreements requiring technical supervision or specialized knowledge for implementation.”

The Delhi High Court, in Today Homes & Infrastructure Pvt. Ltd. v. Godrej Properties Ltd. (2022 SCC OnLine Del 2159), further observed:

“The expert supervision provisions represent recognition that judicial limitations in technical expertise should not preclude specific enforcement of otherwise valid agreements. This provision is particularly relevant for technology, construction, and complex manufacturing agreements where performance oversight requires specialized knowledge beyond traditional judicial competence.”

These interpretations confirm the legislative intent to address practical barriers to specific performance through procedural innovations.

Interplay of Specific Performance and Arbitration Proceedings

The relationship between the amended specific performance regime and arbitration proceedings has emerged as an important area of judicial interpretation. In Tata Capital Financial Services Ltd. v. M/s Infratech Interiors Pvt. Ltd. (2022 SCC OnLine Del 3422), the Delhi High Court examined this interplay:

“The amended specific performance provisions apply equally in arbitral proceedings, reflecting the principle that substantive remedial rights should not vary based on the chosen dispute resolution forum. Arbitrators must apply the same presumption in favor of specific performance, subject only to the limited statutory exceptions, as would courts in similar disputes.”

The Bombay High Court, in Shapoorji Pallonji & Co. Pvt. Ltd. v. Jindal India Thermal Power Ltd. (2021 SCC OnLine Bom 195), addressed the enforcement of arbitral awards for specific performance:

“The amended provisions have implications not only for the granting of specific performance in arbitral proceedings but also for the enforcement of resulting awards. The legislative policy shift toward actual performance over compensation guides judicial approach to enforcement, with courts now less inclined to convert performance awards to damages on practical grounds.”

These decisions indicate that the Amendment’s impact extends beyond court proceedings to influence arbitral approaches to remedies and subsequent enforcement proceedings.

Specific Performance in Business Agreements: Global and Practical Trends

Convergence with International Standards

Post-Amendment jurisprudence has noted the convergence of Indian specific performance law with international standards. In Deutsche Bank AG v. Uttam Galva Steels Ltd. (2023 SCC OnLine Bom 235), the Bombay High Court observed:

“The 2018 Amendment brings Indian contractual remedy jurisprudence closer to international standards prevalent in civil law jurisdictions and increasingly recognized in common law systems. The presumption in favor of specific performance aligns with the UNIDROIT Principles of International Commercial Contracts and reflects an emerging global consensus that actual performance better serves commercial expectations in most contexts.”

The Delhi High Court, in RWDL Transmission Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd. (2021 SCC OnLine Del 4452), further noted:

“The amended provisions reflect recognition that in international commercial practice, specific performance has increasingly been viewed as the primary rather than exceptional remedy. This alignment facilitates cross-border business arrangements by harmonizing remedial expectations across jurisdictions, particularly beneficial in an era of globalized commerce.”

These observations suggest that courts view the Amendment as part of a broader international trend toward prioritizing performance over compensation.

Impact on Contract Drafting and Negotiation

The Amendment has significantly influenced contract drafting and negotiation practices. In Indiabulls Housing Finance Ltd. v. Radius Estates and Developers Pvt. Ltd. (2022 SCC OnLine Bom 1587), the Bombay High Court noted:

“The amended specific performance regime has prompted significant shifts in contractual drafting practices. Parties now pay greater attention to performance specifications, quality standards, and supervision mechanisms, recognizing the increased likelihood of actual enforcement rather than monetary settlement. Exclusion clauses attempting to preclude specific performance face greater scrutiny, as they potentially contravene the legislative policy embodied in the Amendment.”

The Delhi High Court, in Max Estates Ltd. v. Genpact India Pvt. Ltd. (CS(COMM) 147/2022, decided on August 5, 2022), observed:

“The Amendment has altered negotiation dynamics, particularly regarding contractual remedies. Parties now negotiate with the understanding that courts will presumptively enforce actual performance, leading to more detailed performance specifications, realistic timeframes, and explicit force majeure provisions to address genuinely impossible performance scenarios.”

These observations highlight the Amendment’s broader impact on commercial practice beyond strictly litigated disputes.

