Amount owed by BR Shetty to public sector banks is more than 1/3rd of annual budget of Sikkim: Karnataka High Court upholds travel restrictions

The money owed by Indian-origin UAE businessman BR Shetty to public sector banks is more than one-third of the annual budget of a State like Sikkim, the Karnataka High Court observed on Tuesday as it upheld the travel restrictions imposed on Shetty by the Central government. .A Bench of S Dinesh Kumar said that the amount is "astronomically high" and can have a serious impact on the economy of the country. .Shetty, who owes Rs. 2,800 crores to banks, as a guarantor was denied permission to board his flight from India to Abu Dhabi in November 2020. ."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," the Court said. 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, therefore, proceeded to dismiss the petition by Shetty challenging the Lookout Circulars (LOCs) issued by Bank of Baroda (BOB) and Punjab National Bank (PNB) against him. ."It is no doubt true that a citizen of this Country has a right to travel. But I hasten to add that persons who take public money have a sacred duty to repay it too," the Court observed. .Submissions made by parties .It was submitted on Shetty's behalf that the loans were taken in UAE by various companies and he had given guarantees in UAE and not in India. Further, the default in repayment occurred due to mismanagement by the borrower companies which came to light between December 2019 and April 2020. Thereafter, proceedings were initiated by Banks in UAE. .Moreover, the loans have been given to listed companies, which are managed by the Directors and respective CEOs/CFOs.The petitioner having stepped down from the management of the companies in the year 2017 and transactions having taken place in UAE, respondent banks have no jurisdiction to invoke personal guarantees in India, it was submitted..The banks cannot prevent him from travelling to UAE to defend cases against him. It was also submitted that the issuance of LOC is governed by an official memorandum issued by the Ministry of Home Affairs and the exercise of power can only be in exceptional cases against fraudsters, persons taking loans and willfully defaulting, money launderers etc. However, the petitioner does not fall under any such category, it was argued. It was further submitted that the petitioner is "only a guarantor". .The banks, however, resisted the petition..What the Court held .The Court opined that "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 prayer.".The Court further observed that the petitioner had not produced any material to show that money lent by BOB and PNB resulted in any kind of development which benefited the country. ."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," the order said. .On the argument that the petitioner is a mere guarantor, the Court held that a guarantor is equally liable to repay the debt. "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", opined the Court. .While disposing off the plea, the Bench reiterated that the petitioner is at liberty to approach the bank authorities to explain that LOCs have been wrongly issued. ."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.".Will be appropriate for Law makers and RBI to re-visit lending guidelines .Interestingly, the court during the hearing called upon the banks to explain on what security they had permitted loans of such large amounts. Bank of Baroda had lent an amount of Rs. 2,000 crore while Punjab and National Bank had extended Rs. 800 crore to Shetty. .In response, it was said that the companies to which loans were advanced are 'listed companies' in London Stock Exchange and the share value of the same had shown that the said Companies had high net worth..This did not impress the Court. ."Tangible assets, if any, mortgaged in favour of Banks and their valuation is not forthcoming. If Public Sector Banks are permitting such large exposure without adequate securities, it is a matter of great concern and it shall have serious adverse impact on the economy of this Country," the Court stated. .The Court, therefore, suggested that it was high time for the law makers and the Reserve Bank of India to re-visit the money lending guidelines. ."It is time, the law makers and Reserve Bank of India re-visit the lending guidelines and the procedures and take necessary remedial measures to ensure that public money is well secured before disbursement.".[Read Order]