Look Out Circular Curbs Right To Travel, Should Be Issued Only In Exceptional Circumstances & On Cogent Reasons: Delhi High Court

Justice Rekha Palli was hearing a Writ Petition filed by a businessperson of garment manufacturing based in Delhi to quash a Look Out Circular (LOC) issued against him by the Respondents, the Ministry of Home Affairs and the Income Tax Department.

The Court noted that the LOC had remained in force for almost three years, during which period, the respondents have admittedly not taken any further action against the petitioner.

In such circumstances, it observed,

"In my considered opinion, it would be wholly impermissible, for the respondents, to continue placing fetters on the petitioner's right to travel abroad, in such a routine and mechanical manner without due consideration of the fact that even after almost three years there is still no sufficient evidence to charge the petitioner under the Black Money Act 2015, Income Tax Act 1969, or the Prevention of Money Laundering Act 2002."

It added,

"even if the respondent's plea, that in view of the ongoing investigation regarding the petitioner's foreign interests, the issuance of the LOC in February, 2019 was justified, were to be accepted, the continuance of this LOC for almost three years without any cogent reasons forthcoming from them, is not understandable."

Background

The Respondents had carried out search actions on the basis of a Warrant of Authorization at the Petitioner's residence and bank locker which led to their seizure of various assets including digital assets and jewellery worth Rs 1,00,67,181. At this stage the LOC was issued on the basis of purported undisclosed foreign assets liable for prosecution under Income Tax Act, Black Money (Undisclosed foreign income and assets) and Imposition of Tax Act, 2015 and Prevention of Money Laundering Act, 2002.

Advocate Vikas Pahwa, counsel for the Petitioner, presented the deficiencies in Respondent's LOC. He pointed out that several search actions had been conducted at the Petitioner's residence for three years since February 2019, however till date no case was registered under the cited legislations. Further, the Petitioner had addressed the Respondent's concerns of Petitioner's undisclosed transactions in Dubai by furnishing certificates by the Government of Dubai testifying that neither the Petitioners nor any of his family members hold any assets in Dubai.

Respondents sought to quash the Petition by citing the limited role of courts in interfering with the administrative actions of the State in issuing an LOC. The LOC was following the authority's Office Memorandum stipulation that in exceptional circumstances a LOC may be issued against an individual where it appears to the authorities that the departure of such a person is 'detrimental to the economic interests of India'. The Respondents claimed that the seizure of assets from the Petitioner's residence coupled with a surreptitious purchase of 10% shares in a Dubai company in the name of his daughter, warranted sufficient appearance for such exceptional circumstances. Accordingly, the Petitioner was restricted from travelling abroad.

Countering the Respondent, the Petitioners pleaded that the LOC had only been issued on the basis of a draft agreement for investment confirmed by inconclusive Whatsapp chats indicating transfer of a sum of 1.65 million AED to an offshore company. In fact, only an amount of 7,50,000 AED was transferred by Petitioner's daughter to a Dubai-based sister concern of the company but the transaction had been returned through banking channels as the same had not materialized.

Findings

Justice Palli rejected Respondent's stance pertaining to the role of judiciary in interfering with the issuance of LOC by the Respondents. While agreeing that the role is of a limited nature, she brushed aside the possibility of a blanket prohibition of judicial review. She stated that,

"In the light of the adverse effects that the issuance of LOC can have on an individual's life, the respondent's plea that the Writ Court under Article 226 of the Constitution of India should not review the decision to issue LOC cannot be accepted. In fact, in case it is found that the decision of the authorities is without application of mind to the relevant factors, the Court can, and in fact, should come to the rescue of the individual".

Turning to the crux of the matter as to whether the LOC was actually justified, Justice Palli noted that by virtue of the OM, issuance of LOI could only be in exceptional circumstances. Since the impugned LOC was continued for 3 years without any proceedings under the penal law, the Respondents could not establish any judicial case against the Petitioner for curbing his right to travel abroad. Further, the case of the Respondent was based on a unsigned draft agreement and WhatsApp chats which was deemed inconclusive, as admitted by the Respondents. The Respondent's contention that it was awaiting response from Dubai's authorities to confirm its suspicions to initiate court proceedings also did not hold weight for issuing LOC as the Petitioner had produced certificates from the Govt of Dubai to the contrary.

In light of the fact that the Respondents had failed to substantiate its allegations of the Petitioner being involved in a huge financial scam, Justice Palli held that in the absence of cogent reasons and only suspicions, it would be impermissible to place fetters on the Petitioner right to travel abroad.

Further, the curtailment affected the Petitioner's business which involved overseas travel as an integral aspect. She stated that "the prolonged restriction would cause irreparable and considerable damage to the business interests of the Petitioner". Thus, the curtailment affected the Petitioner's right to livelihood as enshrined under Article 21 of the Constitution.

Finally, distinguishing Respondent's reliance of cases GSC Rao v. State of UP (2019) 106 ACC 437, Justice Palli noted that the same was inapplicable in the instant case as the same was on the basis that a criminal investigation was underway against the accused. Accordingly, Respondent's claim that the co-operation of the Petitioner could be ground for maintaining LOC fell flat as no such investigation was initiated by the Respondent.

Justice Palli, in its final remarks, allowed the Petition to quash the LOC, while placing a rider to the Petitioner to inform the Income Tax Authorities as to his details of foreign travel for a period of one year in the interests of justice for aiding the authority's investigation.

The excerpt of the Judgment reflecting the ratio of this judgment is reproduced below:

"issuance of a LOC is an extremely severe step and when purportedly issued in exceptional circumstances, on the ground of the departure of the person being 'detrimental to the economic interests of India', the authorities must tread with caution. Once this Clause is meant to be used in exceptional circumstances, it cannot be permitted to be used in such a mechanical manner, as in the present case."

Case Title: Vikas Chaudhary v. Union of India & Ors.;

Case No.: WPC 5374/2021 & CRL.M.(BAIL) 605/2021 (Suspension of LOC)

Citation: 2022 LiveLaw (Del) 21