The Karnataka High Court on 12th February 2021 comprising of a bench of Justice P S Dinesh Kumar while dismissing the petitions filed by NRI businessman Dr. Bavaguthu Raghuram Shetty, who has challenged the Lookout Circulars (LOCs) issued by Bank of Baroda and Punjab National Bank against him and the endorsement issued by Bureau of Immigration not permitting him to travel to Abu Dhabi observed that, it's time for lawmakers and the Reserve Bank of India to revisit the lending guidelines and procedures and take necessary remedial measures to ensure that public money is well secured before disbursement. (Dr. Bavaguthu Raghuram Shetty VS Bureau of Immigration and Others.)
Facts of the case
On 14th November the petitioner(NRI), was not permitted to travel to Abu Dhabi, UAE and was declared as illegal by the Bureau of Immigration. The Commissioner, Bureau of Immigration in reply to the Petitioner's letter seeking reasons for not allowing him to board the flight, stated that Bank of Baroda and Punjab National Bank have issued lookout circulars (LOCs) dated May 8, 2020 and July 18, 2020 respectively to prevent petitioner from leaving India.
It was averred in the writ petitions that petitioner has promoted several companies in pharmaceutical, hospitality, healthcare and foreign exchange businesses. He stepped down from the Management and handed over the companies to the respective Officers between 2015 and 2017. During late 2019 and early 2020, due to various illegal activities and mismanagement in the companies by the persons in-charge, the companies were unable to service the loans obtained from various banks.
Banks have initiated various proceedings against the Companies and also petitioner who was the guarantor. All transactions were governed by the laws in the UAE. As on date, 34 cases were pending in Dubai and Abu Dhabi filed by various Banks including Indian Banks and four cases in India.
Contention of the parties
The Advocate on behalf of the petitioner submitted as follows:
- Loans were taken in UAE by various Companies and petitioner has given guarantees in UAE and not in India;
- Default in repayment has occurred due to mismanagement by the borrower Companies which came to light between December 2019 and April 2020. Thereafter, proceedings have been initiated by Banks in UAE;
- Loans have been given to the listed Companies. They are managed by the Directors and respective CEOs/CFOs. Petitioner has stepped down from the Management of Companies in the year 2017;
- As transactions have taken place in UAE, respondent Banks have no jurisdiction to invoke his Personal Guarantees in India. The Banks cannot prevent petitioner from travelling to UAE to defend cases against him;
- Issuance of a LOC is governed by Official Memorandum issued by Ministry of Home Affairs dated October 27, 2010, as amended on December 5, 2017 giving power to the Chairmen of the Banks to issue LOCs;
- The amendment requires exercise of power only in exceptional cases against fraudsters, persons taking loans and willfully defaulting, money launderers etc. Petitioner does not fall under any such category.
The respondent contended that:
- With regard to jurisdiction on the ground that all transactions have taken place in UAE is noted only to be rejected, because, the Guarantee Agreement executed by the petitioner in favor of the Banks provides for initiation of proceedings by the Banks in any number of jurisdictions.
- In the letter written by the Commissioner, Bureau of Immigration, it was stated that the LOCs have been issued at the behest of BOB and PNB. Therefore, petitioner has to first approach the Bank Authorities. Hence, a direction to provide a copy was unnecessary.
- Interpreting the economic interest of India, the Calcutta High Court has held that the economic interests, if considered in proper perspective, has to be on a much higher footing, directly and adversely impacting the share market or the economy of the Country as a whole, which destabilizes the entire economy.
- It is relevant to note that petitioner is liable for repayment of about Rs.2800 Crore lent by Public Sector Banks. Undoubtedly, this money belongs to this Country in general and the depositors in particular. This Court cannot lose sight of the fact that money belonging to this Country has been utilized by the petitioner in a foreign country to run his businesses.
Court Observation & Judgment
The court after going through the Official Memorandum said that "Clause(c) of paragraph No.7 gives liberty for a person against whom LOC is issued, to approach the officer who has ordered issuance of LOC and explain that it is wrongly issued against him. In the letter written by the Commissioner, Bureau of Immigration, it is stated that the LOCs have been issued at the behest of BOB and PNB. Therefore, the petitioner has to first approach the Bank Authorities. Hence, a direction to provide a copy is unnecessary."
The court in regards to the prayer to declare the issuance of LOC without prior notice as illegal and violative of Article 14, 19 and 21 of the Constitution said, "On the face of it, the prayer is misconceived because the whole purpose of issuance of LOC would be defeated by a prior notice. By amending the Official Memorandum, Chairmen of Banks have been empowered to issue LOCs. Bankers may consider issuing LOC to protect the Bank's interest based on the subjective satisfaction of the issuing authority and in this case, the BOB and PNB. Therefore, the argument seeking prior notice is incongruous and therefore rejected."
The court on considering the prayer made by the petitioner to allow him to travel to Abu Dhabi said, "Unless, petitioner exhausts the remedy of approaching BOB and PNB and explains to them as to how the LOCs have been wrongly issued and the Banks pass any further orders thereon, there is no cause of action to consider the said prayer."
After perusing the judgments relied by the petitioner and respondents the court said "In the facts of this case, it is relevant to note that petitioner is liable for repayment of about Rs.2800 Crores lent by Public Sector Banks. Undoubtedly, this money belongs to this Country in general and the depositors in particular. This Court cannot lose sight of the fact that money belonging to this Country has been utilized by the petitioner in a foreign country to run his businesses. No material is produced to show that money lent by BOB and PNB has resulted in any development of this country. On the other hand, as on date, it has become a bad debt and public sector banks are fighting litigation in India as also in UAE to recover the same."
It added "Therefore, the reliance in the case of Uco Bank Vs. Dr.Siten Saha Roy is of no avail to the petitioner because the amount involved in the said case was Rs.20 Crores and proceedings were initiated under the SARFAESI Act to recover the amount from the assets mortgaged to the bank."
"In contradistinction, in this case, the amount involved is astronomically high when compared with the Calcutta case, which is about Rs.2800 Crores. It is more than one third of the annual budget of a State like Sikkim. Thus the amount involved in this case is bound to have serious impact on the economy of this Country and therefore the authorities in the case of Shivashakti Sugars Vs. Renu Sugar Ltd., and Marida Chemicals Vs. Union of India are aptly applicable", the court opined.
Dismissing the submission that the petitioner is only a guarantor, the court said "In the facts of this case, this admission, without anything more, must entail dismissal of this writ petition in limine because a guarantor is equally liable to repay the debt. Further, it is admitted in the pleadings that petitioner is the promoter of the borrower Companies."
The bench concluded the case by saying "In view of the liberty available to the petitioner to approach the Bank authorities and explain that LOCs have been wrongly issued, petitioner is not entitled for relief in these writ petitions."
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