Court quashes Look Out Circular against Petitioner for lack of evidence and justification

The Court quashed the Look Out Circular (LOC) against the Petitioner, ruling it unsustainable due to lack of justification and substantial evidence. The Petitioner's role in the company, limited to a specific business segment before resignation, did not warrant the LOC issued by the Bank of Baroda. The Forensic Audit Report revealed irregularities post-resignation, and the Court emphasized the necessity of meeting specific conditions for issuing LOCs, which were not fulfilled in this case. Consequently, the LOC was deemed unjustified, leading to its quashing and allowing the writ petition.

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Issues Involved:
1. Quashing of Look Out Circular (LOC) against the Petitioner.
2. Petitioner's role and responsibility in the Company.
3. Forensic Audit Report findings.
4. Legality and conditions for issuing LOC.

Summary:

1. Quashing of Look Out Circular (LOC) against the Petitioner:
The Petitioner filed a writ petition under Article 226 of the Constitution of India to quash the Look Out Circular (LOC) issued by the Bank of Baroda. The Petitioner was previously employed with Lloyd Electric and Engineering Limited and resigned as a Director on 08.05.2017. Despite his resignation, the company was declared a Non-performing Asset (NPA) on 28.11.2018, and the Petitioner received a Show Cause Notice from the Bank of Baroda on 14.01.2022, declaring him a wilful defaulter. The Petitioner received a notice under Section 91 of Cr.P.C from the CBI and was informed about the LOC at Mumbai Airport.

2. Petitioner's role and responsibility in the Company:
The Petitioner argued that his responsibility was limited to the consumer durable business, which was sold to Havells India Limited on 18.02.2017, and he resigned on 08.05.2017. The Bank of Baroda, however, stated that the Petitioner was a whole-time Director and key managerial personnel as per Section 2(1) of the Companies Act, 2013. The company was sanctioned a credit facility of Rs. 1075 crores by a consortium of banks and was declared NPA on 19.12.2018.

3. Forensic Audit Report findings:
The Forensic Audit Report by M/s KRA & Co. indicated several irregularities, including diversion of funds through fake procurement, loans to subsidiaries, and booking fake invoices post the Petitioner's resignation. The Ministry of Corporate Affairs also highlighted transactions where funds were allegedly diverted to the Petitioner and his private companies through bogus consultancy bills.

4. Legality and conditions for issuing LOC:
The Court examined whether the LOC issued by the Bank of Baroda was sustainable. It was noted that most transactions in the Forensic Audit Report occurred post the Petitioner's resignation. The Court emphasized that a LOC can only be issued when there are sufficient reasons, and the conditions precedent must be provided. The Petitioner was not an accused in any FIR, and there was no material suggesting his arrest was contemplated. The Court referred to the Office Memoranda dated 27.10.2010 and 05.12.2017, which outline the conditions for issuing LOCs, emphasizing that phrases like "detriment to the economic interest of India" must be substantiated with substantial material.

Conclusion:
The Court concluded that the LOC against the Petitioner was unsustainable as it did not meet the required conditions and was not justified by substantial material. The LOC was quashed, and the writ petition was allowed. Pending applications, if any, were disposed of.

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