2025 (1) TMI 436 - HC - Companies Law

Seeking suspension of the LOC - whether the apprehensions raised by the investigative agencies justify the continued imposition of restrictions on Petitioner s right to travel? - HELD THAT - A Look Out Circular serves as a preventive measure to restrict an individual from leaving the country, particularly when there are reasonable grounds to believe that such departure may hinder legal proceedings or jeopardize investigations into serious transgressions. While the issuance of an LOC aims to safeguard the interests of justice, it must be reconciled with the constitutional guarantees of personal liberty. The right to travel abroad has been recognized as an integral aspect of the right to life and personal liberty enshrined under Article 21 of the Constitution of India. The principle of res judicata, enshrined in Section 11 of the Code of Civil Procedure, 1908, precludes a Court from adjudicating an issue that has been directly and substantially decided in a prior proceeding between the same parties. However, the doctrine of res judicata does not rigidly apply to writ proceedings, especially in cases where ongoing violations of fundamental rights are alleged. Even the principle of constructive res judicata which is often applied to ensure judicial finality, cannot prevent the enforcement of fundamental rights when the cause of action has undergone change. When subsequent developments alter the factual or legal matrix, courts retain the flexibility to revisit and adjudicate such matters to ensure justice. In the present case, while Petitioner s earlier request for suspension of the LOC in W.P.(Crl.) 2332/2022 was declined, the doctrine of res judicata cannot mechanically bar the current petition. This is because the dismissal of the earlier writ petition was premised in the nascent stage of the SFIO investigation and the preliminary nature of the proceedings under the Black Money Act at that time. However, the circumstances prevailing at the time of adjudicating W.P.(Crl.) 2332/2022 have significantly changed - This assessment is currently under challenge by the Petitioner before the Commissioner of Income Tax (Appeals)-31, New Delhi. Moreover, vide Assessment Order dated 30th March, 2024, the total quantified taxable undisclosed assets of the Petitioner s son, Mr. Shiv Punj, has been assessed at NIL. Proceedings under the RBI Master Circular on Fraud - HELD THAT - The classification of PLL s account as fraud by IDBI Bank was previously challenged before this Court in W.P.(C) 10796/2020. On 12th May, 2023, this Court set aside the Financial Monitoring Report and the classification of PLL s account as fraudulent. However, this decision was rendered on account of procedural infirmities, resting on the lack of an opportunity of hearing provided to PLL rather than a substantive adjudication on the merits of the allegations. SFIO has correctly contended that the ruling did not exonerate PLL or the Petitioner but was limited to ensuring compliance with principles of natural justice. While these proceedings signal the gravity of the allegations, they remain at a preliminary stage. As of now, no formal complaint has been filed by IDBI Bank, nor any FIR has been registered against the Petitioner or PLL. This lack of conclusive action demonstrates that the allegations have yet to translate into definitive findings of wrongdoing - In the instant case, in absence of any definitive findings or legal proceedings, an imminent risk warranting the continuation of the LOC against the Petitioner cannot be established. Status of SFIO Investigation - HELD THAT - SFIO possesses the mechanism to obtain evidence independently, including through forensic analyses of PLL s financial accounts. The liquidator of PLL, appointed during the liquidation proceedings, holds custody of all relevant company records, which are readily accessible to the SFIO for their investigation. It is also noteworthy that the investigating agencies are already apprised of the Petitioner s foreign assets, leaving little room for concealment or evasion. Crucially, there have been no credible allegations of evidence tampering, witness intimidation, or any conduct by the Petitioner that could potentially derail the investigation. In such circumstances, the indefinite continuation of the LOC imposed on the Petitioner cannot be justified. As observed in multiple judgments, including MANEKA GANDHI VERSUS UNION OF INDIA 1978 (1) TMI 161 - SUPREME COURT any restriction on personal liberty must meet the test of proportionality and be reasonably connected to the legitimate - while the SFIO s concerns regarding the gravity of the allegations cannot be dismissed outright, investigations must not become an instrument for imposing indefinite constraints on an individual s fundamental rights, particularly when no substantive evidence has been presented to establish non-cooperation or obstruction by the Petitioner. Discharge from Personal Guarantees. Furthermore, an application filed by the Union Bank of India under Section 95 of the Insolvency and Bankruptcy Code, 2016, seeking to invoke the Petitioner s personal guarantees, was dismissed by the NCLT in its order dated 10th January, 2024. The NCLT s relied on the DRT s findings, which had already discharged the Petitioner from his personal guarantees. Conclusion - The right to travel abroad, being an essential component of the right to personal liberty under Article 21 of the Constitution, cannot be curtailed arbitrarily or indefinitely. Restrictions such as an LOC must pass the test of proportionality and necessity, ensuring that they are imposed only when supported by credible material. In the present case, while the State s interest in investigating allegations of financial impropriety is undeniable, this Court finds that the absence of tangible material on record of the Petitioner s intent to abscond or tamper with the investigation tilts the balance in favour of permitting conditional travel - The permission to travel abroad given in this order shall be subject to all other applicable conditions and shall not be deemed as a direction to any other authority. In case any of the afore-noted conditions are violated, the security shall be forfeited. The present petition is disposed of.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the Look Out Circular (LOC) issued against the Petitioner violates his fundamental right to travel abroad under Article 21 of the Constitution of India.
• Whether the ongoing investigations and allegations against the Petitioner justify the continuation of the LOC.
• Whether the principle of res judicata applies to the present petition, given the previous writ petitions filed by the Petitioner.
• Whether the allegations of fraudulent activities and financial improprieties by the Petitioner and his company, Punj Lloyd Limited (PLL), warrant the imposition of travel restrictions.
• Whether the SFIO investigation and proceedings under the Black Money Act substantiate the apprehensions of flight risk.
• Whether the Petitioner's cooperation with investigations and the absence of conclusive findings justify the suspension of the LOC.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Right to Travel Abroad

