1. The petitioners, who are Company and its Directors, are before this Court seeking to quash Exts.P1 and P2 and to stay all further proceedings initiated by the 3rd respondent for declaring the petitioners as Wilful Defaulters and to direct the respondents to reconsider the proposal to declare the petitioners as Wilful Defaulters and to provide an opportunity to prove their case before the Committee as directed by the Reserve Bank of India. The petitioners also seek to direct respondents 3 and 4 not to restrain the petitioners from travelling abroad.
2. The 1st petitioner-Company availed a crash credit loan facility of Rs. 5,00,00,000/- from the 3rd respondent-Bank for business purpose. The petitioners state that due to demonetisation, unprecedented floods and Covid-19 pandemic, the business was adversely affected and the petitioners could not repay the amount. By way of Covid package, a part of the Cash Credit Account was converted into a funded interest term loan of Rs. 30,00,588/- on 29.08.2020. However, the Bank subsequently declared the accounts of the 1st petitioner-Company as Non-Performing Asset and initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
3. On 01.12.2021, the 3rd respondent issued Ext.P1 show-cause notice to the petitioners for declaring the petitioners as Wilful Defaulters. The petitioners state that on receipt of Ext.P1 show-cause notice, the petitioners had a discussion with Deputy Zonal Head and Deputy Regional Head of the 3rd respondent-Bank on 07.12.2021. The 3rd respondent-Bank was informed that the petitioners have not violated any conditions for classifying them as Wilful Defaulters. The petitioners further requested to grant them time till 30.06.2022 for settling the matter. The 3rd respondent, however, informed the petitioners as per Ext.P2, that the Bank is not in a position to withhold the recovery proceedings already started.
4. The petitioners state that they are not Wilful Defaulters falling under the definition of Wilful Default provided in the Master Circular on Wilful Defaulters issued by the Reserve Bank of India on 01.07.2014. The petitioners were not generating enough income from the business to repay the loan. They have not wilfully defaulted in meeting the payment/repayment obligations. On 25.01.2022, the Regional Manager of the 3rd respondent-Bank informed the son of the 2nd petitioner that the petitioners cannot travel outside the country since they were defaulters of the Bank.
5. The petitioners contended that a travel ban cannot be imposed on the 2nd petitioner as he is not a Fugitive Economic Offender falling within the purview of Section 2(f) of the Fugitive Economic Offenders Act, 2018. The Government of India has issued Ext.P4 directions to deal with wilful bank loan defaulters or fugitive economic offenders. As per Ext.P4, a Look Out Circular (LOC) can be opened by the Bureau of Immigration on the request of Chairman/Managing Director/Chief Executive of all Public Sector Banks. According to the petitioners, such proceedings can be initiated only where the loan facilities availed are of more than Rs. 5 Crores.
6. The learned counsel for the petitioners urged that the petitioners are not Wilful Defaulters and the proceedings to issue Look Out Circular against them is illegal and unjustified. The respondents are therefore compellable not to restrain the petitioners from travelling abroad.
7. The 3rd respondent contested the writ petition filing counter affidavit. The petitioners have committed serious fraud by removing the stock without routing the sale proceeds through the loan account and without making any payment towards the loan. The value of the stock has been siphoned off. Hypothecated stock were sold and the proceeds were not routed through the loan account. Presently an amount of Rs. 6,34,59,442/- is the outstanding dues payable by the petitioners, contended the 3rd respondent.
8. The 3rd respondent further stated that the Bank has issued show-cause notice for declaring the petitioners as Wilful Defaulters. The petitioners have not given reply to the show-cause notice. In the light of the circulars/orders issued by the Government of India, the 3rd respondent can initiate proceedings for issuing Look Out Circular against the petitioners. The writ petition is devoid of any merit and it is liable to be dismissed, contended the 3rd respondent.
9. I have heard the learned counsel for the petitioners and the learned Standing Counsel for the 3rd respondent. I have also heard the Assistant Solicitor General of India representing respondents 1 and 4.
