Larger Impact Of Loan Default On Country Required To Issue Look Out Circular- Delhi HC Holds That LOC Cannot Be Issued For Every Loan Default

A Delhi High Court Bench of Justice Pratibha M Singh has observed that for Look Out Circulars (LOC) to be issued, the circumstances have to reveal a higher gravity and a larger impact of the loan default on the country. In that vein, the Court held that the issuance of LOC cannot be resorted to in each and every case of bank loan default.

In that context, it was said that, "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 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. 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."

Senior Advocate Akhil Sibal appeared for the petitioner, while CGSC Anuraj Ahluwalia, among others, appeared for the State.

In this case, the Court was hearing a businessman's petition to quash an LOC issued against him at the behest of the Income Tax department. He was stopped while boarding an international flight due to this LOC. Notably, the petitioner had deliberately concealed the existence of a company in Hong Kong that was under his control.

On perusal of the facts, the High Court observed that it was not a case that would be detrimental to the economic interest of the country as there was no allegation that the petitioner had siphoned off any public funds. The Court also considered the "overwhelming fact" that no criminal proceedings were initiated against the Petitioner, despite the demand having already been raised against him.

The Court noted that since the petitioner was only 34 years old, a prohibition on his travel could have an adverse impact on his career and personal life. In that context, it was said, "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".

In light of the same, the Court ordered that instead of being barred from travelling abroad, the petitioner must inform the authorities upon his arrival and departure during travel. In a similar vein, the Court also ordered that some properties of the petitioner's parents must be offered as security for the purpose of ensuring that he does not flee the country in order to escape further scrutiny.

Cause Title: Prateek Chitkara v. Union of India And Ors.

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