2023 (9) TMI 1467 - HC - Companies Law

Challenge to Look Out Circular (LOC) issued at the instance of Respondent No. 2/Bank of Baroda against the Petitioners - recovery of outstanding dues - Petitioners states that the Petitioners were only guarantors and were not involved in the management of affairs of the borrowing company for the last several years - HELD THAT - It is well settled that the right to travel abroad is guaranteed under Article 21 of the Constitution of India which cannot be taken away in an arbitrary and illegal manner. This Court is now coming across a large number of cases where banks are now insisting on opening of Look Out Circulars only as a measure for recovery of money without initiating any criminal proceedings. The Look Out Circulars cannot be opened merely on the request of the banks. There has to be some application of mind by the authority concerned opening the Look Out Circular since the opening of Look Out Circular results in restraining a person's right to travel abroad. The authority opening the Look Out Circular must satisfy itself that the departure of a person against whom Look Out Circular has been opened would be detrimental to the sovereignty or security or integrity of India or that the same is detrimental to the bilateral relationship with any country or to the economic interests of India or departure of such a person ought not be permitted in the larger public interest at any given point in time. There has to be a proper application of mind by the authorities on the facts of each case before opening of a Look Out Circular which not only impedes the right to travel but also cast an aspersion/stigma on the person in the society against whom the Look Out Circular has been opened. In the present case, there is no criminal case against the Petitioners till now and on the date of opening of the Look Out Circular, there was no suspicion or allegation against the Petitioners that the Petitioners have siphoned off funds. Proceedings are pending before various forums and a One-Time Settlement (OTS) has been arrived at between the Respondent No. 2/Bank of Baroda and the company. Time to make payment has been extended till 30.09.2023 by the Respondent No. 2/Bank of Baroda. The Petitioners are only guarantors and were not involved in the day-to-day affairs of the company for the last several years. Therefore, the opening of Look Out Circular is not justified against the Petitioners. The Impugned Look Out Circular opened against the Petitioners is, therefore, wholly unsustainable and deserves to be quashed and is hereby quashed - petition allowed.

Summary

Issues Involved:
1. Challenge to the Look Out Circular (LOC) issued by the Bank of Baroda.
2. Allegations of financial mismanagement and non-payment of dues.
3. Petitioners' right to travel abroad under Article 21 of the Constitution of India.

Summary:

1. Challenge to the Look Out Circular (LOC) issued by the Bank of Baroda:
The Petitioners filed writ petitions challenging the LOC issued by the Bank of Baroda. The LOC was issued on the grounds that the company's loan account turned NPA, the unit was closed, and there were allegations of fund diversion and non-payment despite having the capacity to pay.

2. Allegations of financial mismanagement and non-payment of dues:
The company availed credit facilities amounting to Rs. 5.25 crores, which were later enhanced to Rs. 28.50 crores. The loan account was declared NPA on 31.07.2019, leading to proceedings under the SARFAESI Act and demand notices invoking personal guarantees. The Bank alleged that the company diverted funds and made significant payments to related parties. The company and guarantors initiated proceedings before the Senior Civil Judge, who partly allowed interim relief. The Bank also initiated proceedings before the NCLT for Corporate Insolvency Resolution Process and issued a demand notice under IBBI Rules.

3. Petitioners' right to travel abroad under Article 21 of the Constitution of India:
The Petitioners planned a trip to Thailand but were stopped due to the LOC. They argued that the LOC was an abuse of the process of law, tarnishing their reputation and impeding their movement. They cited the fundamental right to travel abroad under Article 21, as held in Maneka Gandhi v. Union of India. The Court noted that the right to travel abroad is guaranteed under Article 21 and cannot be taken away arbitrarily. The Court emphasized that LOCs should not be issued merely for recovery of money without criminal proceedings. The Court found no criminal case or allegations of siphoning funds against the Petitioners at the time of issuing the LOC. The One-Time Settlement (OTS) between the company and the Bank was also considered.

Conclusion:
The Court quashed the LOC against the Petitioners, stating it was unsustainable. However, it allowed for the possibility of issuing a fresh LOC if new material evidence emerged against the Petitioners. The Petitioners were directed to cooperate with the investigation. The writ petitions were allowed, and pending applications were disposed of.