Look-out-circular cannot be issued in each loan default case: Delhi HC

The Delhi High Court has said that issuance of Look-out-circular (LoC) cannot be resorted to in each and every case of bank loan default or credit facility availed for business.

The High Court made this observation while modifying a look-out-circular that was issued against an individual, preventing him from traveling abroad. The LoC was issued in connection with proceedings under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA Act).

The court relied on coordinate bench ruling in case of Vikas Chaudhary wherein, the LoC was quashed by observing, “merely because the office memoranda permits the issuance of a LoC, in exceptional circumstances, even when the individual is not involved in any cognizable offence under the IPC or any other penal law, it has to be remembered that this power is meant to be used in exceptional circumstances and not as a matter of routine. Mere suspicion of a person opening bank accounts in other countries and of investing in a foreign company cannot, in my view, be accepted as the basis for holding that the petitioner being allowed to travel abroad would be ‘detrimental to the economic interest of India”.

The High Court observed that the individual is only 34 years old and that preventing him from traveling could have an adverse impact on his career and personal life. The Court also noted that there is no allegation that the individual has siphoned off any public funds.

The High Court held that the circumstances have to reveal a higher gravity and a larger impact on the country in order to justify the issuance of a look-out-circular.

The High Court also noted that the issues as to the legality and validity of issuance of LOCs are pending before the Supreme Court and the Delhi High Court Division Bench.

The High Court modified the LOC to an intimation of arrival/departure, subject to certain conditions, including:

• Furnishing surety of properties worth Rs.40 Cr
• Informing the relevant authorities/entities of the arrival/departure
• Filing an undertaking before the authorities that the individual shall be bound by the orders passed by the Commissioner of Income Tax (Appeals) in the BMA proceedings, but would have remedial measures
• Rendering full cooperation to the authorities in the investigations which are currently underway

The High Court abstained from going into the legal issues raised as to the validity and legality of the OM and disposed of the writ petition.

Also See: Banks to display borrowers’ name whose assets taken into possession under SARFAESI Act