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LOC cannot be issued in every case by claiming that ‘economic interest’ or ‘larger public interest’ of India at stake: High Court of New Delhi

Phrases such as ‘economic interest’ or ‘larger public interest’ cannot be expanded in a manner so as to include an Independent Director who was in the past associated with the company being investigated, without any specific role being attributed to him, as in the present case. It is clear from a perusal of clauses (g) (h) and (j) of Office Memorandum that unless and until the conditions in these clauses are satisfied, prima-facie an LOC cannot be opened. This was held in BRIJ BHUSHAN KATHURIA v. UNION OF INDIA & ORS. Through[W.P.(C) 3374/2021] in the High Court of New Delhi by a bench consisting of JUSTICE PRATHIBA M. SINGH.

Facts are that the petitioner is a CA, who was inducted in the Board of M/s Techpro Systems Limited, as a Non-Executive Independent Director, CIRP was initiated against M/s Techpro Systems Limited, and on the Resolution Plan was approved by the NCLT. Petitioner in the petition has challenged the Look Out Circular issued against him by Respondents, the Ministry of Corporate Affairs and the Serious Fraud Investigation Office and has prayed for the same to be quashed.

The counsel for the petitioner submitted that a copy of the LOC has not been given to the Petitioner. It is submitted that the settled position in law is that unless and until an FIR is registered or a cognizable offense is made out, the LOC would be liable to be quashed or set aside, as it curtails the liberty of the petitioner to travel in and out of India. Reliance is placed on three judgments including Sumer Singh Salkan v. Asst. Director & Ors.

The counsel for the respondents submits the Petitioner is guilty of conniving and conspiring with the Promoters of M/s Tech pro-Systems Limited. Petitioner is a Chartered Accountant and was part of the Audit Committee. Independent Directors have a greater obligation in such companies. Thus, it is submitted that the Petitioner ought not to be permitted to travel abroad, outside the jurisdiction of this Court.

The court relied on the judgement of Delhi High court in, Sumer Singh Salkan v. Asst. Director & Ors., and made the following observations, “The position prior to the issuance of the two Office Memoranda was that recourse to the LOC can only be taken when there is a cognizable offense under the IPC/other penal law. The reason for opening the LOC also had to be provided in the said LOC. The settled legal position, as per the judgment in Sumer Singh Salkan (supra) is that unless and until there is an FIR which is lodged or a criminal case which is pending, an LOC cannot be issued.”

The court also referred to the judgement of Delhi High court in,  Nitin Sandesara v. Directorate of Enforcement and Ors., wherein the following observations were made, “…g) Recourse to LOC is to be taken in cognizable offences under IPC or other penal laws. The details in column IV in the enclosed proforma regarding ‘reason for opening LOC’ must invariably be provided without which the subject of a LOC will not be arrested/detained. h) In cases where there is no cognizable offense under IPC or other penal laws, the LOC subject cannot be detained/arrested or prevented from leaving the country. The originating agency can only request that they be informed about the arrival/departure of the subject in such cases.”

The court made reference to Office Memorandum dated 27th October 2010, as well as the amended Office Memorandum dated 5th December 2017 by which clause ‘j’ was amended, and set out herein below, which now states, “j) In exceptional cases, LOCs can be issued without complete parameters and/or case details against CI suspects, terrorists, anti/national elements etc. in the larger national interest.”

Considering the facts of the case and keeping in mind the settled proposition of law on the subject. The Court held that It was clear on perusal of clauses (g) (h) and (j) that unless and until the conditions in these clauses are satisfied, prima-facie a LOC cannot be opened. Court held that no criminal case was pending against the Petitioner and his role was not ascertained by the investigating authorities. Thus, LOC should be suspended, subject to certain conditions while deposing of the application.

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