10. The 3rd respondent would submit that an amount of Rs. 6,34,59,442/- is the outstanding dues in respect of the loan account of the 1st petitioner-Company. The 3rd respondent issued Ext.P1 show-cause notice proposing to declare the petitioners as Wilful Defaulters on the following grounds:
* As per the stock statement submitted by the firm as on 29.02.2020 the total stock was reported of Rs.3.89 Crores. As per the branch inspection dated 16.07.2021 the unit is found closed and dealership of the Company was not renewed and there is no stock available.
* No Stock was found on site. It shows that the party has sold the stock and sale proceeds of stock has not been routed in the account.
* Borrowers having sufficient capacity to pay the payment obligations and is willfully not repaying bank dues.”
11. It has to be noted that the allegation made by the 3rd respondent is that the petitioners have submitted a stock statement of Rs. 3.89 Crores as on 29.02.2020 and when the unit was inspected on 16.07.2021, it was found closed and Dealership of the Company was not renewed and there is no stock available.
12. Admittedly, the stock statement submitted by the petitioners was a statement as on 29.02.2020. The unit was inspected only on 16.07.2021, after a period of about 17 months. Variation of stock is therefore natural and possible. The further allegation is that the petitioners have sold the stock and the sale proceeds of stock have not been routed through the account. This can possibly be a violation of the terms of agreement between the Bank and the petitioners. But, that alone may not be sufficient to declare the petitioners as Wilful Defaulters.
13. The further allegation is that the borrowers have sufficient capacity to pay the payment obligations and they are willfully not repaying bank dues. In support of this contention, the 3rd respondent pointed out that the 2nd petitioner has a net worth of Rs. 8027 Crores and the 3rd petitioner has a net worth of Rs. 1339 Crores. From the pleadings, it is evident that the 1st petitioner-Company is the borrower. The 3rd respondent has no case that petitioners 2 and 3 are borrowers. When the respondents say borrowers having sufficient capacity to pay the payment obligations and are willfully not preparing bank dues, the 3rd respondent- Bank cannot take the net worth of petitioners 2 and 3 to come to a conclusion that the 1st petitioner-borrower has sufficient capacity to make the payment obligations.
14. Be that as it may, the fact remains that the 3rd respondent has issued Ext.P1 show-cause notice and the petitioners have not given any written reply to the show-cause notice. In the facts and circumstances of the case, this Court is of the view that the proceedings initiated by the respondents as per Ext.P1 for declaring the petitioners as wilful Defaulters can be finalised after giving a further opportunity to the petitioners to make their objection to the show-cause notice in writing.
15. The further grievance of the petitioners is that the 3rd respondent has caused to issue a Look Out Circular against petitioners 2 and 3. Ext.P4 Press release on behalf of the Government of India, Ministry of Home Affairs would indicate that the Bureau of Immigration can open proceedings for issuing Look Out Circular on the request of certain officers including Chairman/Managing Director/Chief Executive of all Public Sector Banks.
16. The issue arising for consideration is whether the respondents are justified in initiating steps to issue a Look Out Circular. Ext.P4 issued by the Government of India, Ministry of Home Affairs reads as follows:
The Government issued directions to deal with wilful bank loan defaulters or fugitive economic offenders. For this a Look Out Circular (LOC) can be opened by the Bureau of Immigration in respect of Indian citizens and foreigners on the request of an authorised originator, which includes an officer not below the rank of Deputy Secretary to the Government of India, or an officer not below the rank of Joint Secretary in the State Government; or District Magistrates, or Superintendents of Police, or designated officers of various law enforcing and security agencies, or designated officer of Interpol; or Chairman/Managing Director/Chief Executive of all Public Sector banks, or as per directions of any Criminal Court in India. The Immigration Authorities can detain as well as prevent any person, including a wilful defaulter, from leaving India against whom LOC has been issued. Bureau of Immigration has opened 83 LoCs till now at the behest of banks.
Fugitive Economic Offenders Act, 2018 has been enacted for effective action against economic offenders fleeing Indian jurisdiction. It provides for attachment and confiscation of property of fugitive economic offenders and disentitles them from defending any civil claim. Further, Government has advised Public Sector Banks to obtain certified copy of the passport of promoters/directors and other authorised signatories of Companies availing of loan facilities of more than Rs.50 Crores.
