AUTHORITY’S PANORIA IS NOT SUFFICIENT TO ISSUE ‘LOOKOUT CIRCULAR’ CURTAILING INDIVIDUAL LIBERTY

[Mr. M. GOVINDARAJAN]

Look out circular

Look out circular (‘LOC’ for short) is a circular letter used by authorities in India to check whether a traveling person is wanted by the police. It may be used at immigration checks at international borders such as international airports or sea ports. A lookout circular can be said to be a coercive measure adopted by the State to restrict and regulate the movement of persons, who are accused of cognizable offences and in certain exception circumstances can be issued against witnesses as well.

LOC is issued by the executive and is regulated by the Union Home Affairs.  The earlier document which governed issuance of Lookout circulars was a circular dated 05.09.1979 and an office memorandum issued by the Ministry of Home Affairs dated 27.12.2000.  Again on 27.10.2010 the Ministry of Home Affairs issued an office memorandum to regulate and streamline the process of issuance of Lookout circulars.  An LOC is issued at the request of the investigating officer made to the Bureau of Immigration, Ministry of Home Affairs.  After the issuance of office memorandum dated 27.10.2010 public sector banks can also request for issuance of LOC.

Case law

In PRASHANT BOTHRA AND ANOTHER VERSUS BUREAU OF IMMIGRATIONS AND OTHERS - 2023 (9) TMI 702 - CALCUTTA HIGH COURT, the petitioner No. 1 tried to visit Nepal during June 2022 for his business opportunities.  He was stopped in the airport from boarding by immigration authorities without assigning any reason.  It was informed that he was restrained because of the information furnished by the Bank of Baroda (‘BoB’ for short) and Serious Fraud Investigation Office (‘SFIO’ for short).  The petitioners asked for the LOC vide his letter dated on 13.08.2022.   He was given reply that the said documents were confidential and as such they could not be provided to the petitioners.

The petitioners challenged the LOC issued by the immigrant authorities against them before the Calcutta High Court.  The petitioners submitted the following before the High Court-

• The LOC is beyond the authority vested by the concerned.
• The petitioners are neither threat to the economic interests of the country, nor if the petitioners leave the country there will be any detriment to the public interest.
• The petitioners’ personal liberty is wrongfully restrained and not permitted to do their business abroad by travelling outside the country.
• The criteria of issuance of LOC under ordinary circumstances are not met in the present case.
• For issuance of LOC no cognizable offence under Indian Penal Code or other penal laws has been cited.
• Para 6(H) of the concerned Office Memorandum of 2021 provides that in case of absence of any such cognizable offence, the LOC subject cannot be detained or arrested or prevented from leaving the country.
• The SFIO merely cites ongoing investigation against the petitioners pertaining to Avoidance Transaction under the Insolvency and Bankruptcy Code (‘Code’ for short).
• The investigation of SFIO was commenced in the year 2020 itself.  Despite three years has been lapsed no finding against the petitioners was recorded by SFIO.
• Even Section 212 of the Companies Act, 2013 does not entitle SFIO to issue a request for LOC since such pendency does not qualify as pending criminal proceedings apropos any cognizable offence.
• On 22.08.2022 for the first time SFIO produced an interim order dated 07.02.2023 of National Company Law Tribunal (‘NCLT’ for short) which carries a prima facie ex-parte

finding that fraud has been established beyond doubt and passes directions against the petitioners.

• Even assuming but not admitting such prima facie finding is there, an ad interim order pursuant to Section 241(2) dealing with cases of oppression, etc. and not Section 212 of the Companies Act, cannot be construed as ‘pending criminal proceedings’ apropos a cognizable offence.
• No exceptional circumstances like detriment to the economic interest of India or larger public interest is also met in the present case and, as such, the LOCs, being de hors the law, should be set aside.

SFIO vehemently objected the writ petition.  SFIO submitted the following before the High Court-

• The petitioners are suspended directors of Kohinoor Power Private Limited (‘KPPL’ for short) which is in liquidation as directed by NCLT, Kolkata Bench.
• During the Corporate Insolvency Resolution Process against KPPL the Resolution Professional ordered for a forensic audit against the said company.
• Based on the forensic audit report the Resolution Professional filed an application before NCLT, Kolkata with the prayer directing the petitioners to pay Rs.3.5 crores along with interest under section 43 of the Code.
• There are serious allegations of fraud against the petitioners which are being investigated.
• Where the Central Government is of the opinion that it is necessary to investigate into the affairs of the Company by the SFIO, in the public interest, such investigation shall be directed. Hence, public interest is involved.
• There is no mandatory timeline to complete investigation by SFIO  as held by Supreme Court in SERIOUS FRAUD INVESTIGATION OFFICE AND OTHERS VERSUS SAHARA HOUSING INVESTMENT CORPORATION LIMITED AND OTHERS - 2022 (8) TMI 935 - SUPREME COURT.
• The order of NCLT demonstrates that clear fraud is committed by the Company including the petitioners, attracting Section 447 of the 2013 Act. Thus, there is a prima facie case of commission of cognizable offences by the petitioners and the issuance of request by the SFIO was justified.