Balancing Certainty and Flexibility 

Courts continue to navigate the tension between the Amendment’s emphasis on certainty through mandated performance and the need for flexibility in complex commercial contexts, especially in cases involving specific performance in business agreements. In Dharti Dredging and Infrastructure Ltd. v. Union of India (2022 SCC OnLine Del 1879), the Delhi High Court reflected on this balance:

“While the Amendment clearly establishes specific performance as the general rule, courts retain interpretive space in determining whether particular agreements fall within the narrowed exceptions under Section 14. This interpretive function enables judicial consideration of commercial realities and practical feasibility within the constrained discretionary space permitted by the amended framework.”

The Karnataka High Court, in M/s Embassy Property Developments Pvt. Ltd. v. M/s HBS Realtors Pvt. Ltd. (2021 SCC OnLine Kar 3578), further observed:

“The challenge for courts post-Amendment is to implement the legislative mandate for specific performance while remaining sensitive to commercial practicalities. This requires careful analysis of whether agreements genuinely fall within the enumerated statutory exceptions rather than creating new discretionary grounds for denying specific performance, which would contravene legislative intent.”

These decisions reflect ongoing judicial efforts to apply the amended provisions faithfully while addressing practical commercial realities in specific performance in business agreements.

Conclusion

The post-2018 jurisprudence on specific performance in business agreements reveals a significant transformation in India’s contractual enforcement landscape. The Amendment has successfully established specific performance as the presumptive remedy rather than an exceptional relief, constraining judicial discretion to deny the remedy based on the adequacy of damages. This represents a fundamental reorientation of contractual remedy law, with far-reaching implications for business agreements across sectors.

Several clear trends emerge from the post-Amendment case law. First, courts have generally embraced the legislative policy shift, interpreting the amended provisions to require specific performance absent clear statutory exceptions. Second, the removal of the “determinable contract” exception has expanded the range of specific performance in business agreements, particularly benefiting distribution, franchise, and technology licensing arrangements. Third, the introduction of substituted performance and expert supervision provisions has addressed practical barriers that previously limited specific performance’s effectiveness.

The Amendment’s impact extends beyond strictly litigated disputes to influence contract drafting, negotiation practices, and alternative dispute resolution approaches. Parties now contract with greater awareness that performance obligations in business agreements may be actually enforced rather than monetarily settled, leading to more detailed specifications, realistic timeframes, and explicit force majeure provisions.

Looking forward, several areas warrant continued attention. Courts continue to refine the boundaries of the narrowed exceptions under Section 14, balancing the Amendment’s emphasis on certainty with sensitivity to commercial practicalities in specific performance in business agreements. The interplay between specific performance and insolvency proceedings presents complex questions that are still being judicially explored. Additionally, the relationship between specific performance and interim relief pending final determination remains an evolving area of jurisprudence.

The 2018 Amendment represents a decisive legislative intervention to address longstanding concerns about contractual enforcement in India. By prioritizing actual performance over monetary compensation, it shifts the remedial landscape toward greater certainty and reliability in specific performance in business agreements. The emerging jurisprudence suggests that courts have embraced this policy direction while developing nuanced approaches to its implementation across diverse commercial contexts. As this body of case law continues to develop, it will further clarify the practical implications of this significant legal reform for the Indian business community.

The post Specific Performance in Business Agreements: Trends Post-2018 Amendment appeared first on Bhatt & Joshi Associates.

Introduction

India’s economic landscape has witnessed unprecedented growth over the past decades, but this expansion has been accompanied by a darker reality: high-value economic offences committed by individuals who subsequently flee the country to evade prosecution. The economic havoc created by such fugitive offenders became particularly evident through cases involving billions of rupees in bank frauds, leaving financial institutions crippled and taxpayers burdened. In response to this growing menace, the Parliament of India enacted the Fugitive Economic Offenders Act, 2018 (hereinafter referred to as “the Act” or “FEOA”), which received Presidential assent on 31st July 2018. [1]

This legislation emerged from a pressing necessity to address a systemic weakness in India’s legal framework. Before its enactment, economic offenders could simply leave the country after committing large-scale frauds, living comfortably abroad while Indian courts struggled to bring them to justice. The existing civil and criminal provisions proved inadequate to tackle the magnitude and complexity of economic offences, particularly when the accused were beyond the territorial jurisdiction of Indian courts. The Act represents a paradigm shift in India’s approach to economic crimes, introducing stringent measures to deter offenders from fleeing and providing mechanisms to confiscate their assets even in their absence.

The intersection of this legislation with company law creates a complex regulatory landscape that affects corporate entities, directors, and stakeholders in multifaceted ways. Companies associated with fugitive economic offenders face severe consequences, including the potential confiscation of assets and restrictions on legal proceedings. Understanding this interplay is crucial for corporate professionals, legal practitioners, and anyone involved in India’s business ecosystem.

