Look Out Circulars cannot be issued merely on bank request, application of mind essential: Delhi High Court

The Delhi High Court has said that Look Out Circulars (LOCs) cannot be issued on the mere request of the banks and that there must be some application of mind before taking such action. [Apurve Goel V. Bureau Of Immigration & Anr].Justice Subramonium Prasad observed that the Court was coming across a large number of cases where banks were insisting on the opening of LOCs just as a measure to recover money without initiating any criminal proceedings.Taking note of the Union Ministry of Finance guidelines on the opening of LOCs by Public Sector Banks, the Court said the banks can request for the opening of LOCs, but only in exceptional circumstances when questions affecting the economy of the country are involved.“The Look Out Circulars cannot be opened merely on the request of the banks. There has to be some application of mind by the authority concerned opening the Look Out Circular since the opening of Look Out Circular results in restraining a person’s right to travel abroad,” Justice Prasad said..The Court also observed that the authority who opens the LOC must satisfy itself that the departure of a person against whom it has been opened would be detrimental to the sovereignty, security or integrity of India or detrimental to the bilateral relationship with any country or to the economic interests of India or that departure of such a person ought not be permitted in the larger public interest.The Court further noted that the opening of an LOC not only impedes the right to travel but also casts aspersions on the person against whom it is opened.The Court made the observations while dealing with certain petitions challenging LOCs issued against the former directors of AAA Paper Limited at the instance of the Bank of Baroda. .In 2019, the loan account of the company was declared as non-performing asset (NPA) by the bank and proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) were initiated.The two petitioners were recently stopped from boarding their flight at the IGI Airport, New Delhi on account of an LOC issued against them. The Bank said they had stood guarantee to the credit facilities obtained by the company..Justice Prasad observed that there was no criminal case against the petitioners and that on the date of opening of LOCs, there was no suspicion or allegation against them of siphoning off any funds. The Court found that they were only guarantors and not involved in the day-to-day affairs of the company for the last several years.“In view of the above, the Impugned Look Out Circular opened against the Petitioners is, therefore, wholly unsustainable and deserves to be quashed and is hereby quashed,” ruled the Court..Advocates Prithu Garg, Harsimran Duggal, Aditya Awasthi and Neha Aggrawal represented the petitioners.Central Government Standing Counsel Ajay Digpaul, Balendu Shekhar with advocates Kamal R Digpaul, Swati Kwatra, Rahul Kumar Sharma and Krishna Chaitanya represented the Indian Bureau of Immigration.Senior Advocate Sudhir Makkar with advocate Amit Mahaliyan represented the Bank of Baroda..[Read Judgment]