2021 (4) TMI 878 - HC - Money Laundering

Validity of Look-Out Circular (LOC) issued against the petitioner - company defaulted in repayment of a term loan availed from the State Bank of India (SBI) - the petitioner was a Director of the borrower-Company - HELD THAT - The only reason disclosed in the request of the Bank as well as in the LOC itself was that the petitioner was a Director of the borrower-Company. Such allegation was made in the present tense in both the request and the LOC. However, such allegation is, by itself, insufficient to fall within any of the grounds for issuance of LOC, as contemplated in the relevant Office Memoranda - The petitioner has clearly shown that the petitioner had resigned long back, even before the discovery of alleged fraud in 2014 by the Bank. Economic offence or any other ground contemplated in the relevant Office Memoranda was not disclosed either in the request of the Bank or the LOC itself to justify the issuance thereof. Apart from the CBI Court and Sessions Court having given a clean chit to the petitioner on similar allegations, the loan-in-question is sufficiently secured in view of the DRT award obtained by the Bank against the borrower- Company and the attachment order passed by the Adjudicating Authority under the PMLA at the instance of the ED relating to the writ petitioner's movable and immovable properties - in the present case, the LOC would not only amount to curtailing the fundamental right to liberty of the petitioner, as guaranteed by the Constitution of India, it would also take away the livelihood of the petitioner which would directly affect his life, also guaranteed by the Constitution. Neither the LOC nor the request therefor discloses any ground as envisaged in the relevant Office Memoranda to justify the issuance of the LOC and/or the subsequent renewal thereof. The petitioner has successfully demonstrated that he was not a Director of the Company at the relevant juncture when the borrower- company is alleged to have committed fraud. Thus, there is no basis whatsoever for issuance of the impugned LOC and the consequential subsequent extension thereof against the petitioner - Petition is allowed.

Issues Involved:
1. Validity of the Look-Out Circular (LOC) issued against the petitioner.
2. Petitioner's right to travel abroad and its impact on his livelihood.
3. Compliance with statutory requirements and procedural fairness in issuing the LOC.
4. Sufficiency of reasons provided for the issuance and renewal of the LOC.
5. Economic interests of India and their relevance to the LOC.

Detailed Analysis:

1. Validity of the Look-Out Circular (LOC) issued against the petitioner:
The petitioner challenged the LOC issued against him, arguing that it was based on his past directorship in Kaushik Global Logistic Limited (KGLL) and that he had resigned from the company long before the alleged fraud was discovered. The LOC was issued on the request of the State Bank of India (SBI) due to a default in loan repayment by KGLL. The court found that the only reason disclosed in the request for the LOC and in the LOC itself was that the petitioner was a Director of the borrower-Company, which was insufficient to justify the issuance of the LOC under the relevant Office Memoranda.

2. Petitioner's right to travel abroad and its impact on his livelihood:
The petitioner, a Captain of the Merchant Navy, argued that his right to travel abroad was fundamental, as his livelihood depended on overseas travel. The court noted that the LOC curtailed the petitioner's fundamental right to liberty and affected his livelihood, which is protected under the Constitution of India. The court emphasized that the petitioner’s profession required him to be on the high seas for the major part of the year, and the LOC would unjustly restrict his ability to earn a living.

3. Compliance with statutory requirements and procedural fairness in issuing the LOC:
The petitioner contended that Section 10A of the Passports Act, 1967, which provides for a prior opportunity of hearing before restricting overseas travel, was not complied with. The court observed that no opportunity of hearing was given to the petitioner before issuing the LOC, which violated procedural fairness. Additionally, the court noted that the reasons for the LOC were not disclosed to the petitioner, further undermining the procedural requirements.

4. Sufficiency of reasons provided for the issuance and renewal of the LOC:
The court found that the reasons provided for the issuance and subsequent renewal of the LOC were inadequate. The original and renewed LOCs were based on the petitioner's alleged directorship of KGLL, which was not a valid ground as per the relevant Office Memoranda. The court also rejected the post facto allegation that the petitioner was a guarantor for KGLL, noting that no specific evidence was provided to substantiate this claim. The court highlighted that new grounds cannot be introduced retrospectively to justify the LOC.

5. Economic interests of India and their relevance to the LOC:
The respondents argued that the economic interests of India justified the LOC, as the petitioner's potential flight risk could affect public money. However, the court found no evidence to support the claim that the petitioner’s travel would adversely impact the economic interests of India. The court referenced previous judgments, including UCO Bank Vs. Dr. Siten Saha Roy, which clarified that the "economic interests of India" could not be determined merely by the quantum of loan and required a higher threshold of impact on the national economy.

Conclusion:
The court quashed the LOC and its subsequent extension, finding that the reasons provided were insufficient and did not meet the criteria set out in the relevant Office Memoranda. The court ordered immediate steps to circulate the order to the concerned authorities to prevent further action against the petitioner based on the LOC. The judgment emphasized the importance of procedural fairness, the right to livelihood, and the necessity of valid grounds for issuing restrictive measures like LOCs.

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