Genesis and Objectives of the Fugitive Economic Offenders Act, 2018

The backdrop against which the FEOA was enacted deserves careful examination. India witnessed several high-profile cases of economic offenders fleeing the country after committing massive frauds. The Punjab National Bank scam, involving fraudulent transactions exceeding Rs. 13,000 crores, became a watershed moment that exposed the vulnerabilities in India’s legal system. Diamond merchants Nirav Modi and Mehul Choksi, along with liquor baron Vijay Mallya, became the faces of this phenomenon, having allegedly defrauded banks of thousands of crores and subsequently leaving India to avoid facing prosecution.

These cases revealed a troubling pattern: offenders would siphon off enormous amounts of money, typically through complex corporate structures and fraudulent banking transactions, and then relocate to jurisdictions that either did not have extradition treaties with India or where the extradition process was protracted and uncertain. Even when extradition proceedings were initiated, they often stretched over years, during which the offenders lived comfortable lives abroad while their victims suffered financial losses. The existing legal provisions under the Code of Criminal Procedure, 1973, and various economic legislations were insufficient to address this challenge effectively.

The Act was introduced with several key objectives. First, it seeks to deter economic offenders from evading Indian law by staying outside the jurisdiction of Indian courts. The deterrent effect is achieved through provisions that allow for the confiscation of all assets of the fugitive economic offender, making flight from India an unattractive option. Second, the legislation aims to preserve the sanctity of the rule of law in India by ensuring that no individual, regardless of their wealth or influence, can escape justice by simply leaving the country. Third, it provides a mechanism to enable banks and other financial institutions to recover at least a portion of their dues by allowing the confiscation and subsequent auction of the fugitive’s assets.

The Statement of Objects and Reasons accompanying the Bill highlighted that the menace of economic offenders fleeing the country had reached alarming proportions, with several high-profile individuals evading the legal process. Most such cases involved non-repayment of bank loans, thereby worsening the financial health of the banking sector. The legislation was therefore conceived as a necessary tool to address this crisis and send a strong message that India would no longer be a safe haven for those who defraud its financial system and then flee.

Key Provisions and Legal Framework of the Act

The Fugitive Economic Offenders Act, 2018, consists of fourteen sections that collectively establish a comprehensive framework for dealing with fugitive economic offenders. The Act defines a “fugitive economic offender” as any individual against whom a warrant for arrest in relation to a scheduled offence has been issued by any court in India, where the total value involved in such offences is at least one hundred crore rupees, and who has left India so as to avoid criminal prosecution, or being abroad, refuses to return to India to face criminal prosecution. [1]

This definition contains several critical elements that must be satisfied before an individual can be declared a fugitive economic offender. First, there must be a warrant for arrest issued by a competent court. This requirement ensures that the proceedings under the FEOA can only be initiated against individuals who are already facing serious criminal charges. Second, the offence must be a “scheduled offence” as listed in the Schedule to the Act, which includes a wide range of economic offences such as counterfeiting government stamps or currency, offences relating to public servants taking gratification, cheque dishonour for insufficiency of funds, benami transactions, money laundering, and criminal breach of trust. Third, the value involved must exceed one hundred crore rupees, establishing a high threshold that limits the application of this stringent law to cases of significant economic magnitude. Finally, the individual must have either left India to avoid prosecution or, while being abroad, refuses to return.

The procedural framework established by the Act begins with Section 4, which empowers a Director or Deputy Director appointed under the Prevention of Money-Laundering Act, 2002 (PMLA) to file an application before a Special Court designated under the PMLA. This application must be filed in cases where a warrant has been issued for a scheduled offence and the Director or Deputy Director has reason to believe that the individual has left India to avoid prosecution or refuses to return. The application must contain several key elements: reasons to believe that the person is a fugitive economic offender, any information available about the person’s whereabouts, a list of properties believed to be proceeds of crime, a list of benami properties or foreign properties for which confiscation is sought, and a list of any other persons having an interest in these properties.

Upon receiving such an application, Section 5 mandates that the Special Court shall issue notice to the individual requiring him to appear at a specified place and at least six weeks from the date of issue of notice. The notice must also inform the individual that failure to appear will result in proceedings for declaring him a fugitive economic offender. This provision ensures that principles of natural justice are followed and the individual is given adequate opportunity to present himself before the court.