• Relevant Legal Framework and Precedents: The right to travel abroad is recognized as an integral aspect of the right to life and personal liberty under Article 21 of the Constitution, as established in Maneka Gandhi v. Union of India and Satwant Singh Sawhney v. D. Ramarathnam.
• Court's Interpretation and Reasoning: The Court emphasized that restrictions on travel must be just, fair, and reasonable, adhering to procedural due process.
• Key Evidence and Findings: The Petitioner's cooperation with investigations and the absence of any credible allegations of tampering with evidence or evasion were noted.
• Application of Law to Facts: The Court found that the prolonged nature of the investigation without substantive progress raises questions about the necessity and proportionality of the LOC.
• Treatment of Competing Arguments: The State's interest in investigating financial impropriety was acknowledged, but the lack of tangible material on the Petitioner's intent to abscond tilted the balance in favor of permitting conditional travel.
• Conclusions: The right to travel cannot be curtailed arbitrarily or indefinitely, and the LOC must pass the test of proportionality and necessity.

Issue 2: Application of Res Judicata

• Relevant Legal Framework and Precedents: The doctrine of res judicata, as per Section 11 of the Code of Civil Procedure, 1908, precludes re-adjudication of issues already decided.
• Court's Interpretation and Reasoning: The Court noted that res judicata does not rigidly apply to writ proceedings, especially when new circumstances arise affecting fundamental rights.
• Key Evidence and Findings: The previous writ petition was dismissed based on the nascent stage of investigations, but subsequent developments altered the factual matrix.
• Application of Law to Facts: The Court found that the doctrine of res judicata cannot mechanically bar the current petition due to changed circumstances.
• Treatment of Competing Arguments: The Respondents' objection based on res judicata was not upheld due to the significant changes in the factual and legal matrix.
• Conclusions: The doctrine cannot perpetuate restrictions on fundamental rights when justification for such restrictions has dissipated.

Issue 3: Justification for LOC

• Relevant Legal Framework and Precedents: The Ministry of Home Affairs guidelines on LOC issuance and the Supreme Court's observations in State Bank of India v. Jah Developers Pvt. Ltd.
• Court's Interpretation and Reasoning: The Court emphasized that LOCs are preventive measures and must be reconciled with constitutional guarantees of personal liberty.
• Key Evidence and Findings: The SFIO investigation has not resulted in any interim or final report, and no FIR has been registered against the Petitioner.
• Application of Law to Facts: The lack of conclusive action and the Petitioner's cooperation with investigations undermined the justification for the LOC.
• Treatment of Competing Arguments: While acknowledging the gravity of allegations, the Court found no substantive evidence of non-cooperation or obstruction by the Petitioner.
• Conclusions: The indefinite continuation of the LOC is not justified without tangible progress or imminent charges.

3. SIGNIFICANT HOLDINGS

• The right to travel abroad is an essential component of personal liberty under Article 21, and restrictions must be proportional and necessary.
• The doctrine of res judicata does not apply rigidly to writ proceedings, especially when new circumstances affect fundamental rights.
• "Mere inability to repay loans, absent any criminal wrongdoing or material to show or squandering or siphoning off public money, cannot justify curtailing an individual's right to travel, as guaranteed under Article 21 of the Constitution of India."
• The absence of conclusive findings after five years of investigation and the Petitioner's cooperation do not justify prolonged restrictions on his right to travel.
• The Court permitted the suspension of the LOC for a limited period, subject to conditions ensuring the Petitioner's return and cooperation with investigations.
• The Petitioner is granted liberty to approach the Court upon the completion of the SFIO investigation for seeking quashing or suspension of the LOC.