LOCs Impinge Upon Right To Travel But Interests Of Investing Public Can’t Be Ignored: Delhi High Court In Loan Fraud Case

Justice Prathiba M. Singh said that though LOCs impinge upon the individual’s right to travel, which is recognised as a fundamental right, the rights and interests of the investing public would also be a relevant consideration which cannot be ignored.

Taking into account that approximately Rs. 1,400 to 1,700 crores belonging to public sector banks and financial institutions are at stake, the court, in view of the larger public interest and the economic interest of India, refused to quash the LOC.

According to SFIO, Shilpi Cables had transactions with eight other related companies based out of Dubai, Abu Dhabi and Singapore and transactions show that it had transferred more than Rs.800 crores to the related companies and loans for the same are outstanding.

Challenging the LOC issued against him at the request of the SFIO, the petitioner Ghanshyam Pandey argued that since he was only a professional earning a salary from the company, no responsibility can be attributed to him with respect to the allegations raised against Shilpi Cables and its group companies.

He further contended that since no FIR has been registered against him till date, in the absence of any cognizable office, the LOC cannot be continued against him, especially for an indefinite period.

Pandey argued that the LOC has seriously impinged on his travel to meet his children and his family, who live in the USA and Singapore. He further pleaded that after the first summon was issued to him by the SFIO, he had appeared before the agency and given answers to all the questions.

Alleging that there was a complete non-cooperation by Pandey in the investigation, the SFIO submitted that a complex maze of transactions involving Shilpi Cables are being investigated by it. The SFIO alleged that though Pandey may not be the promoter but he had actively connived with the promoters in order to defraud the public institutions in India of a large sum of money.

Observing that LOCs can be challenged by way of a writ petition and the court has to determine whether the extraordinary writ jurisdiction is to be exercised or not, Justice Singh said:

“While LOCs cannot be resorted to for every case involving a loan transaction, the facts of the present case reveal that a large amount of public funds of public sector banks and financial institutions are at stake. The question as to whether the LOC would be valid or not would have to be determined in the facts and circumstances surrounding each case.”

The court said Pandey was the CEO of Shilpi Cables between 2006 to 2012 and its whole-time director from 2013 to 2017. Further, he was also a member of the company’s audit committee from 2011 to 2016-2017, and it was during the said period that the transactions, claimed by the SFIO to be fraudulent, had occurred, the court noted.

It observed that Pandey was not merely a professional director of the company, and that he would have played a key role in the day-to-day management and administration of Shilpi Cables and its group companies located abroad.

The bench further said that, apart from playing a role in the management and administration, Pandey, being an auditor of Shilpi Cables, also owed a duty to report any shortcomings or misconduct within the company.

“Thus, the Petitioner cannot be completely absolved of responsibility merely on the ground that he was a mute spectator. Persons like the Petitioners who hold positions of responsibility in such companies do not merely owe a duty to their employer but also owe a duty to the role that they play, especially, if they are involved in crucial role such as auditing,” said the court.

Noting that the investigation against the company was commenced by SFIO only in September, 2020, the court observed that the petitioner would still be required for the purposes of investigation.

“Until the conclusion of the investigation it cannot be presumed that the Petitioner would not be charged with a cognizable offence,” the bench said.

It further said that if the charges of fraud are established against Pandey, the same would be a cognizable offence under Section 212 (6) read with Section 447 of the Companies Act, 2013.

“The statement of the Petitioner recorded by the SFIO on 17th November, 2022 which is in the form of questions and answers has also been placed on record. A perusal of the said statement gives the impression that the Petitioner is being evasive rather than candid. In fact, he has even failed to explain contents of emails in which he is one of the recipients,” it added.

Noting that Pandey has not shown any assets in India and his entire immediate family resides abroad, the court said that there is a clear possibility that he may not return to India and thus, his travel is likely to impede the investigation.

“In view of the above discussed factual and legal position, as the funds amounting to approximately Rs.1,400 – Rs. 1,700 crores belonging to public sector banks and financial institutions are at stake, it would be in the larger public interest as also in the economic interest of India to not exercise discretion in favour of the Petitioner. Thus the LOC against the Petitioner is not liable to be quashed, at this stage,” the court ruled.

While dismissing the writ petition, the bench granted liberty to the petitioner to approach the court if the SFIO investigation is not concluded by the end of the year.

Case Title: Ghanshyam Pandey versus Union of India & Anr.

Citation: 2023 LiveLaw (Del) 156

Counsel for the Petitioner: Mr. Balaji Subramanian, Mr. Pawan Bhushan & Mr. Akash Kundu, Advs

Counsel for the Respondent: Mr. Anurag Ahluwalia, CGSC with Mr. Kritgya Kumar Kait, GP, Mr. Shriram Tiwary, Mr. Abhigyau Siddhanta and Mr. Salman Razi, Advocates with IO Mr. Gaurav (A.D. SFIO) and prosecutor Mr. Nitin Agnihotri for SFIO