LOC can’t be issued for every loan default, there must be larger impact on country: Delhi High Court

The Delhi High Court recently observed that the issuance of a Look Out Circular (LOC) cannot be resorted to in each and every case of bank loan default. [Prateek Chitkara v. Union of India And Ors].The Court highlighted that for LOCs to be issued, the circumstances have to reveal a higher gravity and a larger impact of the loan default on the country.Justice Prathiba M Singh added that citizens ought not to be harassed and deprived of their liberty to travel merely due to their participation in a business. .It was further noted that the term 'detrimental to economic interest’ used in the Office Memorandum issued by the Union Ministry of Home Affairs on issuance of LOCs is not defined. This term, 'detrimental to the economic interests of India’, was added as a ground for the issuance of an LOC in 2017.Justice Singh observed that the issuance of an LOC may be required only if the conduct of the individuals affects the public interest as a whole or has an adverse impact on the economy..The Court went on to explain that the squandering of public money, siphoning off loans taken from banks, defrauding depositors and indulging in hawala transactions are some examples of such conduct that may have a greater impact as a whole which may justify the issuance of LOCs. “However, issuance of LOCs cannot be resorted to in each and every case of bank loan defaults or credit facilities availed for business, etc.,” the judgment stated..The Court made the observations while hearing a businessman's petition to quash an LOC issued against him at the behest of the Income Tax department (IT department). On January 18, 2019, he was stopped while boarding a flight from Delhi to Dubai on account of this LOC..The IT department told the Court that the businessman was found to be running a network of companies through which funds were being transferred to Hong Kong.The authority further submitted that a penalty of approximately ₹169 crore and a demand to the tune of around ₹56 crore was raised under the Black Money Act, 2015. It also said there is a total demand of approximately ₹72 crore under the Income Tax Act,1961 against the petitioner-businessman. .The petitioner countered that the penalty under the Black Money Act was set aside by a court in April and that an appeal challenging the main demand was pending. .After considering rival arguments, the Court noted that the petitioner had deliberately concealed the existence of a company in Hong Kong that was under his control.The Court, however, observed that he was only 34 years old and that a prohibition on his travel could have an adverse impact on his career and personal life.“The Petitioner has substantial familial ties in India. His parents are senior citizens and have come to his rescue by agreeing to stand as sureties and are offering their properties as security,” it added..The Court further opined that this was not a case that would be detrimental to the economic interest of the country, as there is no allegation that the petitioner has siphoned off any public funds.It also pointed out that no criminal proceedings have been initiated against the petitioner, although it was also informed that prosecution may be initiated against him in future.Instead of being barred from travelling abroad, the petitioner was directed to intimate the authorities upon his arrival and departure during travel..It also ordered for certain properties of the petitioner’s parents to be offered as security for the purpose of ensuring that he does not flee the country in order to escape further scrutiny. .Senior Advocate Akhil Sibal and Advocates Gaurav Gupta and Sharan Mehta represented the petitioner. Central Government Standing Counsel Anurag Ahluwalia and Government Pleader Tarveen Singh Nanda represented the Central government.Advocates Abhishek Maratha and Akshat Singh represented the Income Tax Department..Look Out Circulars cannot be issued merely on bank request, application of mind essential: Delhi High Court.[Read Judgment]