2026 (1) TMI 1016 - HC - Companies Law

Look-Out Circular against individual challenged for absence of completed investigation and quashed for lack of basis to prevent travel.

Challenge to a Look-Out Circular focused on whether issuance was justified absent a completed investigation; court found the LOC unsupported because only ... Seeking to quash Look Out Notice - from the said Look-Out Circular, it does not reveal that whether any cognizable offence is made out against the petitioner or not - proceeding initiated against the petitioner is still at the stage of investigation and till date no cognizable offence is made out against the petitioner - HELD THAT:- Under Section 212(14), the Central Government has been empowered to direct the SFIO to initiate prosecution against the Company or its officers, if the Central Government considers it necessary after examination of only “investigation report” issued under Section 212(12) i.e. after completion of the investigation - In the case in hand, it is admitted by the respondents in their report stating that “since the matter primarily appears to be a fraud which is charged under Section 447 of the Companies Act, 2013”. It is also admitted that investigation is going on. No interim report is submitted. Thus, this Court failed to appreciate under what basis the LOC is issued against the petitioner. The judgment relied by the respondent in the case of Hemanta Kumar Banka [2023 (8) TMI 1695 - CALCUTTA HIGH COURT] is distinguishable from the facts of the present case. Against the appellant in the said case, criminal case was initiated at Signapore under Section 400 of the Singapore Act, 2018 and the Hon’ble Division Bench was of the view that if the appellant is permitted to travel to Singapore, he will be detained in Singapore and cannot leave the said country - In the case of Chaitya Shah [2021 (11) TMI 662 - BOMBAY HIGH COURT] the Hon’ble Division Bench of the Bombay High Court finds that the petitioner had dual citizenship and in case he decides not to return to India it would become very difficult to bring him back. In the present case the respondents have not brought anything on record to show that if the petitioner is allowed to travel outside India, there is no chance of the petitioner to return back to India - This Court did not find any justification to the assertion made by the respondents that the ongoing investigation will be adversely impacted and will cause severe determent to public interest. The Look-Out Circular issued as per the direction of Ministry of Corporate Affairs, dated 19th July, 2022, against the petitioner, is set aside and quashed - Petition allowed. Issues: Whether the Look-Out Circular issued by the Ministry of Corporate Affairs / SFIO against the petitioner, preventing him from leaving India pending SFIO investigation, is valid and whether it can be quashed so as to permit the petitioner to travel abroad.Analysis: The issue arises against the statutory scheme under Section 212 of the Companies Act, 2013 which contemplates SFIO interim reports (Section 212(11)) and investigation reports on completion of investigation (Section 212(12)), with initiation of prosecution under Section 212(14) only after examination of the investigation report. The Office Memorandum setting out LOC guidelines requires stated reasons for opening an LOC and limits detention/prevention of departure to cases involving cognizable offences or specified exceptional circumstances where departure would be detrimental to sovereignty, security, bilateral relations, strategic or economic interests or public interest. The record shows that investigation by SFIO was ongoing, no investigation report on completion had been submitted, and no material was produced to demonstrate that the conditions in the LOC guidelines (including cognizable offence or exceptional detriment to national interests) were satisfied. Precedents relied upon establish that mere quantum of alleged default or pending civil/financial claims, without satisfaction of guideline criteria or demonstrable risk of non-return, do not justify curtailing fundamental movement rights. The factual matrix lacked any material showing that permitting travel would hinder investigation or that the petitioner was likely not to return.Conclusion: The Look-Out Circular issued against the petitioner is quashed and set aside; the writ petition is allowed permitting the petitioner to travel abroad.Ratio Decidendi: A Look-Out Circular that restrains personal liberty to travel must rest on the conditions prescribed by the LOC guidelines and relevant provisions of Section 212; where no investigation report on completion exists, and the guideline criteria (cognizable offence or exceptional detriment to national/strategic/economic interests) are not satisfied or supported by material, the LOC is liable to be quashed as an unjustified restriction on the fundamental right of movement under Article 21.