Look Out Circular | Directors Of Company Can't Be Denied 'Right To Travel Abroad' In Absence Of Any Non-Compoundable Offence: Orissa High Court

While quashing the LOC issued against the petitioners herein, a Single Judge Bench of Justice Biswanath Rath noted,

"There is no complaining of non-cooperation against any of the Petitioners. Further as of now there is no existence of the Petitioners' involvement in any non-compoundable offence. In the circumstance, this Court finds, continuance of LOC may be dangerous, as it had already affected the Fundamental Rights of the Petitioners to travel abroad for promotion of their business. The entire inspection is already over and any of the Petitioners movement to abroad can very well be controlled by setting out terms and conditions involving each of the Petitioners."

Factual Background:

The petitioners are Directors/officer bearers of M/s. Utkal Galvanizers Ltd. Opposite Party No. 2, the ROC-cum-OL, Odisha forwarded a complaint on 5.11.2020 made by one whistle-blower through email dated 21.10.2020. The petitioners denied the contents in the complaint in their email response dated 9.11.2020. While the matter stood thus, almost after a hiatus of five months, O.P. No. 2 on 13.4.2021 issued a letter to M/s. Utkal Galvanizer Ltd. disclosing therein that there has to be an inspection of the company under Section 206(5) of the Companies Act, 2013 under the direction of the Ministry of Corporate Affairs, Government of India.

In the meanwhile, the Company Secretary of M/s. Utkal Galvanizer Ltd. was prevented from travelling abroad at New Delhi International Airport by the Immigration Authorities. She was verbally informed by the Authorities that Look Out Circulars (LOC) were issued against all the key managerial personnel pending inspection of the records and accounts of the company. Finding unnecessary harassment, the Managing Director of the company, petitioner no. 1, vide letter dated 2.3.2022 requested O.P. 1 to reconsider the decision to impose restrictions on overseas travel of the Company Directors and key managerial personnel.

In the said letter, it was shown that there is urgency for some of the petitioners, as they were to participate in a business of export dealing through trade scheduled to take place in the USA between 26th to 28th April, 2022. Petitioner No. 1 had also enclosed supportive documents while claiming such relief. It was alleged, despite such request, there was no response.

Taking recourse to the Office Memorandum dated 27.10.2010 of the Ministry of Home Affairs, the petitioners claimed that restricting their movement as well as issuing LOC are contrary to the circular issued by the Ministry itself. They pleaded that there are violations of their invaluable fundamental rights and also there has been unnecessary harassment to each of the petitioners in absence of their involvement in any non-compoundable offence as of now. The petitioners claimed that there is no material whatsoever available showing their involvement in any non-compoundable offence. They also highlighted that they were cooperating all through. Thus, they prayed for quashing the LOC through the writ petitions.

Contentions of the Petitioners:

Mr. M.K. Mishra, Senior Advocate appearing for the petitioners did not dispute that there is an investigation undergoing under Section 207(3) of the Companies Act. He asserted that there has been full cooperation by each of the petitioners representing the company till date. He further contended that even though the inspection proceeding involving the petitioners commenced on 13.4.2021, offences whatever alleged to have been committed by the petitioners' company remained compoundable. Taking through the preliminary affidavit and the additional affidavit of the Competent Authority, he argued for quashing the LOC on the premises that whole submission and the process of investigation is to reveal any non-compoundable offence under any provision of law against the company.

Further, he highlighted that the petitioners have been thoroughly cooperative on the issue and in the meantime, almost one and half years have elapsed. He brought to the notice of the Court that petitioners have already suffered for their inability to participate in the International Trade Fairs, which has been detrimental to their business. Thus, if the restrictions on the petitioners in travelling abroad continues, he vehemently argued, there will be a huge loss to the company, which cannot be compensated otherwise.

Contentions of the Respondents:

Mr. P.K. Parhi, Assistant Solicitor General of India for the respondents, attempted to justify the issuance of the LOC. He contended that the petitioners are closely associated with many companies and the area of investigation extends also to West Bengal. He further submitted that the Inspecting Officer of the Directorate of Ministry of Corporate Affairs has in the meantime already inspected almost fourteen (14) companies other than the companies in Odisha. After the inspection came to an end, reports were also submitted to the Ministry on 10.5.2022.

It was further submitted that further instruction from the Ministry is awaited. Taking the matter as a whole and having regard for the gravity of allegations made against the petitioners so far, he contended, there is justification in issuing LOC against the Directors/KMPs of the company.

Court's Decision:

The Court quoted the observations and decision made in Noor Paul v. Union of India & Ors., 2022 LiveLaw (PH) 69, wherein it was held by the Punjab and Haryana High Court that the quantum of loan cannot be a ground for issuing LOC and the petitioners are only required to inform the arrival and departure to the investigating department/originating agency. It also relied upon Vikas Chaudhary v. Union of India & Ors., WPC No. 5374 of 2021, wherein the Delhi High Court held the LOC to be non-sustainable, as the right to travel abroad is a fundamental right and the LOC was issued in absence of any pre-condition necessitating such a major requirement.

It also took support from Karti P. Chidambaram v. Bureau of Immigration, W.P. No. 21305 of 2017, wherein the Madras High Court held that the LOC can be issued only in cases where the accused, in a criminal case, was evading arrest and not appearing in the trial court. Again, the Madras High Court in Rahul Surana v. The Serious Fraud Investigation Office, W.P. No. 2477 of 2020 held that bald assertions that the petitioner is a flight risk is not sufficient to issue LOC.

Reverting back to the factual matrix, the Court held even though there are allegations of information that the petitioners are planning to flee after obtaining 600 crores to 700 crores rupees loans from different banks, still even after a preliminary counter affidavit and an additional affidavit by the Department, there is no specific allegation on actual loan taken by them. Accordingly, the Court observed,

"It is needless to observe here that there is no declaration of NPA involving any account involving the Petitioners by any bank as of now. Allegation at this stage appears to be speculative and imaginary and in the circumstance, there cannot be taking away liberty of any of the Petitioners."

Consequently, the Court quashed the LOC. However, having regard for the fact that further instructions from the Ministry is awaited in the case, it imposed certain conditions for the petitioners to travel abroad.

Case Title: Rajesh Kumar Agarwal & Ors. v. Regional Director (E), Ministry of Corporate Affairs, Kolkata & Ors.

Case No.: W.P.(C) No. 9502 of 2022 with W.P.(C) No. 12872 of 2022

Judgment Dated: 25^th July 2022

Coram: Justice Biswanath Rath

Counsel for the Petitioners: M/s. M.K. Mishra, Senior Advocate, T. Mishra, S. Das & S.S. Parida

Counsel for the Respondents: Mr. P.K. Parhi, Assistant Solicitor General of India & Mr. Prabhu Prasanna Behera, Central Government Counsel

Citation: 2022 LiveLaw (Ori) 116