Read Time: 08 minutes

Synopsis

The Calcutta High Court recently observed that Look Out Circulars (LOCs) restrict a person's free movement and the right to travel, therefore, they cannot be issued at random and at the slightest provocation, particularly at the instance of a bank that seeks restriction on a person's travel as a buffer to payments outstanding to the bank.

The single judge bench of Justice Moushumi Bhattacharya said, "Look Out Circulars, which have the effect of restricting a person's free movement and the right to travel, should only be issued in exceptional circumstances."

“Look Out Circulars are issued where the concerned persons are considered as flight risks, that is, it is apprehended that they will fail to return to India,” Justice Bhattacharya noted.

In the present case, petitioner no. 1 was a Director of Jain Infra Private Limited and Prakash Vanijya Private Limited; petitioner no. 2 was an erstwhile Director of Jain Infra and PrakashVanijya. They had obtained loans for the expansion of businesses from various banks. They had settled the claims of all the banks except the Indian Overseas Bank (IOB), Andhra Bank (now Union Bank of India) and IDBI Bank. Petitioners had paid Rs. 2.44 crores out of Rs. 12.5 crores to Andhra Bank (Union Bank of India) and Rs. 4.88 crores out of Rs. 31.95 to IDBI.

According to the documents placed before the court, it was clear that petitioners had also paid Rs. 5.03 crores to Indian Overseas Bank (IOB) and that the IOB earned an additional Rs. 86 lakhs by selling a property mortgaged to a consortium of banks. The entire value of the petitioners' immovable securities granted was Rs. 5.45 crores.

Petitioners disputed the amount of Rs. 5, 07,07,38,897.67 as indicated by the IOB.

The petitioners were barred from travelling to the United Kingdom due to a "lookout" circular issued in response to a request from the Indian Overseas Bank, which was challenged by the petitioners later on.

The Indian Overseas Bank and the Immigration Authority argued that the Central Bureau of Investigation (CBI) should be made a necessary party to the proceedings since, among other things; cases against the petitioners were pending before the 3rd Special CBI Court.

The petitioners claimed that the IOB had already made Rs. 86 lahks from the sale of a property mortgaged by the petitioners. The CBI Court granted the petitioner permission to travel 19 times, and there was no complaint that the petitioner had failed to comply with the limitations set or return to India on the scheduled date. The petitioners had assets in India and was still a director of a corporation there. The IOB had not contested that the petitioners had made partial payments to the respondent or that the petitioners had paid the claims of the consortium's remaining banks.

The court clearly stated that there was no indication that the petitioners leaving the country for an extended length of time would harm India's economic interests. Also, the petitioners were not charged with fraud, money laundering, or even economic offences.

“Once a Look Out Circular is issued, it remains alive and kicking for almost all times to come. This spells dangerous repercussions on the person’s right to freely move across and beyond the country and remain mobile. The Banks have been given untrammelled powers to issue, use and exploit the lock-in power of a Look Out Circular without sufficient recourse being provided in law to the person at the receiving end of it,” the court said.

Further, the court stated that Indian Overseas Bank could not have any continuing reason to interfere with the petitioners’ travel outside the country. The interference sought to be imposed by way of the Look Out Circular is arbitrary and without any rational basis, held the court.

Accordingly, the court quashed the impugned Look Out Circular issued.

Case title: Mannoj Kumar Jain & Anr. Versus Union of India