TMI Blog2023 (9) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 2013 Act is not yet over. Thus, as of today, whatever may the allegations against the petitioners or the Company of which they were Directors and guarantors, the same cannot tantamount to a cognizable offence against the petitioners. Insofar as classification of an account as fraud is concerned, the same was disclosed only subsequently and does not find place in the SFIO request to the Immigration Authority for issuance of LOC. Whether the high ground of issuance of LOC has been made out at all by the SFIO in its request for issuance of LOC? - HELD THAT:- It has to be kept in mind that the high grounds which are required to be made out for restraining the personal liberty of a person as guaranteed under Article 21 of the Constitution and the right of a person to move within the country under Article 19, a necessary corollary of which is the right to travel abroad, have to be on a much elevated footing than mere pendency of an investigation or allegations of financial frauds against the concerned person - mere paranoia of the authorities whenever a person against whom allegations are levelled seeks to leave the country cannot be sufficient for issuance of LOCs and cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence under the Indian Penal Code (IPC) or other penal laws has been cited. The petitioners place reliance on paragraph 6(H) of the concerned Office Memorandum of 2021 which provides that in case of any such cognizable offence, the LOC subject cannot be detained/arrested or prevented from leaving the country. 7. The issuance of LOC would result in immediately curtailing a person‟s fundamental right to travel under Article 21, it is argued, which is a very high restriction, particularly as no criminal offences have been disclosed against the petitioners. 8. The SFIO merely cites ongoing investigations against the petitioners pertaining to Avoidance Transaction under the Insolvency and Bankruptcy Code, 2016 (for short, the IBC ). The SFIO, for the first time in its affidavit-in-opposition dated July 30, 2023 has made out a case of defrauding creditors. The investigation process of the SFIO commenced in 2020 but almost three years have elapsed without any finding being arrived at against the petitioners by the SFIO or its investigation team. It is argued that even an ongoing investigation within the contemplation of Section 212 of the Companies Act, 2013 (hereinafter refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PL) which is in liquidation before the NCLT, Kolkata. During the Corporate Insolvency Regulation Proceeding (CIRP) of KPPL, the Resolution Professional appointed a forensic auditor who filed a report based on which an avoidance application has been filed praying for an order on the respondent (petitioners herein) for payment of Rs.3.5Cr. along with interest under Section 43 of the IBC. Allegations of serious fraud are there against the petitioners, which are at present being investigated, and give rise to a detriment to the public interest, it is argued. Learned counsel places reliance on Section 212(1)(c), highlighting that where the Central Government is of the opinion that it is necessary to investigate into the affairs of the Company by the SFIO, in the public interest, such investigation shall be directed. Hence, public interest is involved. 13. Learned counsel places reliance on Sections 212(8) and 217(6)(i) of the 2013 Act, highlighting the procedure and powers of Inspectors under Section 212. If any Director or Officer of the Company disobeys the direction issued by the Registrar or the Inspector under Section 217, the said Director or Officer shall be punishable with im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease for annual rent of Rs. 6 Lakh and thus, allegedly, cheated the Bank. Several such alleged irregularities on the part of the Company and its Directors have been insinuated in the report, substantial portions of which have been quoted in the request for opening of LOC. That apart, based on the observations in the forensic audit report, the account was allegedly declared as fraud on November 5, 2020 and also reported as such. In the report, it is disclosed that the Bank has also filed CBI complaint in January, 2021 and that it is apprehended that the Directors/guarantors are likely to escape the country to avoid legal prosecution and recovery measures and opening/issuance of LOC against the Director/guarantor in particular, the petitioners no.2, was recommended. 21. The very premise of the request was a forensic audit report allegedly authored by a particular concern. The said report, at best, is a piece of evidence in the liquidation proceeding and is in no manner conclusive proof of evidence of any illegality committed by any entity. In fact, it is common experience that each and every such forensic audit report contains several disclaimers, restricting the operation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, where the affairs of any body-corporate or a person are investigated under Section 219, of all officers and other employees and agents, etc. to preserve and to produce to an Inspector all books and papers related to the Company or other concerned body-corporate and otherwise to give to the Inspector all assistance in connection with the investigation which they are reasonably able to give. 29. Under sub-section (2) of Section 217 the Inspector may require any body-corporate to furnish such information as he may consider necessary. Certain other powers are also conferred on the Inspectors. 30. Notably, in the instant case there is not a single allegation that the petitioners have ever refused to cooperate with the Inspectors in any manner at any instance. Rather, the petitioners reiterate that they have all along been cooperating with the Inspectors. 31. During arguments, an insinuation has been made by learned counsel for the SFIO that one of the Directors of the Company has escaped to Nepal and has gone in hiding. 32. The said argument, however, is only of prejudicial value, since the petitioners have pointed out that the said Director has his home in Nepal. Moreov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the application for such release and where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail. 38. Detailed paraphernalia of the subsequent actions in case of arrest of a person have also been provided in Section 212. 39. In the present case, as rightly pointed by learned counsel for the petitioners, the stage of investigation within the contemplation of Section 212(1) (4) of the 2013 Act is not yet over. Thus, as of today, whatever may the allegations against the petitioners or the Company of which they were Directors and guarantors, the same cannot tantamount to a cognizable offence against the petitioners. 40. Insofar as classification of an account as fraud is concerned, the same was disclosed only subsequently and does not find place in the SFIO request to the Immigration Authority for issuance of LOC. 41. Even if the allegations of the SFIO are taken at the highest, although those were disclosed post facto issuance of the request, no ground as contemplated in the concerned Office Memorandum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Investigating Agency in cognizable offences under IPC or other penal laws, where the accused was deliberately evading arrest or not appearing in the trial court despite Non Bailable Warrant (NBW) and other coercive measures and there was likelihood of the accused leaving the country to evade trial/arrest. 47. The said citation by the SFIO is not relevant in the present case. In the present case, no trial has started and/or any arrest has been made or sought to be made. There is no issuance of NBW at all in the present case or even warrant, for that matter. Clause 4(a) of the Office Memorandum, quoting the Delhi High Court, clearly envisages that there has to be a cognizable offence where the accused was deliberately evading arrest or not appearing in a Trial Court despite NBW and other coercive measures and there was likelihood of the accused leaving the country to evade trial/arrest. None of the said criteria are met in the present case. On the contrary, Clause 6 of the Office Memorandum dated February 22, 2021 provides that the existing guidelines with regard to issuance of LOC were being superseded and it was decided as provided thereafter. The said consolidated guideli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds which are required to be made out for restraining the personal liberty of a person as guaranteed under Article 21 of the Constitution and the right of a person to move within the country under Article 19, a necessary corollary of which is the right to travel abroad, have to be on a much elevated footing than mere pendency of an investigation or allegations of financial frauds against the concerned person. 54. The mere paranoia of the authorities whenever a person against whom allegations are levelled seeks to leave the country cannot be sufficient for issuance of LOCs and curtailing the person‟s personal liberty to travel abroad. 55. In fact, Clause 6(I) of the Office Memorandum dated February 22, 2021, relied on by both parties, in no uncertain terms provides that in cases where there is no cognizable offence under IPC and other penal laws, the LOC-subject cannot be detained/arrested or prevented from leaving the country. The original agency can only request that they be informed about the arrival/departure of the subject in such cases. Hence, even if an LOC is issued but no cognizable offence under any penal law of the country is made out, the LOC-subject cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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