LOC Issued at Instance of Public Sector Banks Cannot Sustain Judicial Scrutiny and Must Be Quashed

The petitioners, Ram Kishor Arora and Sangita Arora, were Promoters and Directors of M/s. Supertech Limited and M/s. Supertech Realtors Private Limited.

The companies obtained credit facilities exceeding ₹1,000 Crore from a consortium of banks, including Union Bank of India and Bank of Baroda, for real estate projects.

Following allegations of fund diversion and irregularities discovered via forensic audits, the banks initiated recovery proceedings and filed criminal complaints with investigating agencies.

Consequently, Look Out Circulars (LOCs) were opened against the petitioners.

The petitioners challenged the validity of these LOCs, citing their cooperation with the investigation and a prior judgment of the Delhi High Court in *Mohit Arora v. Union of India* (W.P.(C) 8073/2021), which quashed similar LOCs involving the same companies.

The Court applied the principles governing the issuance and judicial review of LOCs as crystallized in *Vineet Gupta v. Union of India & Ors.*

This includes the doctrine that an LOC is a coercive measure impacting the right to personal liberty under Article 21, requiring it to be exercised sparingly and only when a subject is deliberately evading the judicial process.

The Court also relied on *Maneka Gandhi v. Union of India* regarding the right to travel.

The court relied on *Sumer Singh Salkan v. Asst. Director*, which mandates that LOCs must withstand the test of necessity and proportionality and cannot be maintained indefinitely if the subject is cooperating.

The Court observed that the primary purpose of the LOCs—to ensure the subjects do not evade the initial stages of investigation—had largely been served, noting that in one related matter, a charge sheet had already been filed.

The Court rejected the Banks' attempt to distinguish this case from the *Mohit Arora* precedent, holding that while the petitioners' complicity is a matter for trial, it does not justify an indefinite restriction on travel if they are willing to cooperate.

Applying the "proportionality" and "necessity" tests from *Vineet Gupta*, the Court found no evidence that the petitioners were currently evading process or obstructing the inquiry.

The Court determined that the burden lies on the "originating agencies" to justify the continued restraint, and in the absence of demonstrable non-cooperation, the LOCs became an unreasonable restriction on personal liberty.

The Court held that the LOCs had served their purpose and their continuation was no longer justified.

However, to balance the state's interest in investigation, the relief was made subject to several conditions: (i) petitioners must submit an undertaking to cooperate with the CBI; (ii) they must produce requested documents; (iii) they must provide a full itinerary seven days prior to any foreign travel; (iv) after cognizance is taken by a trial court, they must seek specific judicial permission to travel; and (v) the investigating agency retains the right to move for a fresh LOC if the petitioners fail to comply or if new risks of absconding emerge.