The High Court heard the submissions made by the parties to the present writ petition. The High Court observed that BOB and SFIO submitted before the High Court the copies of their requests for issuance of LOC against the petitioners.  BOB disclosed that the petitioners, directors of KPPL have availed credit facilities from the bank.  The petitioners were the guarantors for the same.  Due to non receipt of resolution plan the NCLT ordered for liquidation of KPPL.  During CIRP forensic audit was ordered.  In the said report certain alleged irregularities were pointed out.  The related party transactions worth Rs. 10.11 crores were allegedly identified, interest free deposit of Rs.3.50 crores was given by the borrower-Company for outright purchase of land where the project was to be set up.   The Company had taken the land on lease for annual rent of Rs. 6 Lakh and thus, allegedly, cheated the Bank. These irregularities were quoted in the request for issuing LOC.

The Bank has also filed CBI complaint in January, 2021 and that it is apprehended that the Directors/guarantors are likely to escape the country to avoid legal prosecution and recovery measures and opening/issuance of LOC against the Director/guarantor in particular, the petitioners no.2, was recommended.

The High Court observed that the forensic audit report is a piece of evidence in the liquidation proceeding and is in no manner conclusive proof of evidence of any illegality committed by any entity. Under no stretch of imagination can such a report be conclusive proof of the allegations against the petitioners.   The Bank filed a CBI complaint in January, 2021 but there is not an iota of evidence or indication that the CBI complaint has yielded any fruitful result against the petitioners till date. Thus, the grounds shown by BoB do not disclose any cognizable offence against the petitioners and/or anything to indicate that the impact of the petitioners leaving the country would be to adversely affect the economic interest of the country

as a whole or the public interest at large.

The High Court further observed that the SFIO has sought to assume an aura of sanctity which the law does not confer on it. The premise of the submissions of the SFIO is that mere subsistence of investigation at the behest of the SFIO, on the direction of the Central Government, is unflinching proof of the petitioners’ guilt for some offence.

The High Court observed that there is not a single allegation that the petitioners have ever refused to cooperate with the Inspectors in any manner at any instance.   The petitioners were willing to co-operate with the Authorities.  Further the petitioner going to Nepal does not in any manner operate as a deterrent to the petitioners going abroad.

The High Court accepted the contentions of the petitioners that the stage of investigation within the contemplation of Section 212(1) – (4) of the of the  Act is not yet over.  

Whatever may the allegations against the petitioners or the Company of which they were Directors and guarantors, the same cannot tantamount to a cognizable offence against the petitioners.   An ad interim order by the NCLT in an oppression and mismanagement proceeding cannot by any stretch of imagination prove ‘guilty’ against the petitioners on any count whatsoever.   A stray observation in such an ad interim order, that too ex parte, cannot be a valid reason for issuance of an LOC.

Nothing is disclosed in the said request to qualify as a ground for issuance of LOC. The only Section of law mentioned in the proforma for issuance of an LOC is Section 212(1)(c) of the 2013 Act which provision mentions, among other factors, ‘public interest’, merely in the context of opinion-formation by the Central Government as a prelude to initiate an investigation. Hence, the entire edifice of the SFIO’s case, built on the premise of a cognizable offence having been committed by the petitioners, is proved to be bloated, subject to be pierced by a mere perusal of the Section itself.  The petitioner was willing to co-operate with the investigation.  There is nothing on record to justify the arbitrary curtailment of the petitioners’ personal liberty.

Clause 6(H) of the Office Memorandum provides that recourse to LOC is to be taken in cognizable offences under IPC or other penal laws. The said provision is not met in the present case.  Clause 6(L) envisages that in exceptional cases, LOCs can be issued in certain cases, including where it appears to the Originating Authority, based on inputs received, that the departure of the person is detrimental to the sovereignty or security or integrity or India or that the same is detrimental to the bilateral relations with any country or to the strategic and/or economic interests of India or if such person is allowed to leave, he may potentially indulge in an act of terrorism or offences against the State and/or that such departure ought not be permitted in the larger public interest at any given point of time.   In this case none of the said grounds are fulfilled at all.

The High Court held that the mere paranoia of the authorities whenever a person against whom allegations are leveled seeks to leave the country cannot be sufficient for issuance of LOCs and curtailing the person’s personal liberty to travel abroad.   No ground has been made out for issuance of LOC against the petitioners and/or restricting them from travelling abroad.   The High Court allowed the writ petition by setting aside the Look out Circular issued against the petitioners and restraining the respondent-Authorities from preventing the petitioners from travelling abroad in any manner on the strength of the said quashed LOC(s). The High Court further directed to publish the quashing of the LOCs and intimate the same to all authorities who were intimated about the LOCs and to ensure that the petitioners are not restrained unduly from leaving the country on the basis of the quashed LOCs.