Authority’s "Paranoia" Not Sufficient For Issuance Of Look-Out Circulars Curtailing Individual Liberty: Calcutta High Court

The Calcutta High Court has observed that the mere paranoia of Authorities whenever a person against whom any allegations are levelled seeks to leave the country, cannot be sufficient grounds for issuance of a lookout circular (“LOC”), which curtails the individual’s liberty to travel abroad.

Quashing the LOCs issued against the two petitioners, a single-bench of Justice Sabyasachi Bhattacharya held,

In the absence of a single allegation in the records that the petitioners are not cooperating in the investigation or a single instance that the petitioners did not comply with any request or direction of the Investigating Officers, there is nothing on record to justify the arbitrary curtailment of the petitioners‟ personal liberty. It has to be kept in mind that the high grounds which are required to be made out for restraining the personal liberty of a person as guaranteed under Article 21 of the Constitution and the right of a person to move within the country under Article 19, a necessary corollary of which is the right to travel abroad, have to be on a much elevated footing than mere pendency of an investigation or allegations of financial frauds against the concerned person. The mere paranoia of the authorities whenever a person against whom allegations are levelled seeks to leave the country cannot be sufficient for issuance of LOCs and curtailing the person’s personal liberty to travel abroad.

However, at the request of the investigating authorities for time to prefer an appeal, the Court stayed the operation of this order for two weeks.

Facts of the case

These observations came in a plea filed by the petitioners, against whom LOCs had been issued at the behest of the Bank of Baroda (“Bank”), and the Serious Fraud Investigation Office (“SFIO”) in 2021.

Counsel for the petitioners submitted that when petitioners had attempted to visit Nepal in 2022 on a business trip, they were stopped from boarding the plane at Kolkata Airport, without any reasons being assigned, and that a senior officer from the immigration office informed them that they were being restrained on basis of information given by the SFIO, without producing an actual LOC for their perusal.

It was submitted that the criterion for issuance of LOCs had not been met in the present case, and that the Bank’s request for issuance of LOC was de hors the law, due to no cognizable offence under the IPC having being made out against the petitioners.

Counsel submitted that issuance of the LOC immediately curtailed the petitioner Article 21 rights, and that such a high restriction could not have been imposed in the absence of any criminal offences made out against the petitioners.

Petitioners argued that the SFIO has merely cited Avoidance Transactions under the Insolvency and Bankruptcy Code (“IBC”) as reasons behind the LOC, and even such a revelation only came through the affidavit in opposition filed during the present proceedings, in 2023.

It was submitted that the investigation by the SFIO, which began in 2020, had yet to arrive at any findings, and that an ongoing investigation under s.212 of the Companies Act 2013, did not entitle the SFIO to issue LOCs since these were not criminal proceedings.

Counsel further submitted that only in August 2023 did the SFIO produce an interim order of the National Company Law Tribunal (“NCLT”) which ex parte and prima facie found that the petitioners had committed fraud and that these ad interim observations could not be equated with pending criminal cases against the petitioner.

In the absence of any exceptional circumstances such as detriment to the economic or public interest of India, Counsel prayed for the LOCs to be set aside.

The SFIO on the other hand, argued that the petitioners were directors of one Kohinoor Power Pvt Ltd (“KPPL”), which was in liquidation before the NCLT, Kolkata.

Counsel for SFIO submitted that the Avoidance application had been filed upon the findings of a forensic auditor during the insolvency proceedings, for a payment of Rs 3.5 cr along with interest u/s 35 of the IBC.

It was submitted that there were serious allegations of fraud against the petitioners and that the Companies Act, 2013 being a special statute should be given precedence over the CrPC, and the SFIO being the specialised agency under the Companies Act would have primacy.

SFIO argued that Supreme Court’s orders have clarified that there is no mandatory timeline for them to complete an investigation, and that they had obtained orders from the NCLT, which held that fraud was committed by the petitioners company leading to a prima facie cognizable offence committed by the petitioner.

Findings of the Court

Upon hearing the parties, the Court examined the paperwork issued by both the SFIO as well as the Bank in resorting to requesting an LOC against the petitioner.

In dealing with the ‘forensic audit report’ which formed the basis of all allegations of fraud against the petitioners, the Court observed that such a report could at best be evidence in a liquidation proceeding, and could under no stretch of the imagination be used as conclusive proof of the allegations against the petitioners.

It was observed that classification of an account as fraud was an entirely different proceeding from a criminal action or a recovery proceeding, under the Circulars of the RBI and did not tantamount to a cognizable offence at all.

Court opined: The SFIO has sought to assume an aura of sanctity which the law does not confer on it…to arrive at a verdict that fraud has been committed by the petitioners beyond doubt, several paraphernalia are to precede, which are not found in the present case.

Court further noted, that in the present case, even if the SFIO’s arguments under the Companies Act were to be admitted, there was not a single allegation that the petitioners had failed to cooperate with the inspectors appointed thereunder.

Finally, in holding that the present LOC could not have been issued under Section 212 of the Companies Act, due to the investigation under it not being equitable with a criminal offence, “or any offence for that matter,” the Court was of the view that the present LOCs had been issued in lieu of recovery of debts, and not on a genuine apprehension against the petitioners.

It concluded:

In the absence of a single allegation in the records that the petitioners are not cooperating in the investigation or a single instance that the petitioners did not comply with any request or direction of the Investigating Officers, there is nothing on record to justify the arbitrary curtailment of the petitioners‟ personal liberty. An ad interim order by the NCLT in an oppression and mismanagement proceeding cannot by any stretch of imagination prove “guilt” against the petitioners on any count whatsoever. The entire context of such observation is different from a proceeding under Section 212 of the 2013 Act and, as such, a stray observation in such an ad interim order, that too ex parte, cannot be a valid reason for issuance of an LOC. Surprisingly, precious nothing is disclosed in the said request to qualify as a ground for issuance of LOC. The said Originating Agencies in the present case merely acted on a knee-jerk reaction, thereby seeking to use a request for issuance LOC as an alternative procedure to recovery of debts.

Coram: Justice Sabyasachi Bhattacharya

Case: Prashant Bothra and another Vs. Bureau of Immigration and others

Citation: 2023 LiveLaw (Cal) 271

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