2022 (7) TMI 316 - HC - Companies Law

Court upholds travel restrictions & LOC against diamond importer in financial fraud case

Ramesh Himatlal Shah, Versus Union of India, through Ministry of Corporate Affairs, Government of India, Mumbai, Assistant Director, (Investigation) Serious Fraud Investigating Office, Ministry of Corporate Affairs, Mumbai

The Court upheld the legality of travel restrictions and a Look-Out Circular (LOC) against a diamond importer/exporter, citing the ongoing investigation ... Seeking withdrawal of travel restrictions and LOC issued against the Petitioner - HELD THAT:- It is not in dispute that the investigation of serious fraud wherein a huge loss to public exchequer is caused and certain offenders are yet to be nabbed. Learned Counsel appearing for Respondent No. 2 – SFIO was justified in submitting before this Court that as there is some material showing that the Petitioner had invested the funds for purchasing the shares of the said company and though, there was an order of SEBI on some aspects the Petitioner had not supplied the true and complete information and the investigating agency needs to unearth various links and if the Petitioner is permitted to travel abroad, the possibility of evading of the Petitioner and ultimately hampering the investigation cannot be ruled out. Reliance placed in the case of MR. CHAITYA SHAH VERSUS THE UNION OF INDIA AND OTHERS [2021 (11) TMI 662 - BOMBAY HIGH COURT] where it was held that The LOC is properly issued, it is extended through proper procedure and the appropriate authority has approved its extension. The Petitioner’s presence is necessary for effective investigation into the affairs of Gitanjali Gems Limited and other concerns - There is a strong flight risk as far as the Petitioner is concerned and, therefore, the relief sought for in this Petition cannot be granted. The Petition is devoid of merits, deserves to be dismissed - Petition dismissed. Issues Involved:1. Legality of the travel restrictions and Look-Out Circular (LOC) issued against the Petitioner.2. Petitioner's cooperation with the Serious Fraud Investigation Office (SFIO).3. Petitioner's fundamental right to travel abroad.4. Impact of the Petitioner's travel on the ongoing investigation.Issue-Wise Detailed Analysis:1. Legality of the Travel Restrictions and LOC Issued Against the Petitioner:The Petitioner, a diamond importer, exporter, and manufacturer, requested the Court to issue a writ of Mandamus to withdraw travel restrictions and the LOC issued against him. The Petitioner argued that the restrictions were imposed solely on suspicion by the SFIO, infringing on his fundamental right to travel abroad. The SFIO justified the restrictions under Section 217 of the Companies Act, 2013, due to an ongoing investigation into Gitanjali Gems Ltd and related entities, which involved significant financial fraud. The Court found the restrictions legally justified, considering the magnitude of the fraud and the need for thorough investigation.2. Petitioner's Cooperation with the SFIO:The Petitioner claimed to have cooperated with the SFIO by submitting all necessary documents and attending summons. However, the SFIO contended that the Petitioner had not fully cooperated and had failed to provide complete information regarding his transactions with Gitanjali Gems Ltd. The Court noted that mere attendance at the SFIO office does not equate to full cooperation, especially when significant financial details and connections to key individuals like Mehul Choksi were not fully disclosed.3. Petitioner's Fundamental Right to Travel Abroad:The Petitioner argued that the LOC infringed on his fundamental right to travel, essential for his export business and due to his wife's medical condition. The Court acknowledged the fundamental right but emphasized that it is not absolute and can be restricted in cases involving public interest and national economic security. The Court referenced previous judgments, highlighting that in cases of significant financial fraud, the right to travel can be curtailed to ensure comprehensive investigation and prevent evasion of justice.4. Impact of the Petitioner's Travel on the Ongoing Investigation:The SFIO expressed concerns that allowing the Petitioner to travel abroad could jeopardize the investigation, given his connections to Mehul Choksi and the substantial financial transactions involved. The Court found these concerns valid, noting that the investigation into the fraud involving Gitanjali Gems Ltd and related entities was complex and involved significant public funds. The Court concluded that permitting the Petitioner to travel could hinder the investigation and potentially allow him to evade legal proceedings.Conclusion:The Court dismissed the Petition, finding the travel restrictions and LOC justified due to the ongoing investigation into significant financial fraud, the Petitioner's incomplete cooperation, and the potential risk to public interest and national economic security. The Court also denied the Petitioner's request for a stay on the order, reinforcing the need for continued restrictions to facilitate the thorough investigation by the SFIO.