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2023 (2) TMI 1299 - HC - Companies LawChallenge to issuance of the LOC against petitioner - siphoning of funds - Petitioner submits that the Petitioner is not a beneficiary of any of the amounts the allegations of which have been raised against Shilpi Cable and its promoters - whether the Look Out Circular (LOC) issued against the Petitioner is liable to be quashed? - HELD THAT - The modus operandi as per the SFIO was that Shilpi Cables would supply goods to foreign entities who would then default in making payments as a result of the same a large number of dues are outstanding in the books of accounts of Shilpi Cables. The funds for trading by Shilpi Cables were provided by secured financial creditors of Shilpi Cables. It is further stated that this trading exercise was carried out by Shilpi Cables for more than five years from the years 2013-2014. Further as per the latest report dated 28th December 2021 filed before the NCLT by the liquidator the claims of financial creditors of Shilpi Cables is to the tune of Rs. 1, 770 crores and only around Rs. 6 crores were released by the sale of assets. The aforementioned facts reveal that the SFIO is still investigating into the conduct of Shilpi Cables its various group companies both in India and abroad. The role of promoters/management/employees of Shilpi Cables relating to the said is also being investigated. The Petitioner has been called by the SFIO on several occasions in the course of the investigation. Some of the statements made by the Petitioner have also been placed on record. The Petitioner has been confronted with several documents. A perusal of these statements and documents shows that the maze of companies the transactions and the substantial amount of money which is owed to public financial institutions and banks would require deeper and further investigation. The investigation by the SFIO is recent as compared with the substantial volume of documents global network of entities involved and amount of funds that are involved. The investigation has commenced only in September 2020 and a substantial period was also during the pandemic. In a case of this nature where several foreign entities are involved the collection of information and investigation could take some time. In the present case there is no challenge to the OM of 2010 or the OM of 2021. The entire immediate family of the Petitioner lives outside India. As per the Petitioner apart from one flat in Sarita Vihar he does not have any assets. His wife is also accompanying him on his foreign travel. Thus the question as to whether the Petitioner would pose a flight risk and adversely affect the investigation would have to be considered. From the submissions made by the ld. Counsel for the SFIO it is clear that the Petitioner would still be required for the purposes of investigation. Until the conclusion of the investigation it cannot be presumed that the Petitioner would not be charged with a cognizable offence. The Petitioner did not merely play a role in the management and administration of Shilpi Cables but being an auditor also owed a duty to report any shortcomings or misconduct within the company. Thus the Petitioner cannot be completely absolved of responsibility merely on the ground that he was a mute spectator. Persons like the Petitioners who hold positions of responsibility in such companies do not merely owe a duty to their employer but also owe a duty to the role that they play especially if they are involved in crucial role such as auditing. There is a clear possibility in the facts of this case that the Petitioner may not return to India as his entire immediate family resides abroad. He has not shown any assets in India and thus his travel is likely to impede the investigation. As the funds amounting to approximately Rs. 1, 400-Rs. 1, 700 crores belonging to public sector banks and financial institutions are at stake it would be in the larger public interest as also in the economic interest of India to not exercise discretion in favour of the Petitioner. Thus the LOC against the Petitioner is not liable to be quashed at this stage. The Court is not persuaded to exercise its extraordinary writ jurisdiction under Art. 226 of the Constitution of India - Petition dismissed.
Issues Involved:
1. Legality of the issuance of the Look Out Circular (LOC) against the Petitioner. 2. Petitioner's role and responsibility in the alleged fraudulent transactions of Shilpi Cables. 3. Petitioner's cooperation and conduct during the SFIO investigation. 4. Impact of the LOC on the Petitioner's fundamental right to travel. Detailed Analysis: 1. Legality of the Issuance of the Look Out Circular (LOC) Against the Petitioner: The Petitioner challenges the issuance of the LOC on the grounds that it curtails his freedom to travel. The LOC was issued under the Office Memorandum (OM) dated 27th October 2010, which allows LOCs in cognizable offenses under IPC or other penal laws. The OM dated 22nd February 2021 consolidates these guidelines, stating that LOCs can be issued in exceptional cases if the departure of a person is detrimental to India's sovereignty, security, or economic interests. The Petitioner argues that no FIR has been registered against him, and thus, in the absence of any cognizable offense, the LOC cannot be continued indefinitely. However, the Court finds that the SFIO's investigation is ongoing, and the Petitioner may still be charged with a cognizable offense under Section 212 (6) read with Section 447 of the Companies Act, 2013, which defines fraud broadly. 2. Petitioner's Role and Responsibility in the Alleged Fraudulent Transactions of Shilpi Cables: The Petitioner was the CEO of Shilpi Cables from 2006 to 2012, a whole-time director from 2013 to 2017, and a member of the audit committee from 2011 to 2017. The SFIO alleges that during this period, Shilpi Cables engaged in fraudulent transactions involving substantial sums of money siphoned through foreign entities. The Petitioner also headed operations of Winston Metals LLC, a subsidiary of Shilpi Cables, from 2013 to 2016. The Court opines that the Petitioner played an active role in the management and administration of Shilpi Cables and its group companies, and as a member of the audit committee, he had a duty to report any misconduct within the company. 3. Petitioner's Cooperation and Conduct During the SFIO Investigation: The Petitioner has appeared before the SFIO multiple times but has been accused of not disclosing various facts within his knowledge. The SFIO claims that the Petitioner was evasive in his statements and failed to explain the contents of emails and details of his bank accounts outside India. The Court finds that the Petitioner's conduct does not inspire confidence and suggests non-cooperation with the investigation. 4. Impact of the LOC on the Petitioner's Fundamental Right to Travel: The Petitioner argues that the LOC impinges on his fundamental right to travel, recognized under Article 21 of the Constitution of India. He wishes to travel to meet his children living abroad. However, the Court balances this right against the public interest, noting that a large amount of public funds from banks and financial institutions are at stake. The Court concludes that the Petitioner's travel may impede the ongoing investigation, and thus, the LOC is justified in the larger public and economic interest of India. Conclusion: The Court dismisses the petition to quash the LOC, stating that the Petitioner's role in the alleged fraud and his non-cooperative conduct justify the continuation of the LOC. The Court emphasizes the importance of safeguarding public funds and the need for the Petitioner to remain available for the investigation. The Petitioner is allowed to approach the Court again if the SFIO investigation is not concluded by December 2023.
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