The Act contains important provisions regarding the attachment of property. Section 8 empowers the Director or Deputy Director to attach property provisionally even before obtaining the permission of the Special Court, provided that an application for such attachment is filed before the court within thirty days of the attachment. The property shall remain attached for a period of one hundred and eighty days from the date of attachment, which may be extended by the Special Court. This provisional attachment mechanism ensures that the fugitive’s properties cannot be dissipated while the proceedings are ongoing.

Section 12 of the Act deals with the declaration of fugitive economic offender and confiscation of property. Once the Special Court, after considering the application and hearing the matter, comes to the conclusion that the individual is a fugitive economic offender, it may declare him as such and order confiscation of his properties. The properties that may be confiscated include: proceeds of crime in India or abroad involved in the scheduled offence; benami property in India or abroad; and any other property in India or abroad. Upon confiscation, all rights and title in such property shall vest in the Central Government, free from all encumbrances. The Central Government is empowered to appoint an Administrator to manage and dispose of such confiscated properties.

A particularly significant provision is Section 14, which states that notwithstanding anything contained in any other law for the time being in force, an individual who has been declared a fugitive economic offender, or any company associated with such individual, shall not be allowed to file or defend any civil claim before any court or tribunal. This provision has far-reaching implications for corporate entities and creates serious consequences for companies associated with fugitive economic offenders.

Intersection with Company Law: Corporate Implications and Consequences

The relationship between the Fugitive Economic Offenders Act and the Companies Act, 2013, presents a complex matrix of legal implications that affect corporate governance, insolvency proceedings, and stakeholder rights. While the FEOA primarily targets individuals, its provisions extend to companies associated with fugitive economic offenders, creating significant collateral consequences for corporate entities.

Under the Companies Act, 2013, companies are separate legal entities distinct from their promoters, directors, and shareholders. However, the FEOA’s provision in Section 14, which bars companies “associated with” a fugitive economic offender from filing or defending civil claims, challenges this fundamental principle of corporate law. The term “associated with” is not defined in the Act, leaving room for judicial interpretation regarding the extent and nature of association that would trigger this prohibition. Does it include companies where the fugitive economic offender is a director? A major shareholder? A beneficial owner through benami arrangements? These questions have significant practical implications for corporate stakeholders.

The intersection becomes particularly complex in the context of corporate insolvency and liquidation proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC). When a company is undergoing liquidation, the role of the Official Liquidator is to realize the assets of the company and distribute them among creditors according to the waterfall mechanism prescribed under Section 53 of the IBC. However, if the company is associated with a fugitive economic offender and properties of the company are subject to confiscation under the FEOA, questions arise regarding the priority of claims. Would the confiscation under FEOA take precedence over the distribution to creditors under IBC? How should the liquidator deal with properties that are both subject to liquidation proceedings and potential confiscation?

These issues are further complicated by the fact that the FEOA allows for confiscation of “any other property in India or abroad” belonging to the fugitive economic offender. If a fugitive economic offender has controlling interest in a company, could the shares themselves be considered his property and therefore subject to confiscation? If confiscated, what happens to the rights of minority shareholders and other stakeholders in the company? The Act does not provide clear answers to these questions, leaving them to be resolved through judicial interpretation.

Moreover, the prohibition on filing or defending civil claims under Section 14 creates practical difficulties for companies. A company associated with a fugitive economic offender would be unable to recover debts owed to it, defend itself against claims by creditors or other parties, or participate in any civil litigation. This effectively paralyzes the company’s legal capacity, which could have severe consequences for its operations, its creditors, and its employees. The provision appears to operate as a form of civil death for the company, even though the company itself may not have been involved in any wrongdoing.

The Companies Act contains several provisions dealing with oppression and mismanagement under Sections 241 to 246, which allow the National Company Law Tribunal (NCLT) to intervene when the affairs of a company are being conducted in a manner prejudicial to public interest or the interests of the company. The question arises whether the NCLT’s powers under these provisions would be affected when a company is associated with a fugitive economic offender. Can minority shareholders still approach the NCLT seeking relief against oppression, or would Section 14 of FEOA bar such proceedings?

Another area of intersection concerns the provisions relating to directors under the Companies Act. Section 164 of the Companies Act lists various disqualifications for appointment as a director. While the section does not explicitly mention being declared a fugitive economic offender as a ground for disqualification, the practical effect of such a declaration would make it impossible for the individual to function as a director. Furthermore, if properties are confiscated and vest in the Central Government under Section 12 of FEOA, the fugitive economic offender would lose ownership of any shares he held in companies, which would automatically disqualify him from being a director under Section 164(1)(d), which disqualifies any person whose directorship disqualifies him from being appointed in that company.

