Auditor's petition to quash lookout circular in Rs 1,770 crore siphoning case dismissed due to flight risk

Delhi HC dismissed petition challenging LOC against petitioner, an auditor of Shilpi Cables, in a Rs. 1,770 crore siphoning case. Court held that SFIO investigation into complex web of companies and foreign entities was ongoing since 2020. Despite petitioner's claim of being non-beneficiary, court found he held position of responsibility as auditor and couldn't be absolved merely as spectator. Given petitioner's family abroad, minimal Indian assets, and flight risk potential that could impede investigation involving public sector funds, court refused to quash LOC in larger public interest.

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Issues Involved:

1. Legality of the issuance of the Look Out Circular (LOC) against the Petitioner.
2. Petitioner's role and responsibility in the alleged fraudulent transactions of Shilpi Cables.
3. Petitioner's cooperation and conduct during the SFIO investigation.
4. Impact of the LOC on the Petitioner's fundamental right to travel.

Detailed Analysis:

1. Legality of the Issuance of the Look Out Circular (LOC) Against the Petitioner:

The Petitioner challenges the issuance of the LOC on the grounds that it curtails his freedom to travel. The LOC was issued under the Office Memorandum (OM) dated 27th October 2010, which allows LOCs in cognizable offenses under IPC or other penal laws. The OM dated 22nd February 2021 consolidates these guidelines, stating that LOCs can be issued in exceptional cases if the departure of a person is detrimental to India's sovereignty, security, or economic interests. The Petitioner argues that no FIR has been registered against him, and thus, in the absence of any cognizable offense, the LOC cannot be continued indefinitely. However, the Court finds that the SFIO's investigation is ongoing, and the Petitioner may still be charged with a cognizable offense under Section 212 (6) read with Section 447 of the Companies Act, 2013, which defines fraud broadly.

2. Petitioner's Role and Responsibility in the Alleged Fraudulent Transactions of Shilpi Cables:

The Petitioner was the CEO of Shilpi Cables from 2006 to 2012, a whole-time director from 2013 to 2017, and a member of the audit committee from 2011 to 2017. The SFIO alleges that during this period, Shilpi Cables engaged in fraudulent transactions involving substantial sums of money siphoned through foreign entities. The Petitioner also headed operations of Winston Metals LLC, a subsidiary of Shilpi Cables, from 2013 to 2016. The Court opines that the Petitioner played an active role in the management and administration of Shilpi Cables and its group companies, and as a member of the audit committee, he had a duty to report any misconduct within the company.

3. Petitioner's Cooperation and Conduct During the SFIO Investigation:

The Petitioner has appeared before the SFIO multiple times but has been accused of not disclosing various facts within his knowledge. The SFIO claims that the Petitioner was evasive in his statements and failed to explain the contents of emails and details of his bank accounts outside India. The Court finds that the Petitioner's conduct does not inspire confidence and suggests non-cooperation with the investigation.

4. Impact of the LOC on the Petitioner's Fundamental Right to Travel:

The Petitioner argues that the LOC impinges on his fundamental right to travel, recognized under Article 21 of the Constitution of India. He wishes to travel to meet his children living abroad. However, the Court balances this right against the public interest, noting that a large amount of public funds from banks and financial institutions are at stake. The Court concludes that the Petitioner's travel may impede the ongoing investigation, and thus, the LOC is justified in the larger public and economic interest of India.

Conclusion:

The Court dismisses the petition to quash the LOC, stating that the Petitioner's role in the alleged fraud and his non-cooperative conduct justify the continuation of the LOC. The Court emphasizes the importance of safeguarding public funds and the need for the Petitioner to remain available for the investigation. The Petitioner is allowed to approach the Court again if the SFIO investigation is not concluded by December 2023.

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