2023 (9) TMI 362 - HC - Companies Law

Legality of Look Out Circular issued by the Bank of Baroda - permission to travel abroad - HELD THAT - In the instant case most of the transactions have taken place post the Petitioner s resignation and the Petitioner is being sought to be held as a hostage in the country only for the purpose of recovery of money which is payable by the Company-Lloyd Electric and Engineering Limited. The Petitioner s movement has been severely impeded from June, 2022 i.e., for more than one year when the Petitioner is not even an accused in any FIR - A mere probability/possibility that a person might ultimately be made an accused cannot be the sole basis for opening a Look Out Circular which has the effect of impeding the movement of a citizen and which takes away its right to travel abroad which has been elevated as a fundamental right under Article 21 of the Constitution of India - It is well settled that legality of a valid Look Out Circular has to be considered keeping in view the circumstances prevailing on the date on which the request for issuance of the Look Out Circular was made. In the present case, on the day when the Look Out Circular was issued, the Petitioner was not an accused in any case. In fact, material on record does not even show that the arrest of the Petitioner was even contemplated by the Enforcement Agencies and even today it is stated by learned Counsel for the CBI that the Petitioner is not an accused in the case. There is nothing in the present case which can justify that the Enforcement Agency has received any input that the departure of the Petitioner herein is detrimental to the economic interest of India or that his departure from the country should not be permitted in the larger interest. Phrases like detriment to the economic interest of India cannot be permitted to be used without there being any substantial material before the Look Out Circular is opened and definitely the Banks cannot use Look Out Circulars only as a measure of recovering money because the remedy as available under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and Insolvency and Bankruptcy Code, 2016 (IBC) is not sufficient and that opening of Look Out Circular will result in a faster remedy to recover money from the creditors. The Impugned Look Out Circular is, therefore, wholly unsustainable and deserves to be quashed and is hereby quashed - The writ petition is allowed.

Summary

Issues Involved:
1. Quashing of Look Out Circular (LOC) against the Petitioner.
2. Petitioner's role and responsibility in the Company.
3. Forensic Audit Report findings.
4. Legality and conditions for issuing LOC.

Summary:

1. Quashing of Look Out Circular (LOC) against the Petitioner:
The Petitioner filed a writ petition under Article 226 of the Constitution of India to quash the Look Out Circular (LOC) issued by the Bank of Baroda. The Petitioner was previously employed with Lloyd Electric and Engineering Limited and resigned as a Director on 08.05.2017. Despite his resignation, the company was declared a Non-performing Asset (NPA) on 28.11.2018, and the Petitioner received a Show Cause Notice from the Bank of Baroda on 14.01.2022, declaring him a wilful defaulter. The Petitioner received a notice under Section 91 of Cr.P.C from the CBI and was informed about the LOC at Mumbai Airport.

2. Petitioner's role and responsibility in the Company:
The Petitioner argued that his responsibility was limited to the consumer durable business, which was sold to Havells India Limited on 18.02.2017, and he resigned on 08.05.2017. The Bank of Baroda, however, stated that the Petitioner was a whole-time Director and key managerial personnel as per Section 2(1) of the Companies Act, 2013. The company was sanctioned a credit facility of Rs. 1075 crores by a consortium of banks and was declared NPA on 19.12.2018.

3. Forensic Audit Report findings:
The Forensic Audit Report by M/s KRA & Co. indicated several irregularities, including diversion of funds through fake procurement, loans to subsidiaries, and booking fake invoices post the Petitioner's resignation. The Ministry of Corporate Affairs also highlighted transactions where funds were allegedly diverted to the Petitioner and his private companies through bogus consultancy bills.

4. Legality and conditions for issuing LOC:
The Court examined whether the LOC issued by the Bank of Baroda was sustainable. It was noted that most transactions in the Forensic Audit Report occurred post the Petitioner's resignation. The Court emphasized that a LOC can only be issued when there are sufficient reasons, and the conditions precedent must be provided. The Petitioner was not an accused in any FIR, and there was no material suggesting his arrest was contemplated. The Court referred to the Office Memoranda dated 27.10.2010 and 05.12.2017, which outline the conditions for issuing LOCs, emphasizing that phrases like "detriment to the economic interest of India"� must be substantiated with substantial material.

Conclusion:
The Court concluded that the LOC against the Petitioner was unsustainable as it did not meet the required conditions and was not justified by substantial material. The LOC was quashed, and the writ petition was allowed. Pending applications, if any, were disposed of.