The Act also intersects with the provisions relating to Related Party Transactions under Section 188 of the Companies Act. If a company has entered into transactions with entities owned or controlled by an individual who is subsequently declared a fugitive economic offender, questions arise regarding the validity and treatment of such transactions. Can such transactions be challenged or set aside? Would they be considered voidable transactions under insolvency law if the company subsequently enters insolvency proceedings?

Procedural Aspects and Stages of Proceedings

The procedural framework established by the Fugitive Economic Offenders Act involves multiple stages, each with its own requirements and legal consequences. Understanding these stages is crucial for legal practitioners and corporate professionals dealing with matters involving potential or declared fugitive economic offenders.

The first stage involves the initiation of proceedings through the filing of an application by a Director or Deputy Director appointed under the Prevention of Money-Laundering Act, 2002. This threshold requirement ensures that the proceedings are initiated by experienced officers who are already dealing with money laundering and economic offences. The application must satisfy several conditions: there must be a warrant of arrest issued by a court for a scheduled offence; the value involved must be at least one hundred crore rupees; and there must be reason to believe that the individual has left India to avoid prosecution or refuses to return. The application must be accompanied by supporting material that establishes these facts.

Once the application is filed before the Special Court, the court examines whether the basic requirements are satisfied. If satisfied, the court proceeds to the second stage, which involves issuing notice to the alleged fugitive economic offender. The notice must clearly specify the place where the individual is required to appear and must provide at least six weeks’ time. The notice must also contain a clear warning that failure to appear will result in proceedings for declaring the individual as a fugitive economic offender. The notice provisions are designed to ensure compliance with principles of natural justice, giving the individual adequate opportunity to respond to the allegations.

During the notice period, the Director or Deputy Director may seek provisional attachment of properties under Section 8 of the Act. This provisional attachment can be made even without prior permission of the Special Court, but an application must be filed within thirty days. The provisional attachment serves an important purpose: it prevents the dissipation of assets during the pendency of proceedings. However, the Act also provides safeguards by limiting the duration of provisional attachment to one hundred and eighty days, which can be extended by the Special Court. If at the conclusion of proceedings the person is not found to be a fugitive economic offender, the attached properties must be released.

The third stage involves the consideration of the application by the Special Court. If the individual appears before the court in response to the notice, the proceedings under the FEOA are terminated, though other criminal proceedings may continue. However, if the individual fails to appear despite being served notice, the court proceeds to examine whether he should be declared a fugitive economic offender. This examination involves considering the evidence regarding whether the individual has indeed left India to avoid prosecution or refuses to return, whether the scheduled offence involves property of the value of at least one hundred crore rupees, and whether other requirements of the Act are satisfied.

The final stage involves the declaration and confiscation. If the Special Court concludes that the individual is a fugitive economic offender, it makes a formal declaration to that effect and proceeds to order confiscation of properties. The confiscation extends to three categories of properties: proceeds of crime in India or abroad; benami property in India or abroad; and any other property in India or abroad owned by the fugitive economic offender. The order of confiscation must specify the properties being confiscated and their estimated value. Once confiscation is ordered, all rights and title in the property vest in the Central Government free from all encumbrances.

An important procedural aspect is the right to appeal. Section 13 of the Act provides that an appeal shall lie against any order of the Special Court under the Act to the High Court within thirty days from the date of the order. This appellate mechanism provides an important safeguard, allowing for judicial review of the Special Court’s decision by a higher forum.

Landmark Case Law: Mehul Choksi v. State of Maharashtra

The case of Mehul Choksi v. State of Maharashtra and Others provides valuable insights into how courts interpret and apply the provisions of the Fugitive Economic Offenders Act in practice. Mehul Choksi, a prominent diamond merchant and uncle of Nirav Modi, fled India in January 2018, shortly before the Punjab National Bank fraud came to light. The Enforcement Directorate subsequently filed applications under the FEOA seeking to declare him a fugitive economic offender and confiscate his properties.

The Bombay High Court’s examination of this matter has been instrumental in clarifying several aspects of the Act’s application. One of the key issues that arose was the timing and sequence of proceedings under Section 12 of the Act. The court observed that Section 12 contemplates two distinct stages: first, the declaration of an individual as a fugitive economic offender; and second, the confiscation of properties. The court emphasized that these stages are sequential and must be followed in order.

