Rs 3,897Cr default: Calcutta High Court says mere quantum of loan can’t restrict travel abroad, junks look out circular

The Calcutta High Court said it did not find any justification that cancelling the LOC will cause severe determent to public interest. (Image enhanced using AI)

Findings

• This court failed to appreciate under what basis the LOC is issued against the petitioner.
• Till date, there is no cognisable case under the Indian Penal Code initiated against the petitioner.
• Neither an interim report nor a final investigation report had been submitted by the SFIO.
• Without such reports, it is “difficult to appreciate under what basis the LOC is issued.”
• 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.
• The court did not find any justification that it will cause severe determent to public interest.
• The LOC issued on the direction of the union ministry of corporate affairs on July 19, 2022, against the petitioner, is set aside and quashed.

Background

• The petitioner was formerly associated with a construction and infrastructure company that entered the Corporate Insolvency Resolution Process (CIRP) after the State Bank of India moved the National Company Law Tribunal under Section 7 of the Insolvency and Bankruptcy Code, 2016.
• The company was admitted to CIRP on November 30, 2021.
• During the insolvency proceedings, a transaction audit report dated July 30, 2022, prepared by a forensic auditor at the instance of the resolution professional, reportedly did not find any fraud in transactions conducted by the company’s board.
• Despite this, the union ministry of corporate affairs, by an order dated July 19, 2022, directed the SFIO to investigate the company’s affairs under Section 212 of the Companies Act, 2013.
• Following this, an LOC was issued against the petitioner, effectively restraining him from travelling abroad.
• The petitioner received summons from the SFIO on January 8, 2025, and again on March 11, 2025 and claimed to have cooperated fully with the ongoing investigation.

Petitioner’s submissions

• Senior advocate Sabyasachi Chaudhury, appearing for the petitioner, argued that the LOC was issued without any disclosed basis of a cognisable offence.
• The counsel submitted that the investigation was still at a preliminary stage and no interim report or investigation report had been submitted by the SFIO to the central government.
• The LOC violated Article 21 of the Constitution, which guarantees personal liberty, including the right to travel.
• Relying on earlier Calcutta High Court precedents, the counsel said that non-payment of loans or alleged financial default cannot, by itself, be equated with a threat to the economic interests of the country.

Respondents’ submissions

• Opposing the plea, Deputy Solicitor General of India Dhiraj Trivedi, representing the SFIO and union authorities, submitted that the petitioner was the key person involved in taking substantial loans, with outstanding claims of about Rs 3,897 crore by secured creditors.
• The investigation indicated possible manipulation of financial statements and siphoning of funds, attracting Section 447 of the Companies Act, which deals with fraud and is a cognizable offence.
• Permitting the petitioner to travel abroad during an ongoing SFIO probe could adversely affect the investigation and harm public and economic interest.