DELHI HIGH COURT HOLDS THAT MERE INABILITY TO REPAY BANK LOANS DOES NOT JUSTIFY THE ISSUANCE OF A LOOKOUT CIRCULAR

A single Judge Bench of Delhi High Court comprising of Justice Subramonium Prasad passed a judgement dated 12.07.2024 in Ajay Mrig v. Union of India & Ors. W.P.(C) 11506/2023 wherein the Hon’ble Court held that a Lookout Circular (LOC) cannot be issued if there are no criminal charges pressed against the accused and if the accused’s actions are not detrimental to the economic interest of India.

Facts

The Petitioner is a promoter-director of ACB (India) Limited (ACBIL) (Company), which is engaged in coal beneficiation and power generation business. The Petitioner through his Company had availed multiple loans from various banks, including State Bank of India (SBI). Due to financial difficulties aggravated by the COVID-19 Pandemic, ACBIL entered into a Master Restructuring Agreement dated 29.05.2021 with its lenders including the SBI and in which the Petitioner was one of the guarantors. However, the Company failed to honour the Agreement, leading to its account being declared a Non-Performing Asset (NPA).

A Lookout Circular (LOC) dated 26.05.2022 was issued against the Petitioner by the Bureau of Immigration at the request of the SBI and thus, aggrieved by such arbitrary decision, a Writ Petition was filed by the Petitioner challenging the issuance of LOC. The Petitioner contended that a Lookout Circular cannot be issued against him just because his Company was not able to repay his debts as no criminal proceedings were initiated against him.

The Petitioner also contended that the LOC violated his fundamental right to travel abroad, guaranteed under Article 21 of the Constitution of India (Protection of life and personal liberty), citing various judgments that established mere inability to repay bank loans does not justify the issuance of a LOC.

The Hon’ble Court took consideration of the fact that Lookout Circulars are issued against a person by the Ministry of Home Affairs which provides the guidance of issuing Lookout Circulars.

An Office Memorandum dated 04.10.2018 was issued by the Ministry of Finance, Government of India empowering the heads of Public Sector Banks to issue requests for opening of Lookout Circulars. By virtue of this Office Memorandum, Chairman of SBI, Managing Directors and Chief Executives Officers (MD & CEOs) of all Public Sector Banks could request for opening of LOCs against the persons who are fraudsters and persons who wish to take loans and wilfully default or launder money and then escape to foreign jurisdiction as these actions will not be in the economic interests of India on a larger public interest.

The Hon’ble High Court also dealt with the term ‘Detrimental to the economic interest of India’ by virtue of various High Courts judgments. A Coordinate Bench of the Delhi High Court in Prateek Chitkara v. Union of India & Ors., 2023 SCC OnLine Del 6104, had observed:

“47. The question before this court is, whether clause L of the Office Memorandum of 2021, would be legally valid, especially in respect of the phrase “detrimental to the economic interests of India” and in respect of other clauses which permit indefinite continuation of look-out circulars, non-communication of reasons either prior or post issuance of the look- out circular and extension of look-out circular to such individuals who in the opinion of the authorities ought not to be permitted to travel on the ground of it being detrimental to the economic interests of India.”

Issues

1)   Whether the LOC issued against the Petitioner violated his right under Article 21 of the Constitution of India?

2) Whether the situation of not being able to repay the debt constitutes ‘act detrimental to the interests of India’?

Decision by the High Court

The High Court of Delhi considered several judgements where Courts have held that the fundamental right to travel abroad cannot be curtailed merely due to a person’s inability to repay debts unless there are criminal allegations or proceedings initiated against the individual.

Moreover, specific attention was given to the terms “Detrimental to the economic interest of India” and “larger public interest,” which have been scrutinized in previous judgements to prevent misuse of LOCs.

By relying on the judgement of Prateek Chitkara (supra), the Hon’ble Bench held that-

“82. The term “detrimental to economic interest” used in the Office Memorandum is not defined. Some cases may require the issuance of a look-out circular, if it is found that the conduct of the individuals concerned affects public interest as a whole or has an adverse impact on the economy. Squandering of public money, siphoning off amounts taken as loans from banks, defrauding depositors, indulging in hawala transactions may have a greater impact as a whole which may justify the issuance of look-out circulars. However, issuance of look-out circulars cannot be resorted to in each and every case of bank loan defaults or credit facilities availed of for business, etc. Citizens ought not to be harassed and deprived of their liberty to travel, merely due to their participation in a business, whether in a professional or a non-executive capacity. The circumstances have to reveal a higher gravity and a larger impact on the country.”

Thus, the Delhi High Court quashed the LOC against Mr. Ajay Mrig, stating that in the absence of any criminal proceedings and based on the precedents, the issuance LOC was not justified. The Hon’ble Court emphasized that LOCs should not be issued in cases of bank loan defaults unless there are specific criminal allegations against the person involved.

Conclusion

The High Court of Delhi allowed the Appeal filed by the Appellant and held that the Lookout Circular issued against the Petitioner cannot be sustained and thereby the LOC was quashed. Furthermore, the Hon’ble Bench held that mere inability to pay money without there being a criminal case cannot be a reason to take away the Fundamental Right guaranteed under Article 21 of the Constitution of India. Right to travel abroad has been held to be a Fundamental Right under Article 21 of the Constitution of India which cannot be taken away in an arbitrary and illegal manner.

 

ARJAV JAIN

ASSOCIATE

THE INDIAN LAWYER & ALLIED SERVICES