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2021 (12) TMI 1388 - HC - Insolvency and BankruptcyValidity of Lookout Circular (LoC) dated February 29, 2020 - applicability of Circulars dated March 16, 2019 issued by the Indian Banks' Association (IBA) - allegation against appellant is that the departure of the petitioner would be detrimental to the economic interest of India and larger public interest - case of petitioner is that the petitioner is neither a borrower nor a guarantor - HELD THAT - In the present case, the respondent-authorities have failed to justify rationally as to why the departure of the petitioners from India would, in any manner, be detrimental to the sovereignty or security or integrity of India or to the bilateral relations with any country or to the strategic and/or economic interests of India as a whole. The mere subsistence of an allegation of default could not trigger the issuance of the LoC at the drop of a hat. As such, the expression detrimental to the economic interests of India ought not to be an excuse to restrain citizens of India from leaving the country without any convincing ground being disclosed for such restraint - In the present case, there is no allegation that the CBI has an arrest-warrant against the petitioners and/or the petitioners' personal participation in the CBI enquiry is of utmost necessity at the present juncture. In the present case, the respondent no. 2-bank has brought in unwarranted and unsupported comparison of the petitioners to other cases of infamous fraudsters, without there being any semblance between the attending circumstances of the present case with the cases of the said persons. As revealed by the LoC and even the affidavits-in-opposition of the respondent no. 2, no cogent reason has been shown for the request of the LoC. Even the respondent-authorities acted in an unlawful manner in blindly issuing the LoC without even ascertaining whether the request by the respondent no. 2 revealed any exceptional case as envisaged in the amended Office Memorandum No. 25016/31/2010-Imm dated October 27, 2010. It is incumbent upon the issuing authority of the LoC to ascertain at least whether the grounds disclosed in the LoC and/or the request for LoC fall within the four corners of the exceptional cases as defined in the Office Memorandum - the LoC dated February 29, 2020 issued against the petitioner was unlawful and de hors the relevant provisions and the Office Memorandum dated October 27, 2010 (as amended). Thus, the LoC cannot stand judicial scrutiny under Article 226 of the Constitution of India. Application allowed.
Issues Involved:
1. Validity of the Lookout Circular (LoC) issued against the petitioners. 2. Compliance with relevant legal provisions and Office Memoranda. 3. Justification for the issuance of the LoC based on the alleged economic interest of India. 4. The role and actions of the respondent bank and its adherence to procedural requirements. 5. The impact of the Forensic Audit Report and subsequent legal proceedings on the issuance of the LoC. Detailed Analysis: 1. Validity of the Lookout Circular (LoC) Issued Against the Petitioners: The petitioners challenged the LoC dated February 29, 2020, issued by the Immigration Authorities at the request of the respondent bank. The court noted that the LoC did not disclose sufficient reasons for its issuance, merely parroting statutory language without providing specific grounds. The court emphasized that the LoC must contain reasons that justify its issuance, which were absent in this case. The LoC was found to be in contravention of Articles 14, 19(1)(g), and 21 of the Constitution of India. 2. Compliance with Relevant Legal Provisions and Office Memoranda: The court examined the compliance with the Office Memorandum dated October 27, 2010 (as amended on December 5, 2017). It was argued that the LoC did not meet the criteria for an "exceptional case" as required by the Office Memorandum. The court found that the LoC and the respondent bank's request lacked objective parameters and evidence, failing to establish that the petitioners' departure would be detrimental to the economic interests of India or larger public interest. 3. Justification for the Issuance of the LoC Based on the Alleged Economic Interest of India: The respondent bank argued that the petitioners were directors of a borrower company in liquidation, with a substantial loan default of over Rs. 350 crores, which justified the issuance of the LoC. However, the court noted that the LoC and the request for its issuance were cryptic and did not provide specific reasons why the petitioners' departure would be detrimental to the economic interests of India. The court highlighted that the mere quantum of default could not justify restricting the petitioners' personal liberty to travel. 4. The Role and Actions of the Respondent Bank and Its Adherence to Procedural Requirements: The petitioners contended that the respondent bank did not comply with the Indian Banks' Association (IBA) Circular dated March 16, 2019, which requires actions to be based on "objective parameters supported by evidence." The court found that the respondent bank abused its authority by requesting the LoC without sufficient grounds, effectively substituting regular debt recovery proceedings with the issuance of the LoC. The court also noted that the show-cause notice for identification as a willful defaulter was issued after the LoC, further undermining the justification for the LoC. 5. The Impact of the Forensic Audit Report and Subsequent Legal Proceedings on the Issuance of the LoC: The petitioners argued that the Forensic Audit Report, which formed the basis for adverse inferences against them, was challenged and disbelieved in subsequent legal proceedings. The court acknowledged that the report's findings were not relevant to the present challenge against the LoC. The court emphasized that the grounds for issuing a show-cause notice for willful default and the grounds for issuing an LoC are governed by different regulations and cannot be conflated. Conclusion: The court concluded that the LoC issued against the petitioners was unlawful and lacked sufficient grounds as required by the relevant Office Memoranda. The LoC was set aside, and the court directed that the petitioners should not be detained or harassed based on the said LoC. The court clarified that this order does not prevent the authorities from issuing a fresh LoC if sufficient reasons are disclosed in the future. The writ petitions were allowed, and no order as to costs was made.
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