Pinnacle Vehicles And Services ... vs Union Of India
2022 Latest Caselaw 4485 Ker

        IN THE HIGH COURT OF KERALA AT ERNAKULAM
                           PRESENT
          THE HONOURABLE MR.JUSTICE N.NAGARESH
WEDNESDAY, THE 13TH DAY OF APRIL 2022/23RD CHAITHRA, 1944
                 WP(C) NO. 5367 OF 2022
PETITIONERS:

    1    PINNACLE VEHICLES AND SERVICES PRIVATE
         LIMITED ,
         REGISTERED OFFICE 9/29, NH 47,
         MANNUTHY BYE PASS, KUTTANELLUR P.O,
         THRISSUR-680 014.
    2    SRI. A.T. MOOSA,
         PERUMBADI HOUSE, CHEROOR ROAD, CHEMBUKKAVU,
         THRISSUR 680 020
    3    SRI. GAABI GAFOOR,
         ARAKKAL VETTATH HOUSE, POONKUNNAM P.O,
         THRISSUR-680 002

         BY ADVS.
         M.J.RAJASREE
         ANIRUDH KADAVIL
         K.V.ANIL


RESPONDENTS:

    1    UNION OF INDIA,
         REPRESENTED BY ITS SECRETARY, DEPARTMENT OF
         FINANCIAL SERVICES, MINISTRY OF FINANCE,
         SANSAD MARG, NEW DELHI 110 001.
    2    RESERVE BANK OF INDIA
         REPRESENTED BY THE DEPUTY GENERAL MANAGER, RBI,
         BAKERY JUNCTION, NANDAVANAM, VAZHUTHACAUD,
         THIRUVANANTHAPURAM, KERALA 695 033.
    3    BANK OF BARODA,
         REPREESENTED BY CHIEF MANAGER, THIRUVAMBADY
         DEVASWOM BRANCH, PB NO. 124, THIRUVAMBADY
         DEVASWOM BUILDING, ROUND WEST, THRISSUR,
         KERALA 680 001
 W.P.(C) No.5367/2022
                             :2:


    4      BUREAU OF IMMIGRATION,
           REPRESENTED BY ITS COMMISSIONER (IMMIGRATION),
           MINISTRY OF HOME AFFAIRS, EAST BLOCK, VIII,
           LEVEL V, SECTOR 1, R.K. PURAM,
           NEW DELHI 110 066.

           BY ADVS.
           NAGARAJ NARAYANAN
           SAIJO HASSAN
           BENOJ C AUGUSTIN
           RAFEEK. V.K.
           U.M.HASSAN
           P.PARVATHY
           ABHIRAMI DINESH
           RENJINI M. RENJITH
           K.N.MUHAMMED THANVEER
           SRI.S.MANU, ASGI

     THIS WRIT PETITION (CIVIL) HAVING COME UP         FOR
ADMISSION ON 13.04.2022, THE COURT ON THE SAME         DAY
DELIVERED THE FOLLOWING:
 W.P.(C) No.5367/2022
                                       :3:




                           N. NAGARESH, J.

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                       W.P.(C) No.5367 of 2022

          `````````````````````````````````````````````````````````````
                Dated this the 13th day of April, 2022

                            JUDGMENT

~~~~~~~~~

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 3 rd

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 ₹5,00,00,000/- from the 3rd respondent-Bank W.P.(C) No.5367/2022

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 ₹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 3 rd

respondent-Bank was informed that the petitioners have not

violated any conditions for classifying them as Wilful W.P.(C) No.5367/2022

Defaulters. The petitioners further requested to grant them

time till 30.06.2022 for settling the matter. The 3 rd

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 W.P.(C) No.5367/2022

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 ₹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 W.P.(C) No.5367/2022

proceeds were not routed through the loan account.

Presently an amount of ₹6,34,59,442/- is the outstanding

dues payable by the petitioners, contended the 3 rd

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 3 rd 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 3 rd

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 ₹6,34,59,442/- is the outstanding dues in respect of the

loan account of the 1st petitioner-Company. The 3rd W.P.(C) No.5367/2022

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 ₹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 W.P.(C) No.5367/2022

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 2 nd

petitioner has a net worth of ₹8027 Crores and the 3rd

petitioner has a net worth of ₹1339 Crores. From the

pleadings, it is evident that the 1 st 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 3 rd respondent-

Bank cannot take the net worth of petitioners 2 and 3 to W.P.(C) No.5367/2022

come to a conclusion that the 1 st petitioner-borrower has

sufficient capacity to make the payment obligations.

14. Be that as it may, the fact remains that the 3 rd

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.

W.P.(C) No.5367/2022

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.

W.P.(C) No.5367/2022

17. Admittedly, the petitioners will not fall within the

ambit of Fugitive Economic Offenders under the Fugitive

Economic Offenders Act, 2018. Even the 3 rd 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 W.P.(C) No.5367/2022

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 3 rd

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 W.P.(C) No.5367/2022

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 3 rd 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 3 rd respondent-

Bank indicates the accounts eligible for considering issuance

of LOC. The accounts eligible are:

 W.P.(C) No.5367/2022





       ➢          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 categories. 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 3 rd respondent-Bank, by itself W.P.(C) No.5367/2022

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 3 rd 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 W.P.(C) No.5367/2022

Opening Look Out Circular against the petitioners afresh, on the basis of cogent and relevant materials.

Sd/-

N. NAGARESH, JUDGE aks/11.04.2022 W.P.(C) No.5367/2022

APPENDIX OF WP(C) 5367/2022

PETITIONER EXHIBITS Exhibit P1 A TRUE COPY OF THE SHOW CAUSE NOTICE DATED 01.12.2021 ISSUED BY THE 3RD RESPONDENT TO THE PETITIONERS.

Exhibit P2 A TRUE COPY OF THE LETTER DATED 20.12.2021 ISSUED BY 3RD RESPONDENT TO THE 1ST PETITIONER.

Exhibit P3 A TRUE COPY OF THE RELEVANT PAGE OF THE MASTER CIRCULAR ON WILFUL DEFAULTERS WITH REFERENCE NO. RBI/2014-15/73 DATED 01.07.2014 ISSUED BY THE RESERVE BANK OF INDIA.

Exhibit P4 A TRUE COPY OF THE PRESS RELEASE WITH REFERENCE NO. V.G./VN/SS/JB/3542 DATED 24.07.2019 ISSUED BY THE GOVERNMENT OF INDIA.

RESPONDENT   EXHIBITS
R3(a)        COPY OF LETTER DT 9.2.2022
R3(b)        COPY OF CIRCULAR DT 19.9.2019
R3(c)        COPY OF OM DT 4.10.2018
R3(d)        COPY OF LETTER DT 22.11.2018
R3(e)        COPY OF CIRCULAR DT 13.6.2019