17. Admittedly, the petitioners will not fall within the ambit of Fugitive Economic Offenders under the Fugitive Economic Offenders Act, 2018. Even the 3rd respondent has no case that petitioners 1 to 3 are Fugitive Economic Offenders.
18. The 3rd respondent relies on Ext.R3(c) Office Memorandum dated 04.10.2018 to justify the process initiated for issuing request for opening Look Out Circular. Issuance of LOCs in respect of Indian citizens and foreigners is governed by instructions contained in the Ministry of Home Affairs O.M. dated 27.10.2010 as amended by MHA's O.M. dated 05.12.2017. Ext.R3(c) indicates that as per the amended paragraph 8(g), in exceptional case, LOCs can be issued even in such cases as would not be covered by the guidelines above, whereby departure of a person from India may be declined at the request of any of the competent authorities referred to in the OM and it appears to such authority based on inputs received that the departure of such person is detrimental to the sovereignty or security or integrity of India or that the same is detrimental to the bilateral relations with any country or to the strategic and/or economic interests of India or if such person is allowed to leave, he may potentially indulge in an act of terrorism or offences against the State and/or that such departure ought not be permitted in the larger public interest at any given point of time.
19. Ext.R3(c) O.M. dated 04.10.2018 would show that LOC can be issued only in exceptional cases. Departure of a person from India can be declined at the request of the authorities only in the given circumstances. The 3rd respondent has initiated process for issuing request for opening Look Out Circular against the petitioners on the ground that departure of the petitioners would affect economic interests of India and it is necessary in the larger public interest. This Court is not inclined to accept the said stand of the 3rd respondent-Bank.
20. Ext.R3(c) would indicate that such procedure can be initiated only on the basis of specific inputs received which would disclose that the departure of such person is determined on to the economic interest of India. Failure of a citizen to repay loan amount cannot by itself a ground for issuing LOC. The argument of the 3rd respondent is that the petitioners have sold the stock in business and the proceeds have not been routed through their accounts. The said act of the petitioners may be a violation of conditions contained in the loan agreement between the petitioners and the respondents. Such violation by itself is not sufficient to conclude that the economic interests of India will be affected. It cannot be said that declining permission to the petitioners to travel abroad is in larger public interest. As long as there is no material available to presume that the petitioners are likely to abscond from India, issuance of Look Out Circular will not be justified.
21. Ext.R3(e) Circular issued by the 3rd respondent- Bank indicates the accounts eligible for considering issuance of LOC. The accounts eligible are:
* Account which is/being declared as Fraud, where balance outstanding is Rs.50 Crores and above.
* Account which is /being declared as Wilful Dafaulter, where balance outstanding is Rs.50 Crores and above.
* Account which is being declared as Non- Cooperative Borrower, where balance outstanding is Rs.50 Crores and above.
* Account which is/being declared as Red Flagged as per RBI guidelines, where balance outstanding is Rs.50 Crores and above.
* Any other account specifically recommended by the Zone/Vertical Head.
22. The loan account of the petitioners do not fall in any of the first four cat
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egories. Though Ext.R3(e) includes “any other account specifically recommended by the zone/vertical head”, such a clause cannot give unbridled power to the 3rd respondent to initiate the process of Look Out Circular indiscriminately. There is nothing on record to show that the departure of the petitioners from India is detrimental to the sovereignty or security or integrity of India. The alleged diversion of funds by the petitioners by selling the stock and not routing the sale proceeds through the account maintained with the 3rd respondent-Bank, by itself cannot be said to be against the economic interest of India. In short, the materials available before this Court do not justify imposing restraint on the petitioners from travelling abroad, by issuing LOC. 23. In the facts and circumstances of the case, the writ petition is disposed of with the following directions: (1) The 1st petitioner may submit their written reply to Ext.P1 show-cause notice within a period of 15 days. (2) On receipt of reply, the 3rd respondent shall reconsider the issue of declaring the petitioners as Wilful Defaulters and take a decision, considering the written reply submitted by the petitioners. (3) The action of the respondents in issuing Look Out Circular, is declared as bad in law. (4) The 3rd respondent will be at liberty to initiate process for issuing Request for Opening Look Out Circular against the petitioners afresh, on the basis of cogent and relevant materials.