Look Out Circular Cannot Be Triggered Merely Because The Amount Of Default Is Enormous: Calcutta High Court

The Calcutta High Court ruled that Look Out Circular (LOC) cannot be triggered merely because the amount of default is enormous.

The Single-Judge Bench of Justice Shampa Sarkar clarified that for an LOC to be issued, a bank must demonstrate through intelligence reports and inputs that a person’s departure from India would have a significant negative impact on the country’s economy.

"Default of a borrower cannot be read into the expression ‘detrimental to the economic interest of the country’. The commission of the financial offence should be of high degree which was likely to shake the stability, growth, and business dealings of the country," the Court stated.

The court further observed: "The constant plea of the banks that a huge amount was recoverable from the company in liquidation, is not considered to be a relevant factor. In the policies dealing with initiation of Look Out Circular, no financial threshold have been provided. An LOC cannot be triggered because the amount of default was enormous."

The Single-Judge made these observations while hearing a petition filed by Vishambhar Saran, a former director of Visa Power Limited, which is currently undergoing liquidation. Saran had challenged the LOC issued against him by the State Bank of India (SBI) concerning the misappropriation of Rs. 892.28 crores in public funds by the company.

The Court examined the policy on LOC issuance and found that LOCs are meant to control the movement of individuals involved in serious criminal cases, those avoiding legal proceedings, or persons whose actions threaten national security or economic stability. It pointed out that while the 2018 memorandum included fraudsters and wilful defaulters as subjects for LOCs, the 2021 policy does not.

In Saran's case, the Court found that the proceedings to declare him a wilful defaulter had been withdrawn, and previous attempts by other banks to secure an LOC against him had been quashed by the courts. The Court concluded that SBI failed to make a compelling case for issuing an LOC, noting that mere apprehension that Saran might flee the country was insufficient grounds.

"The law provides other mechanisms to recover money from a borrower whose loan account has become a non-performing asset (NPA). The company is already in liquidation, and as of now, it is not clear whether any investigation is pending against the petitioner," the Court added while setting aside the LOC against Saran.

The Court emphasized that the economic interest of the country should not be equated with the financial health of a bank. "Economic interest of the country cannot be read synonymously with the financial health of a bank. Under such circumstances, this Court does not find any reason to restrain the petitioner from travelling abroad. The request for LOC at the behest of the State Bank of India as the originating agency and all consequential steps are set aside," the Bench said.

While allowing and disposing of the Writ Petition, the Court ordered, "All parties are directed to act on the basis of the server copy of this order. The State Bank of India and the petitioner are directed to intimate this order to the Bureau of Immigration and all other authorities."

Cause Title: Vishambhar Saran v. Bureau of Immigration & Ors. 

Appearance:-

Petitioner: Advocates Sabyasachi Chowdhury, Rajarshi Dutta, V.V.V. Sastry, Tridib Bose, Debjyoti Saha

Respondent: Advocate Dharmendra Tiwari

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