Bank's Fear That Borrower May Flee Country Can't Alone Justify LOC In Perpetuity: Delhi High Court

The Delhi High Court has held that a bank's apprehension that a borrower may flee the country or that its financial claim may be jeopardised cannot, by itself, justify the indefinite continuation of a Look Out Circular (LOC).

Justice Amit Mahajan made the observation while quashing an LOC issued against one Rajat Gupta at the instance of Bank of Baroda in connection with a criminal case arising from loan accounts classified as non-performing assets and subsequently declared fraudulent.

“In the above context, the apprehension expressed by the Bank that the Petitioner may flee the country or financial claim of the Bank cannot be the sole reason to warrant continuation of an LOC in perpetuity, that too when the LOC issued at the instance of CBI has already been suspended,” the Court observed.

The Court noted that the investigation was completed and the CBI had filed four chargesheets, on which the trial court had taken cognisance.

It further observed that Gupta's travel was already subject to the supervision of the trial court, which had granted him bail with conditions, including the requirement to seek permission before travelling abroad.

Gupta, a former director of Govardhan Industries Pvt. Ltd., had approached the Court seeking quashing of the LOC issued at the instance of the bank.

He submitted that he was engaged in the business of Ayurvedic medicines and needed to travel to Kazakhstan for business purposes. Despite his requests, the bank had not withdrawn or suspended the LOC.

The Court noted that Gupta had previously been granted permission to travel abroad and had not misused the liberty granted to him.

Holding that an LOC is a coercive measure that cannot be issued or continued routinely merely because a person is facing trial, the Court observed that no material was placed before it to demonstrate that Gupta was likely to abscond.

The Court accordingly quashed the LOC issued at the instance of Bank of Baroda, observing that the LOC issued at the instance of CBI already stood suspended.

It clarified, however, that the decision would not affect the pending criminal proceedings, the conditions of bail imposed upon Gupta or the trial court's power to regulate or restrict his foreign travel in accordance with law.

“The Petitioner shall continue to abide by all such conditions and directions as may be imposed by the learned Trial Court from time to time,” the Court said.