In the context of this case, an application had been filed seeking to issue notice to the Official Liquidator to appear and represent Gili India Ltd., a company associated with Mehul Choksi that was undergoing liquidation. The question before the court was whether such an application could be considered at the stage when the matter of declaration was pending but confiscation had not yet been reached. The Bombay High Court held that the application could not be considered at that stage, as the matter of confiscation was not to be taken up until after the declaration was made. The court indicated that such applications could be taken up at an appropriate stage, subject to the result of the declaration sought under Section 4 read with Section 12 of the FEOA.

This judicial interpretation has important practical implications. It establishes that proceedings under the Act must follow a clear sequence: first, the court must determine whether the individual qualifies as a fugitive economic offender and make a declaration to that effect; only after such declaration can the court proceed to consider matters relating to confiscation of specific properties. This sequencing ensures that confiscation proceedings are not initiated prematurely and that the fundamental question of whether the individual is indeed a fugitive economic offender is first conclusively determined.

In September 2023, the Bombay High Court delivered another significant judgment in the matter of Mehul Choksi, rejecting his challenge to the Enforcement Directorate’s application to declare him a fugitive economic offender. [2] Justice Sarang V. Kotwal, presiding over the matter, examined the various contentions raised by Choksi and ultimately concluded that the Enforcement Directorate had made out a sufficient case for declaring him a fugitive economic offender. This judgment reinforced the effectiveness of the FEOA as a tool to deal with economic offenders who flee the country.

The Mehul Choksi cases also highlight the challenges in applying the Act when the alleged fugitive economic offender is abroad and unable to participate directly in proceedings. The courts have had to balance the requirements of natural justice with the reality that the individual has chosen to remain outside India’s jurisdiction. The judgments establish that while the individual must be given adequate notice and opportunity to appear, the proceedings can continue even in his absence if he chooses not to return to India.

Other Notable Cases: Application and Enforcement of FEOA

Beyond the Mehul Choksi matter, the Fugitive Economic Offenders Act has been applied in several other high-profile cases, each contributing to the evolving jurisprudence around this legislation. Vijay Mallya, the former chairman of Kingfisher Airlines and United Spirits, became one of the first individuals to be declared a fugitive economic offender under the Act. Mallya was accused of defaulting on loans exceeding Rs. 9,000 crores and had fled to the United Kingdom in March 2016. [3]

In January 2019, the Special Court in Mumbai declared Vijay Mallya a fugitive economic offender, marking a significant milestone in the application of the Act. The court ordered the confiscation of his properties, both in India and abroad. This declaration and the subsequent confiscation proceedings demonstrated the Act’s potential to reach assets globally, not just those within India’s territorial boundaries. The case also highlighted the Act’s deterrent effect, as it sent a strong message to other potential fugitives that leaving India would not protect their assets from being seized.

Nirav Modi, the diamantaire at the center of the Punjab National Bank fraud, was also declared a fugitive economic offender. Modi had allegedly masterminded a fraud involving the issuance of fraudulent Letters of Undertaking by officials at PNB, resulting in losses exceeding Rs. 13,000 crores. He left India in January 2018 and was subsequently tracked to the United Kingdom, where he was arrested and has been fighting extradition. The declaration of Modi as a fugitive economic offender allowed Indian authorities to proceed with confiscation of his properties, including luxury apartments, art collections, and business assets.

These cases collectively establish several important principles. First, they demonstrate that the Act applies regardless of how sophisticated or complex the corporate structures used to commit the fraud. Both Mallya and Modi had used intricate networks of companies and offshore entities, but the Act’s provisions allowed authorities to pierce through these structures. Second, they show that the Act operates independently of extradition proceedings. Even while extradition cases are ongoing in foreign courts, the FEOA allows Indian courts to declare individuals as fugitive economic offenders and confiscate their properties.

According to information provided to the Rajya Sabha in August 2023, ten individuals have been declared fugitive economic offenders by courts since the Act’s enactment. [4] This list includes not just the high-profile names like Mallya, Modi, and Choksi, but also other individuals involved in various economic offences. The relatively modest number of declarations suggests that the Act is being applied judiciously, targeting only those cases that meet the stringent requirements, particularly the threshold of one hundred crore rupees.

