‘Mere apprehension of fleeing country no reason for issuing Look Out Circulars’

Kolkata: In its judgement in a case of bankruptcy and insolvency, Calcutta High Court held that mere apprehension of fleeing the country cannot be reason to issue Look Out Circulars (LOC).

The Bench of Justice Sampa Sarkar was hearing a case wherein the petitioner, an erstwhile director of a company under liquidation as per NCLT Kolkata orders, moved the court on being refused passage from New Delhi to Dubai. The petitioner was informed that the refusal was due to a LOC against him by a lender bank. The petitioner contended he learnt about such LOC on March 11, 2023 and on asking for a copy of it, he was refused.

Referring to the Union government’s 2010 policy, the court observed that recourse to LOCs could be taken when the subject was guilty of commission of cognisable offices under the Indian Penal Code or other penal laws. Further, reasons should be provided. “Without any reason, the request for LOC could not be made.”

“A mere apprehension that the petitioner would flee India and no steps could be taken to recover the money was not enough. In the policies dealing with initiation of Look Out Circular, no financial threshold has been provided. An LOC cannot be triggered because the amount of default was enormous. Economic interest of the country cannot be read synonymously with the financial health of a bank. Under such circumstances, this court does not find any reason to restrain the petitioner from travelling abroad,” the court observed and set aside the LOC request of SBI and all consequential steps.

The company under liquidation had borrowed credit facilities from a consortium of banks with Punjab National Bank (PNB) as the lead bank and State Bank of India being another bank. The credit facilities were availed for setting up a thermal power project at Raigarh, Chhattisgarh. The loan was sanctioned sometime in March, 2010. Due to en-masse cancellation of coal blocks by the Supreme Court in September 2014, the thermal plant could not be established and made operational. Subsequently, the company entered insolvency. Based on a forensic audit report, the liquidator filed an application alleging the company entered into preferential, undervalued and fraudulent transactions.

However, such allegations were quashed earlier. LOCs initiated by PNB and Bank of Baroda against the petitioner were also quashed. Finally, the State Bank of India (SBI) initiated a similar request before the Bureau of Immigration. The petitioner contended this too should not stop him from travelling abroad.

The banks alleged that public money to the tune of Rs 892.28 crore was misutilised and misappropriated. Default in repayment of such a huge amount was harmful to the entire economic backbone of the country.