Kolkata: The Calcutta High Court has quashed a Look-Out Circular (LOC) issued against a former senior executive of an infrastructure construction company, holding that an ongoing investigation, by itself, cannot be a ground to restrain a person from travelling abroad.
Justice Krishna Rao observed that the investigation being conducted by the Serious Fraud Investigation Office (SFIO) was still in progress and that neither an interim report nor a final investigation report had been submitted to the Central Government, as required under the Companies Act.
The petitioner was earlier part of the management of a construction and infrastructure company that later entered insolvency proceedings. During the corporate insolvency resolution process, a forensic audit commissioned by the resolution professional did not find any fraud in the company’s transactions. Subsequently, the Ministry of Corporate Affairs ordered an SFIO investigation into the company’s affairs. The petitioner was issued summons under the Companies Act and cooperated with the investigation. He approached the High Court after discovering that an LOC had been issued against him, preventing him from travelling overseas.
The High Court noted that no criminal case under the IPC had been initiated against the petitioner and that the authorities themselves stated that the matter only “appeared” to involve fraud under the Companies Act. It examined the statutory framework governing SFIO investigations and observed that prosecution can be considered only after completion of the investigation and submission of the final report.
Justice Rao held that the Companies Act clearly distinguishes between an interim report and a final investigation report, and that coercive steps such as restricting foreign travel cannot be justified when neither had been submitted. The court also noted that the authorities failed to explain the legal basis for issuing the LOC during an incomplete investigation.
Rejecting the argument that the size of the alleged financial exposure or public interest alone could justify an LOC, the court held that mere quantum of alleged dues cannot be a reason to curtail personal liberty. It further recorded that no material had been placed on record to show that the petitioner was likely to flee the country or would not return if permitted to travel.