Investigation Delayed; Fundamental Right to Travel Cannot Be Curtailed Without Justification: Delhi High Court Upholds Suspension of LOC

The Delhi High Court dismissed the Letters Patent Appeal filed by the Union of India against the suspension of a Look Out Circular (LOC) issued against respondent Manpreet Singh Chadha. The Court upheld the Single Judge’s order permitting the respondent, a former director of a corporate debtor, to travel abroad, subject to conditions.

The Division Bench, comprising Justice Neena Bansal Krishna and Justice Shalinder Kaur, emphasized:

“The respondent has cooperated with the investigation, appeared whenever summoned, and provided required information. The investigation has been pending since 2022 without any time frame for completion, and no charge sheet has been filed since 2021. In such circumstances, the respondent cannot be deprived of his constitutional right to travel under Article 21.”

The Court reiterated that the right to travel abroad is a fundamental right under Article 21 of the Constitution. Any restriction on this right, such as the issuance of a LOC, must be proportional and justified by specific facts.

The Court observed:

“While public interest in investigating corporate misappropriation is vital, the appellant has failed to substantiate its claim that the respondent is a flight risk or has been uncooperative. Balancing the respondent’s fundamental rights with public interest weighs in favor of the respondent.”

The Single Judge’s order had permitted the respondent to travel abroad, subject to the following conditions:

Providing an undertaking to return to India within five days of receiving intimation from investigating agencies, subject to flight availability.

Submission of the travel itinerary and compliance with any other instructions issued by the authorities.

The Division Bench held that these conditions sufficiently addressed any apprehensions of the investigating authorities:

“The conditions imposed by the learned Single Judge adequately safeguard against potential abuse. The respondent’s cooperation with the investigation, combined with these undertakings, mitigates any risk of absconding.”

The appellant alleged that the respondent:

Failed to disclose offshore investments and financial interests.

Withheld income tax returns and financial documents related to the corporate debtor.

Was a “flight risk” and had not approached the NCLT with clean hands.

The Court rejected these claims, finding no material evidence to support the allegations:

“The respondent has provided necessary documents, cooperated with investigating agencies, and disclosed his assets. The allegations of fraud and siphoning of funds are not substantiated at this stage.”

The Court took note of procedural lapses in the issuance of the LOC, which had not been officially communicated to the respondent. This violated principles of natural justice and the guidelines for LOC issuance under Office Memorandums dated October 27, 2010, and February 22, 2021.

The Court was critical of the prolonged investigation:

FIR No. 63/2021 was registered on April 13, 2021, but no charge sheet has been filed to date.

The investigation into the corporate debtor’s affairs under Section 210 of the Companies Act, 2013, ordered in June 2022, has shown no tangible progress.

The judgment noted:

“The appellant has failed to provide a time frame for completing the investigation. In the absence of any progress, the respondent cannot be indefinitely deprived of his fundamental right to travel.”

Corporate Allegations: The respondent, Manpreet Singh Chadha, was a director of M/s Wave Megacity Centre Pvt. Ltd. (Corporate Debtor). The company raised Rs. 1,400 crore from 2,300 home-buyers but failed to deliver possession.

Insolvency Proceedings: The corporate debtor initiated insolvency proceedings under Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC), which were dismissed by the NCLT with penalties for fraudulent intent.

LOC Issuance: Following the NCLT’s order, the Ministry of Corporate Affairs (MCA) issued a LOC against the respondent in October 2023 to investigate alleged financial irregularities.

Challenge to LOC: The respondent filed a writ petition challenging the LOC and seeking permission to travel abroad. The Single Judge suspended the LOC and allowed travel, subject to conditions, leading to the present appeal by the Union of India.

The Court noted that the respondent’s roots were in India, with his family and assets primarily based in the country. It emphasized:

“The respondent’s offshore investments are limited to a disclosed bank account in Singapore. His intention to visit family abroad does not suggest a likelihood of absconding.”

The Court was critical of the lack of progress in the investigation and held that the prolonged pendency of the case could not justify curtailing fundamental rights indefinitely:

“The investigation into the affairs of the corporate debtor has been pending for over two years. The FIR registered by the EOW in April 2021 has not resulted in a charge sheet. The delay militates against the need for continued restrictions on the respondent’s travel.”

The Court reaffirmed that LOCs are exceptional measures to be used sparingly and in cases where there is credible evidence of a person’s intention to evade investigation or abscond.

The Division Bench dismissed the Union of India’s appeal, upholding the Single Judge’s order permitting the respondent to travel abroad. The Court reiterated the importance of safeguarding fundamental rights and ensuring proportionality in restrictions.

Key Directives

The LOC against the respondent remains suspended.

The respondent’s travel abroad is permitted, subject to compliance with conditions imposed by the Single Judge.

Investigating authorities must ensure procedural compliance and avoid indefinite restrictions on fundamental rights without substantial justification.

Date of Decision: December 27, 2024