Country's economic interest cannot be equated to a bank's financial health: Calcutta High Court

The Calcutta High Court recently observed that banks cannot ask the Bureau of Immigration to open a Look Out Circular (LOC) against a person only on the ground that a huge amount was recoverable from them [Vishambhar Saran vs Bureau of Immigration & Ors]..The Court further said that economic interest of the country cannot be read synonymously with the financial health of a bank.Justice Shampa Sarkar reiterated that a bank is required to establish on the basis of intelligence reports and inputs that a person’s departure from India would have a cascading effect on the country’s economy.The quantum of the money due or unpaid cannot be a ground for issuance of an LOC, the Court said.“Default of a borrower cannot be read into the expression ‘detrimental to the economic interest of the country’. The commission of the financial offence should be of high degree which was likely to shake the stability, growth and business dealing of the country,” it added..The Court also said that in the policies dealing with the initiation of LOCs, no financial threshold has been provided.“An LOC cannot be triggered because the amount of default was enormous,” it held..Justice Sarkar was hearing a petition moved by Vishambhar Saran, an erstwhile Director of Visa Power Limited which was undergoing liquidation.Saran had challenged the LOC opened against him by the State Bank of India (SBI) in relation to the credit facilities availed by the company from different banks. As per the SBI, the company had misutilized and misappropriated ₹892.28 crores of public money..After hearing the parties, the Court opined that the general objective of LOC is to control the departure and arrival of persons against whom criminal cases are pending or who are either avoiding arrest or a legal proceeding, apart from cases of terrorists and persons whose offences affect the economy of the country and bilateral trade relations.It then examined the policy governing the issuance of LOCs and found that LOCs can be issued only in exceptional cases. With regard to banks, the Court said,“The bank is required to establish that based on the intelligence report and inputs, the departure of the petitioner from India, would be either detrimental to the sovereignty, security or integrity of India or detrimental to the bilateral relations of India with other countries, which would have a cascading effect in the downfall of the economy. Although, the memorandum of 2018 talks about fraudsters and wilful defaulters to be treated as a subject for issuance of LOC, the policy of 2021 does not include such category of persons.”.In the present case, the Court found that the proceedings to declare the petitioner a wilful defaulter had been withdrawn and attempts of other banks to get LOC opened against him have already been quashed by the courts. It observed that no exceptional case had been made out by the SBI and that mere apprehension that the petitioner would flee India and then steps could be taken to recover the money was not enough.“The law provides for other mechanisms to recover money from a borrower whose loan account had become a NPA. The company is already in liquidation. As of now, it is not clear whether any investigation is pending against the petitioner,” it added while setting aside the LOC against the petitioner. .Advocates Sabyasachi Chowdhury, Rajarshi Dutta, VVV Sastry, Tridib Bose and Debjyoti Saha represented the petitioner.Advocate Dharmendra Tiwari represented the respondents..[Read Judgment]