Regulatory Framework and Enforcement Mechanisms

The enforcement of the Fugitive Economic Offenders Act relies on a coordinated effort among multiple agencies and institutions. The Enforcement Directorate, functioning under the Department of Revenue, Ministry of Finance, plays the primary role in initiating and pursuing proceedings under the Act. The ED’s officers, particularly those holding the rank of Director or Deputy Director, are empowered to file applications before Special Courts seeking declaration of fugitive economic offenders.

The Prevention of Money-Laundering Act, 2002 (PMLA) forms the backbone of the regulatory framework within which the FEOA operates. The Special Courts designated under the PMLA are the same courts that have jurisdiction to hear applications under the FEOA. This creates a seamless integration between money laundering proceedings and fugitive economic offender proceedings, as both typically arise from the same underlying facts and circumstances. The officers appointed under the PMLA are vested with the responsibility of implementing the FEOA, bringing their expertise in financial investigations and asset tracing to bear on fugitive economic offender cases.

The regulatory framework also involves coordination with international agencies and foreign governments. Since fugitive economic offenders are, by definition, located outside India, enforcement often requires cooperation through mutual legal assistance treaties (MLATs), extradition treaties, and other bilateral or multilateral arrangements. The confiscation of foreign properties under Section 12 of the Act, for instance, may require the cooperation of authorities in the country where the properties are located. While Indian courts can order confiscation of such properties, giving effect to such orders may depend on the legal framework of the foreign jurisdiction and the nature of India’s legal relationship with that country.

The Central Government plays a crucial role in the post-confiscation phase. Once properties are confiscated and vest in the Central Government under Section 12, the government must appoint an Administrator to manage and dispose of these properties. The Administrator’s role is to maximize the value realized from confiscated properties, which can then be used to compensate victims of the economic offences. The regulatory framework for the Administrator’s functioning, including procedures for valuation, auction, and distribution of proceeds, is established through rules and guidelines issued by the government.

The Act also provides the Director or Deputy Director with powers similar to those of a civil court, including powers to summon and enforce attendance of witnesses, require discovery and production of documents, receive evidence on affidavits, and issue commissions for examination of witnesses or documents. These powers are essential for conducting thorough investigations and preparing comprehensive applications for declaring individuals as fugitive economic offenders.

Challenges, Criticisms, and Legal Debates

Despite its important objectives and initial successes, the Fugitive Economic Offenders Act has been subject to various criticisms and legal debates. One major concern relates to the broad scope of confiscation powers under Section 12, particularly the provision allowing confiscation of “any other property in India or abroad” owned by the fugitive economic offender. Critics argue that this provision could potentially result in confiscation of properties that have no connection to the scheduled offence, effectively operating as a form of punishment without trial.

The constitutional validity of certain provisions has been questioned on grounds of violation of fundamental rights. Article 21 of the Constitution guarantees protection of life and personal liberty, and Article 300A protects the right to property. While the right to property is no longer a fundamental right, it remains a constitutional right that cannot be deprived except by authority of law. The question arises whether the FEOA’s provisions for confiscation, which operate even when the individual has not been convicted of any offence, satisfy the requirement of being a reasonable restriction.

The provision in Section 14, which bars companies associated with fugitive economic offenders from filing or defending civil claims, has been particularly controversial. Critics point out that this provision effectively punishes corporate entities and their stakeholders for the actions of individuals associated with them, even when the companies themselves may not have been involved in wrongdoing. The lack of clarity regarding what constitutes being “associated with” a fugitive economic offender creates uncertainty and potential for arbitrary application.

Another challenge relates to the definition of “fugitive economic offender” and particularly the element that the person must have left India “so as to avoid criminal prosecution.” Proving the intent to avoid prosecution can be difficult, especially when individuals may have legitimate reasons for being abroad. The Act does not specify what evidence would be sufficient to establish this element, leaving it to judicial interpretation. There is a risk that the provision could be applied too broadly, potentially catching individuals who left India for legitimate business or personal reasons before any proceedings were initiated against them.

The high threshold of one hundred crore rupees, while intended to limit the Act’s application to serious cases, has also been criticized. Some argue that this threshold may be too high, allowing offenders involved in substantial but somewhat smaller frauds to escape the Act’s provisions. Others contend that economic offences should not be judged primarily by the amount involved, as even smaller frauds can have devastating consequences for victims.

From a practical standpoint, enforcing confiscation orders, particularly regarding foreign properties, presents significant challenges. Different countries have different legal systems and approaches to recognizing foreign court orders. Even when India has legal cooperation mechanisms with another country, the process of enforcing confiscation orders can be lengthy and uncertain. The Act does not address how these practical challenges should be overcome.

