Modi government should do to stop Niravs and Mallyas , As these scams have a direct and adverse impact on the depositors and tax payers 7monies, there is a compelling need to have a relook at the current structure of criminal law to make the “offences” relating to the financial market more deterrent in nature.

While the government and regulators have introduced very robust legislations and policy initiatives, the unabated shenanigans of those who game the system pose a serious challenge to the spirit of these reforms.

Though a plethora of policy measures that are initiated on various fronts in the financial sector would help close the gaps in the existing structures.

A simultaneous amendment to the Indian Penal Code (IPC) and its adjectival law — Criminal Procedure Code (Code) — may also quickly help arrest the criminal malaise that afflicts the system.

The civil remedies by themselves may not be sufficient to stem this festering rot that corrodes the financial system.

The current structure of criminal law has not undergone any major change ever since its creation except some periodic amendments and separate legislations which were carried out over a period of time.

The changing needs of the time have not been fully reflected in the body of criminal law as contained in the original code.

But the courts in India have always evolved techniques over a period of time within the existing framework of the IPC to take on the sophisticated challenges posed by the commission of crimes by persons using the state of the art technology or innovation.

For instance, the master circular of the Reserve Bank of India defines a ‘wilful default’ as “when a person (an individual or a body corporate or all forms of business enterprises incorporated or not) has defaulted in making the payments even when it has the capacity to honour those obligations or diverted the funds for other purposes or has siphoned off the funds or disposed off or removed the assets that were given as security towards the loan without the knowledge of the lender.”

An extended meaning is also given to diversion of funds to include when a borrower uses short-term funds for longterm purposes not sanctioned by the lender or transfers the borrowed funds to subsidiaries or group companies or other corporates or routing funds through any bank other than the lender bank or members of consortium without prior approval of lender.

As regards criminal action, the course of action open to a lender is to invoke the provisions of “criminal misappropriation” and “cheating” against the wilful defaulter under the Code.

This would consume a lot of time of the lenders before the same could be proved in a court of law.

Hence, it is essential to carve out provisions in the Code itself by terming these as “offences” for dealing with recalcitrant borrowers.

Many criminal offences currently require the element of “criminal intent” called “mens rea” of the accused to be proved beyond any reasonable doubt by the prosecution before he can be convicted. This should not be insisted upon in cases of “financial crimes” as the acts by themselves should be “offences”.

Interestingly, the 137th Law Commission Report recommended, in the context of fraudulent sales of flats by some unscrupulous builders to the innocent buyers, that such offences per se should be brought within the purview of the IPC without the need to prove any criminal intent, which is normally required under the criminal law.

The report also suggested a provision to that effect in the IPC itself. Hence, there is a case for engrafting specific provisions in the Code for “white collar offences”.

The following may be the possible approach in defining “white collar offences” as part of the code:

1. White collar offences should be defined. Not all financial wrongdoings could be brought under the category of offences.

Financial wrongdoings which affect the interests of public or affect the market or bring about systemic risks could be considered as offences.

Once defined and made part of the Code, commission of any of the listed acts would constitute an “offence” without any need to prove the “criminal intent” on the part of the prosecution.

In order to ensure that these provisions are not used to victimise the innocent persons, suitable safeguards should be built in the legal framework itself.

There could be prescription of monetary limit for determining a “white collar crime”

The Code and the procedural law thereon (CrPC) should stipulate the time frame within which the trial in respect of an offence under this category must be completed.

The properties owned by the offenders should be confiscated.

The punishment should be deterrent in terms of fine and imprisonment. Such a framework for “white collar offences” as part of the Code will have a salutary effect in bringing down the number of crimes, if not totally eliminate them from the system.

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