Watch the flyer | Company directors cannot be denied ‘right to travel abroad’ absent any non-aggravating offence: Orissa High Court

The Orissa High Court recently ruled that directors/officers of a company cannot be deprived of their fundamental right to travel abroad by issuing Look at the flyer (LOC) when it does not exist At first glance non-aggravated offense against them. Moreover, simple straightforward claims, without any rigid substance to back them up, cannot serve as the basis for issuing a LOC.

While quashing the COL issued against the petitioners here, a single judge bench of Judge Biswanath Rath Noted,

“There are no complaints of non-cooperation against any of the petitioners. Furthermore, at present, there is no existence of the petitioners’ involvement in a non-aggravated offence. In circumstances, according to the Court, maintaining the LOC may be dangerous, as it had already affected the basic rights of the petitioners to travel abroad for the promotion of their business.The whole inspection has already been completed and all movement of petitioners abroad can very well be controlled by establishing terms and conditions involving each of the petitioners.”

Factual background:

The petitioners are directors/executive holders of Mrs. Galvanizers Utkal SA. Opposing Party No. 2, ROC-cum-OL, Odisha forwarded a complaint on 5.11.2020 made by a whistleblower via email dated 21.10.2020. The petitioners denied the content of the complaint in their email response of 9.11.2020. While the matter was so, almost after a five-month hiatus, OP No. 2 of 13.4.2021 sent a letter to M/s. Utkal Galvanizer Ltd. y disclosing that there must be an inspection of the company under Section 206(5) of the Companies Act, 2013 under the Ministry of Corporate Affairs, Government of India.

In the meantime, the general secretary of M/s. Utkal Galvanizer Ltd. was prevented from traveling abroad at New Delhi International Airport by immigration authorities. She was informed verbally by the authorities that supervisory circulars (LOC) had been issued against all key executives pending inspection of company records and accounts. Seeing unnecessary harassment, the general manager of the company, petitioner no. 1, see letter dated 2.3.2022 requested PO 1 to reconsider the decision to impose restrictions on overseas travel of company directors and key management personnel.

In the said letter, it was shown that there is urgency for some of the petitioners as they were to participate in an export through trade activity scheduled in the United States from April 26-28, 2022. Petitioner #1 had also attached supporting documents while claiming such relief. It was alleged that despite this request, there was no response.

Relying on the memorandum of the office of the Ministry of the Interior of 27.10.2010, the petitioners affirmed that the restriction of their movements as well as the issuance of a LOC are contrary to the circular issued by the ministry itself. They pleaded that there were violations of their precious fundamental rights and that there was unnecessary harassment towards each of the petitioners in the absence of their involvement in a non-aggravated offense from now on. The petitioners claimed that there was no documentation available showing their involvement in a non-aggravated offence. They also emphasized that they were cooperative throughout. Thus, they prayed to overturn the COL through the motions for ordinance.

Arguments of the Applicants:

Mr MK Mishrathe lead lawyer representing the applicants did not dispute that there is an ongoing investigation under Section 207(3) of the Companies Act. He claimed that there had been full cooperation from each of the petitioners representing the company to date. He further maintained that even if the inspection procedure involving the applicants had started on 13.4.2021, whatever infringements were allegedly committed by the applicants’ company remained aggravating. Reviewing the Preliminary Affidavit and Competent Authority Supplementary Affidavit, he argued for the overturning of the LOC at the scene that the entire submission and investigative process is to reveal any non-aggravated offenses under any provision of law against the company.

Further, he pointed out that the petitioners have been fully cooperative on the matter and that in the meantime almost a year and a half have passed. He brought to the attention of the Court that the applicants had already suffered from their inability to participate in international trade fairs, which adversely affected their business. So if the restrictions on petitioners to travel abroad continue, he argued vehemently, there will be a huge loss for the company, which cannot be compensated otherwise.

Arguments of the defendants:

Mr. PK Parhi, Deputy Solicitor General of India for the Respondents, attempted to justify the issuance of the LOC. He argued that the petitioners are closely associated with many companies and the area of ​​investigation also extends to West Bengal. He added that the inspector from the management of the Ministry of Corporate Affairs had in the meantime already inspected almost fourteen (14) companies other than Odisha companies. After the inspection was completed, reports were also submitted to the ministry on 10.5.2022.

It was further indicated that further instructions from the ministry were awaited. Taking the case as a whole and given the seriousness of the allegations against the petitioners so far, he argued, it is justified to issue a LOC against the directors/KMP of the company.

Court decision:

The Court quoted the observations and the decision rendered in Noor Paul v. Union of India and Ors., 2022 LiveLaw (PH) 69in which it was ruled by the High Court of Punjab and Haryana that loan amount cannot be a ground for issuing LOC and the applicants are only required to notify arrival and departure to the investigating service/organization of origin. He also relied on Vikas Chaudhary v. Union of India & Ors., WPC No. 5374 of 2021in which the Delhi High Court ruled the COL unsustainable as the right to travel abroad is a basic right and the COL was issued in the absence of any precondition necessitating such a substantial requirement.

It also benefited from the support of Karti P. Chidambaram v Bureau of ImmigrationWP No. 21305 of 2017in which Madras High Court held that LOC can only be issued in cases where the accused in a criminal case evades arrest and fails to appear in the Magistrates Court. Again, the Madras High Court in Rahul Surana v Serious Fraud Investigation BureauWP No. 2477 of 2020 argued that simple assertions that the petitioner is a flight risk are not sufficient to issue a LOC.

Going back to the factual matrix, the Court ruled even though there were informational allegations that the petitioners planned to flee after obtaining loans of Rs 600 crore to Rs 700 crore from different banks, still even after a cons -preliminary affidavit and additional affidavit by the Department, there is no specific allegation about the actual loan taken out by them. Accordingly, the Court observed,

“It is needless to observe here that there is no NPA statement involving an account involving the Claimants by any bank at this stage. The allegation at this stage appears to be speculative and imaginary and in the circumstances it there can be no liberty of any of the petitioners.”

Therefore, the Court quashed the LOC. However, in view of the fact that further instructions from the Ministry are expected in this matter, it has imposed certain conditions on the applicants to go abroad.

Case title: Rajesh Kumar Agarwal & Ors. v. Regional Director (E), Ministry of Corporate Affairs, Kolkata & Ors.

Case no: WP(C) No. 9502 of 2022 with WP(C) No. 12872 of 2022

Judgment dated: 25e July 2022

Koram: Judge Biswanath Rath

Counsel for applicants: Ms. MK Mishra, Senior Counsel, T. Mishra, S. Das and SS Parida

Counsel for Respondents: Mr. PK Parhi, Assistant Solicitor General of India & Mr. Prabhu Prasanna Behera, Central Government Counsel

Quote: 2022 LiveLaw (Ori) 116