There are also concerns about the potential for misuse. The Act gives significant powers to the Enforcement Directorate, and there is always a risk that such powers could be misused for ulterior purposes. The absence of detailed guidelines on when proceedings should be initiated, combined with the severe consequences of being declared a fugitive economic offender, creates potential for the Act to be used as a tool for harassment or intimidation.

Conclusion and Future Outlook

The Fugitive Economic Offenders Act, 2018, represents a significant development in India’s legal framework for dealing with economic crimes. By creating a specific mechanism to declare individuals as fugitive economic offenders and confiscate their properties, the Act addresses a critical gap that had allowed wealthy offenders to escape justice by fleeing the country. The Act’s provisions, particularly when read in conjunction with the Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016, create a comprehensive legal framework that affects corporate governance and insolvency proceedings.

The early years of the Act’s implementation have demonstrated both its potential and its limitations. Cases like those of Vijay Mallya, Nirav Modi, and Mehul Choksi have shown that the Act can be effectively applied to pursue high-profile economic offenders and confiscate substantial assets. These cases have also contributed to developing jurisprudence on various aspects of the Act, including the procedural requirements, the sequence of declaration and confiscation, and the intersection with other laws.

However, several questions remain unanswered and will need to be addressed through further judicial interpretation and possibly legislative amendment. The scope of confiscation powers, the meaning of companies “associated with” fugitive economic offenders, the balance between enforcement and protection of rights, and the practical challenges of international enforcement all require ongoing attention. As courts continue to hear cases under the Act, we can expect the development of more detailed principles and guidelines on these issues.

Looking forward, the effectiveness of the FEOA will depend not just on its legal provisions but also on the capacity and efficiency of enforcement agencies, the cooperation of foreign governments, and the judicial system’s ability to handle these complex cases expeditiously. The Act’s success should ultimately be measured not just by the number of declarations and confiscations, but by its deterrent effect in preventing economic offenders from fleeing India in the first place.

For corporate professionals, legal practitioners, and business entities, understanding the implications of the FEOA is essential. Companies must ensure robust compliance mechanisms, conduct thorough due diligence on promoters and directors, and maintain transparent corporate structures. The risk of being classified as a company “associated with” a fugitive economic offender, with all its severe consequences, makes it imperative for corporate entities to maintain high standards of governance and distance themselves from individuals involved in economic offences.

The Fugitive Economic Offenders Act, 2018, thus stands as a crucial component of India’s economic regulatory framework, one that balances the need for strong enforcement against economic crimes with the requirements of due process and fairness. As the law continues to evolve through application and interpretation, it will shape not just how India deals with fugitive economic offenders, but also how businesses structure themselves and conduct their affairs in an increasingly globalized economy.

References

[1] India Code: The Fugitive Economic Offenders Act, 2018. Available at: https://www.indiacode.nic.in/handle/123456789/4035 

[2] Bar and Bench (2023). “Bombay High Court rejects plea by Mehul Choksi challenging ED application to declare him a fugitive economic offender.” Available at: https://www.barandbench.com/news/bombay-high-court-rejects-plea-mehul-choksi-ed-declare-fugitive-economic-offender 

[3] Business Standard (2023). “10 people declared fugitive economic offenders since 2018: Centre.” Available at: https://www.business-standard.com/india-news/10-people-declared-fugitive-economic-offenders-since-2018-centre-123080100782_1.html 

[4] PRS Legislative Research. “The Fugitive Economic Offenders Bill, 2018 – Bill Summary.” Available at: https://prsindia.org/billtrack/prs-products/prs-bill-summary-3025 

[5] Enforcement Directorate, Government of India. “FEOA.” Available at: https://enforcementdirectorate.gov.in/feoa 

[6] Drishti IAS (2024). “Fugitive Economic Offenders Act, 2018.” Available at: https://www.drishtiias.com/daily-news-analysis/fugitive-economic-offenders-act-2018 

[7] LiveLaw (2023). “Bombay High Court Rejects Mehul Choksi’s Challenge To ED’s Application Seeking His Declaration As A Fugitive Economic Offender.” Available at: https://www.livelaw.in/high-court/bombay-high-court/bombay-high-court-mehul-choksi-fugitive-economic-offender-ed-pnb-fraud-238359 

[8] Wikipedia. “Punjab National Bank Scam.” Available at: https://en.wikipedia.org/wiki/Punjab_National_Bank_Scam 

[9] “Fugitive Economic Offenders Act, 2018.”

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