Sunday, December 10, 2023

Delhi High Court quashes Look Out Circular against former Directors of paper company, tells banks to apply mind before seeking LOC

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The High Court of Delhi has quashed Look Out Circulars issued against former directors of AAA Paper Limited at the instance of the Bank of Baroda, observing that LOCs cannot be issued on the mere request of banks and that there must be some application of mind before taking such action.

The single-judge Bench of Justice Subramonium Prasad recently observed that the Court was coming across a large number of cases where banks were insisting on the opening of LOCs just as a measure to recover money without initiating any criminal proceedings.

Mentioning the guidelines issued by the Union Ministry of Finance on the opening of LOCs by Public Sector Banks, the High Court said that LOCs could not be opened merely on the request of banks. 

There has to be some application of mind by the authority concerned opening the Look Out Circular since the opening of an LOC resulted in restraining a person’s right to travel abroad, it added.

The Bench noted that the authority opening the LOC must satisfy itself that the departure of a person against whom it has been opened would be detrimental to the sovereignty, security or integrity of India or detrimental to the bilateral relationship with any country or to the economic interests of India or that departure of such a person ought not be permitted in the larger public interest.

The High Court further mentioned that the opening of an LOC could not only impede the right to travel, but also cast aspersions on the person against whom it was opened.

While dealing with certain petitions challenging the LOCs issued against the former directors of AAA Paper Limited at the instance of the Bank of Baroda, the Bench noted that in 2019, the loan account of the company was declared as non-performing asset (NPA) by the bank and proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act were initiated.

It took in view the fact that the two petitioners were recently stopped from boarding their flight at the IGI Airport, New Delhi on account of an LOC issued against them. The Bank said they had stood guarantee to the credit facilities obtained by the company.

The High Court observed that there was no criminal case against the petitioners and that on the date of opening of LOCs, there was no suspicion or allegation against them of siphoning off any funds. 

It further found that they were only guarantors and not involved in the day-to-day affairs of the company for the last several years.

The bench quashed the Look Out Circular opened against the petitioners, calling the LOCs as wholly unsustainable.

The petitioners were represented by Advocates Prithu Garg, Harsimran Duggal, Aditya Awasthi and Neha Aggrawal.

Central Government Standing Counsel Ajay Digpaul, Balendu Shekhar, along with Advocates Kamal R Digpaul, Swati Kwatra, Rahul Kumar Sharma and Krishna Chaitanya appeared for the Indian Bureau of Immigration.

Bank of Baroda was represented by Senior Advocate Sudhir Makkar, along with Advocate Amit Mahaliyan.

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