The court reinforces the need for careful exercise of LOC issuance, emphasizing fundamental rights and adequate safeguards for travel.
In a significant ruling, the Delhi High Court has upheld the quashing of a Look Out Circular (LOC) against directors of a borrower company, emphasizing the exceptional nature of such measures and the need to protect fundamental rights. The LOC, originally issued against Surender Kumar Bansal and other directors of M/s. SSK Trading Private Limited, was quashed by a Single Judge with stringent conditions, which the Division Bench has now affirmed.
The judgment stems from proceedings initiated by Bank of Baroda, part of a consortium lending to the company, as the loan was declared a Non-Performing Asset (NPA). The bank contested the quashing of the LOC, arguing it compromised their ability to recover dues from the directors, who are also personal guarantors.
The court reiterated the importance of fundamental rights to travel, as highlighted in the landmark Maneka Gandhi case. The ruling emphasized that any deprivation of this right requires a law prescribing the procedure, followed strictly. The directors had already faced stringent conditions, such as surrendering passports and obtaining court permission for travel, ensuring compliance with the law and protecting the bank's interests.
The court noted the directors' full cooperation with legal proceedings and no misuse of travel liberties granted by the court. The court also acknowledged the completion of the investigation and filing of a charge-sheet, strengthening the case for upholding the Single Judge's decision.
The judgment underscores the need for exceptional caution in issuing LOCs, stressing that such measures must be justified by compelling reasons and executed with care. It further highlights the balance between enforcing recovery proceedings and safeguarding individuals' fundamental rights.
Bottom line:-
The issuance of a Look Out Circular (LOC) is an exceptional coercive measure that directly impacts an individual's fundamental right to travel and must be exercised with great care, caution, and only under exceptional circumstances.
Statutory provision(s): Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), Maneka Gandhi v. Union of India, 1978 (1) SCC 248, Look Out Circular (LOC) provisions.
Bank of Baroda v. Surender Kumar Bansal, (Delhi)(DB) : Law Finder Doc id # 2915312
