Banks
cannot use Look Out Circulars as a way to recover money, the Delhi High Court
has said, holding LOCs can't be opened on mere possibility of a person being
made an accused in a criminal case as they take away a person's right to travel
abroad which is a fundamental right under the Constitution.
A
Look Out Circular (LOC), the high court said, is a measure to make a person
surrender before investigating authorities or a court of law and can be issued
only when there are sufficient reasons for it.
The
court made the observations while quashing the LOC issued at the insistence of
Bank of Baroda against Nipun Singhal, a former director at Lloyd Electric and
Engineering Limited which is facing a CBI probe over certain transactions.
The
court was informed that about 18 months after the petitioner had left the
company, it was declared as a non-performing asset in November 2018, and in
January 2022, the petitioner received a show cause notice from Bank of Baroda
about having been declared a wilful defaulter.
Justice
Subramonium Prasad noted as per the CBI, the petitioner was not an accused in
the matter and most of the transactions had taken place after his resignation.
The court said the petitioner was sought to be kept as a hostage in the country
only for the purpose of recovery of money which is payable by the company.
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, said the court in a recent order.
Holding
that LOC cannot be opened unless and until the conditions in the Centre's
office memorandum on its issuance are satisfied, the court said there is
nothing in the present case to justify that there was any input that the
departure of the petitioner was 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," the court said.
It
said,"Banks cannot use LOCs 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 and Insolvency
and Bankruptcy Code, 2016 is not sufficient and that opening of Look Out
Circular will result in a faster remedy to recover money from the creditors.
It
said an LOC can be issued only when there are sufficient reasons, and if there
is a condition precedent for issuance of such LOC, the same must be provided in
it.
The court observed that in the present case, on the day when the LOC was
issued, the petitioner was not an accused in any case and there was no material
on record to show that his arrest was even contemplated.