Delhi High Court: Suspension of Look Out Circular (LOC) for Conditional International Travel; Prolonged Restrictions Violate Article 21 in Financial Fraud Allegations

Court’s Decision:

The Delhi High Court allowed the petitioner temporary relief by suspending the LOC for 15 days to enable international travel. The court ruled that while the State’s interest in investigating allegations of financial fraud is significant, such restrictions on personal liberty under Article 21 of the Constitution must be proportional and justified. The suspension was made subject to stringent conditions to ensure the petitioner’s cooperation and return to the country.

Facts:

• The petitioner, a former director of a major infrastructure and energy company, faced allegations of financial misconduct, including siphoning funds and fraudulent trading activities. The allegations led to investigations by the Serious Fraud Investigation Office (SFIO) and other regulatory bodies.
• The LOC was issued to prevent the petitioner from leaving the country, as he was allegedly linked to financial irregularities within the company, which defaulted on substantial loans from public sector banks.
• The petitioner had previously sought judicial intervention to suspend the LOC for travel but was denied relief due to ongoing investigations and the perceived flight risk. He now filed a fresh plea, arguing that circumstances had changed significantly since the earlier denial.

Issues:

1. Validity of the LOC: Does the LOC against the petitioner align with legal principles, given the prolonged investigations without conclusive findings?
2. Res Judicata: Can the petitioner’s fresh plea be barred based on earlier judicial refusals to suspend the LOC?
3. Balancing Rights and Interests: Should the petitioner’s right to travel, as part of his fundamental rights under Article 21, be prioritized over the State’s concerns about potential evasion of accountability?

Petitioner’s Arguments:

1. Violation of Fundamental Rights: The petitioner argued that the prolonged LOC violated his fundamental rights under Article 21, including the right to personal liberty and the right to travel.
2. Cooperation with Authorities: He emphasized his cooperation over five years with SFIO and other agencies, attending hearings and submitting documents. There was no evidence of tampering with evidence or non-cooperation.
3. Changed Circumstances: The petitioner pointed out that significant developments had occurred since the earlier denial of relief:
   • Conclusive assessments of his alleged undisclosed assets resulted in much lower figures than initially alleged.
   • Investigative agencies have yet to find substantive evidence of wrongdoing.
4. Proposed Safeguards: The petitioner offered to provide security, such as financial guarantees and property, to mitigate concerns about flight risk.

Respondent’s Arguments:

1. Serious Allegations: The respondents, including the SFIO and the Department of Revenue, argued that the petitioner was involved in fraudulent activities involving siphoning funds, creating shell companies, and financial mismanagement. They contended that the LOC was necessary to prevent the petitioner from evading legal consequences.
2. Flight Risk: They pointed to the petitioner’s connections to foreign entities and significant financial resources abroad, suggesting that he posed a high risk of absconding.
3. Res Judicata: The respondents argued that the petitioner’s plea was barred under the principle of res judicata since earlier petitions seeking similar relief were dismissed.

Analysis of the Law:

1. Right to Travel:
   • Article 21 of the Constitution guarantees the right to life and personal liberty, including the right to travel abroad. Restrictions on this right must be reasonable and proportional, as held in Maneka Gandhi v. Union of India.
   • The court emphasized that LOCs, while valid in exceptional circumstances, cannot be used indefinitely without adequate justification.
2. Ministry of Home Affairs Guidelines on LOCs:
   • LOCs may be issued in cases involving cognizable offenses under Indian Penal laws.
   • In exceptional cases, they may be issued for protecting national or economic interests, but the rationale must be compelling and supported by evidence.
   • Prolonged LOCs without periodic review risk violating personal liberty.
3. Proportionality Test:
   • Restrictions on liberty must balance the individual’s rights with the State’s interest. The court ruled that indefinite restrictions, particularly without tangible progress in investigations, failed the test of proportionality.
4. Res Judicata:
   • The court clarified that the doctrine of res judicata does not rigidly apply in cases alleging ongoing violations of fundamental rights, especially when circumstances change significantly.

Precedent Analysis:

• The court cited State Bank of India v. Jah Developers Pvt. Ltd., which held that administrative measures such as fraud classifications cannot justify punitive actions like LOCs without proper judicial or statutory findings.
• It also referred to Prateek Chitkara v. Union of India, which stated that restrictions on liberty must address a higher gravity of offense impacting national or economic interests, not routine financial disputes.

Court’s Reasoning:

1. Changed Circumstances: The petitioner’s earlier plea was denied based on the preliminary nature of investigations. Since then:
   • The alleged undisclosed assets were conclusively assessed at significantly lower amounts.
   • The investigations have not produced substantive findings or resulted in formal charges.
2. Petitioner’s Cooperation: The petitioner actively participated in investigations and provided documents, reducing the rationale for continued restrictions.
3. No Evidence of Evasion: The court noted that there was no credible evidence suggesting the petitioner intended to abscond or derail investigations.

The court concluded that while the allegations were serious, the lack of progress in investigations, coupled with the petitioner’s cooperation, made indefinite restrictions on his liberty disproportionate.

Conclusion:

The court permitted the petitioner to travel abroad for 15 days, subject to stringent conditions:

1. Financial and Property Security: Deposit of ₹5 crores in FDR and title deeds of property worth ₹53.89 crores.
2. Travel Itinerary and Undertakings: Submission of a detailed itinerary, contact details, and an undertaking to return within the specified period.
3. Regular Updates: Reporting departure and return to the court and providing a copy of the passport and visa.

The court clarified that the suspension was temporary and did not preclude further restrictions if new evidence emerged. It also granted the petitioner liberty to seek a complete quashing of the LOC upon completion of investigations.

Implications:

This decision underscores:

1. The judiciary’s commitment to safeguarding fundamental rights against indefinite administrative restrictions.
2. The need for investigative agencies to demonstrate tangible progress and credible evidence when seeking to curtail individual liberties.
3. The importance of proportionality and due process in cases involving LOCs and similar preventive measures.

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