Mere Apprehension That Person Would Flee India Is Not Enough To Issue Look Out Circular: Calcutta High Court

The Calcutta High Court bench of Justice Shampa Sarkar has held that mere apprehension that a person would flee India and no steps could be taken to recover the money is not enough to issue a Look Out Circular (LOC) against him. Brief Facts: The matter pertained to a writ petition which was filed by an erstwhile Director of Visa Power Limited ("company in liquidation"). The Petitioner argued that he was never a whole-time director of the company, which is undergoing liquidation following an order issued by the National Company Law Tribunal (NCLT) in Kolkata. The company obtained credit facilities from a consortium of banks, with Punjab National Bank (PNB) as the lead bank. This credit was intended for setting up a thermal power project in Raigarh district, Chhattisgarh, sanctioned around March 2010. However, due to the Supreme Court's decision canceling coal blocks, the thermal plant could not be established and operationalized thwarting the project's goal to supply power to contractors given coal block allocations. In 2017, the Bank of Maharashtra filed an application under Section 7 of the Insolvency and Bankruptcy Code (IBC) against the company which lead to the initiation of the corporate insolvency resolution process. Deloitte Touche Tohmatsu India, LLP was appointed to conduct a forensic audit. Based on this report, and with the committee of creditors' approval, the liquidator filed an application with the NCLT, Kolkata accusing the suspended board of directors of entering into preferential, undervalued, and fraudulent transactions under Sections 45, 46, and 66 of the IBC. The NCLT rejected this application and the decision was upheld by the National Company Law Appellate Tribunal. The Petitioner later attempted to travel from New Delhi to Dubai but was refused passage due to a Lookout Circular (LOC). Upon discovering the LOC and being unable to obtain a copy, the Petitioner filed the writ petition in the High Court. The Petitioner argued that the LOC issued by PNB was quashed by a coordinate Bench of the High Court and the proceeding to declare him a wilful defaulter was withdrawn. Additionally, a similar request for an LOC by the Bank of Baroda was challenged and quashed. Despite this, the State Bank of India proceeded with a request for an LOC, which the Petitioner argued should not be sustained given the failure of other banks' requests. The Petitioner contended that the LOC request did not meet the conditions outlined in the office memorandum dated October 27, 2010, issued by the Government of India, Ministry of Home Affairs (Foreigners Division). The Petitioner highlighted that no cognizable offence under the Indian Penal Code or other statutes had been committed and that a prior complaint by PNB had been returned for lack of particulars and subsequently quashed. The Petitioner claimed that without evidence of intent to flee or an impact on the economic interest of the country, the LOC request is unjustifiable. Observations by the High Court: The High Court noted that the general objective for issuing an LOC is to control the departure and arrival of individuals who are either involved in criminal cases, are avoiding arrest, or are subjects of legal proceedings. This includes individuals associated with terrorism, criminal investigations, or those whose actions affect the nation's economy and bilateral trade relations. The High Court reviewed the comprehensive policy first framed in the office memorandum dated October 27, 2010. This policy outlined the necessary conditions for issuing LOCs including the requirement for providing reasons for the request. The policy stated that LOCs could be issued for individuals guilty of cognizable offenses under Indian Penal Code or similar laws, or on court orders. However, it allowed exceptions for certain individuals like suspects or terrorists, irrespective of ongoing criminal cases. An amendment in 2017 expanded the grounds for issuing LOCs incorporating larger public interest considerations. The new guidelines, introduced through a memorandum dated December 5, 2017, permitted LOCs to be issued if the departure of an individual was deemed detrimental to India's sovereignty, security, bilateral relations, or strategic and economic interests. Further changes were introduced with the office memorandum dated October 4, 2018, which included additional originating agencies for requesting LOCs, such as the Chairman/Managing Directors/Chief Executive Officers of public sector banks. The High Court noted that earlier rulings clarified that terms like "bilateral relations" and "strategic interest" should not be narrowly interpreted. They should be understood in the context of broader economic and international relations. The High Court pointed out that banks, while empowered to request LOCs, must substantiate their claims with concrete evidence that the departure of ...

Mere Apprehension That Person Would Flee India Is Not Enough To Issue Look Out Circular: Calcutta High Court

Rajesh Kumar

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