The Division Bench of the Delhi High Court set aside a Single Judge’s order quashing a Look Out Circular (LOC) issued against a garment exporter, holding that the court may review the legality of the LOC but cannot substitute its own assessment of the material basis for the executive’s "detrimental to economic interests" clause.
Background & Facts
The Dispute
The Income Tax Department (appellant) sought to maintain a Look Out Circular (LOC) dated 25 February 2019, issued by the Ministry of Home Affairs (MHA) at its request, restraining Vikas Chaudhary (respondent) from leaving India. The LOC was challenged before a Single Judge, who quashed it on the ground that the issuance was based merely on suspicion and that the clause "detrimental to the economic interests of India" could not be invoked without a cognizable offence.
Key Facts
- 5 February 2019: Warrant of Authorization (WOA) issued under Section 132(1) of the Income Tax Act, 1969 against the Kochar Group and M/s HL Impex (P) Ltd; search of Chaudhary’s premises from 6-9 February 2019.
- 12 February 2019: Second WOA issued; locker searched; jewellery worth ₹1,00,67,181 seized.
- 25 February 2019: LOC issued by MHA restraining Chaudhary from leaving the country.
- 4-5 April 2019: Further search; statements recorded; panchnama drawn.
- 5 July 2021: Two assessment orders issued by the Deputy Commissioner of Income Tax, assessing additional undisclosed income of ₹21.40 crores.
- 6 August 2019: Chaudhary approached the Additional Chief Metropolitan Magistrate (ACMM), Tis Hazari, seeking quash of the LOC.
- 27 August 2019: ACMM suspended the LOC, allowing travel abroad except to the UAE.
- 7 September 2019: Income Tax Department filed a Revision Petition before the Additional District Judge; the revision was allowed on the ground that the ACMM order was without jurisdiction.
- 2 April 2019, 4 May 2019, 15 May 2019, 31 May 2019: Chaudhary filed representations (with affidavits) denying any foreign assets.
- 27 October 2010: Office Memorandum (OM) issued by the Foreigners Division, MHA, permitting LOC only against persons involved in a cognizable offence.
- 5 December 2017: Amended OM expanded the scope to allow LOC in "exceptional circumstances" where departure would be "detrimental to the economic interests of India".
- 22 February 2021: Further OM stating that an LOC would continue until a request for deletion is received.
- 7 December 2020: Division Bench dismissed Chaudhary’s writ petition (WP (C) 5213/2020), upholding the search and seizure.
- 12 January 2022: Single Judge quashed and set aside the LOC.
- 12 August 2026: Present judgment delivered, allowing the Letters Patent Appeal.
Procedural History
- 12 June 2019: Original writ petition (WP (C) 5374/2021) filed by Chaudhary challenging the LOC.
- 7 December 2020: Division Bench dismissed the writ petition.
- 12 January 2022: Single Judge quashed the LOC.
- LPA 78/2022: Letters Patent Appeal filed by the Income Tax Department against the Single Judge’s order.
- 12 August 2026: Division Bench (Justices C. Hari Shankar & Om Prakash Shukla) delivered the judgment.
Parties' Positions
- Appellant (Income Tax Dept.): Argues that the LOC was issued pursuant to valid MHA OMs; the clause "detrimental to economic interests" was reasonably satisfied; the LOC remains in force and the court’s review is limited to legality, not sufficiency of material.
- Respondent (Vikas Chaudhary & Ors.): Contends the LOC was based on unsigned draft agreements and WhatsApp chats, lacking concrete evidence; no cognizable offence or criminal case was registered; the LOC’s continuation for three years violates his fundamental right to travel and livelihood.
Relief Sought
- Appellant: Set aside the Single Judge’s order, restore the LOC, and dismiss the respondent’s writ petition.
- Respondent: Quash and set aside the LOC, allowing unrestricted travel abroad.
The Legal Issue
What is the proper scope of judicial review over the issuance and continued operation of a Look Out Circular under the 2010 and 2017 MHA Office Memoranda, specifically whether the clause “detrimental to the economic interests of India” can be invoked absent a cognizable offence and whether the LOC lapses after one year absent a renewal?
Arguments Presented
For the Appellant
- The LOC was issued under the authority of the 2010 OM, later amended by the 2017 OM, which expressly permits issuance in "exceptional circumstances" where departure would be detrimental to economic interests.
- Cites Sumer Singh Salkan v. Ass. Director and Vikram Sharma v. Union of India for the principle that courts may examine the reasonableness of executive action but should not substitute their own satisfaction for that of the authority.
- Relies on the view that the material (digital evidence, FT-TR references, and the draft agreement) created a reasonable belief of economic detriment, satisfying the pre-condition for the 2017 clause.
- Argues that the LOC’s validity is a question of administrative discretion, not subject to detailed factual scrutiny unless the action is patently arbitrary.
For the Respondent
- Maintains that the LOC was founded on mere suspicion, unsupported by any criminal investigation, FIR, or substantive evidence; the draft agreement was unsigned and WhatsApp chats were inconclusive.
- Points to certificates from Dubai authorities (issued May 2019) proving no shareholding or assets, thereby negating the basis for economic detriment.
- Relies on Aravindh Narayaswamy v. Deputy Commissioner of Police and G.S.C. Rao v. State of UP where the Supreme Court emphasized that LOCs must be justified by concrete evidence of a cognizable offence.
- Emphasises that the LOC continued for three years without any proceeding under the Black Money Act, Income Tax Act, or PMLA, violating Article 21 and Article 22 of the Constitution.
The Court's Analysis
The Division Bench began by affirming the principle that judicial review is wide but not unlimited. It quoted the Supreme Court’s observations in Kalpana Mehta v. Union of India and Union of India v. Raghubir Singh to underscore that courts must balance deference to executive expertise with protection of fundamental rights.
"While focussing on the exercise of the power of judicial review, it has to be borne in mind that the source of authority is the Constitution of India…"
The Court then dissected the four issues framed by the Single Judge.
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Whether the court can interfere with the issuance of a LOC - The Bench held that interference is permissible only when the decision is arbitrary, mala-fide or violative of statutory safeguards. Here, the LOC was issued under a valid OM; the material, though not conclusive, was not so insubstantial as to render the decision arbitrary.
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Whether the 2017 OM can be invoked despite the 2010 OM’s requirement of a cognizable offence - The Court observed that the 2017 amendment explicitly broadened the scope, allowing the clause “detrimental to the economic interests of India” to be invoked in exceptional cases without a cognizable offence. The amendment therefore superseded the earlier restriction, and the authority was entitled to rely on it.
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Whether the LOC lapses after one year - The 2021 OM clarified that an LOC continues until a deletion request is received. The Court accepted the appellant’s contention that the LOC had been periodically renewed, and therefore the one-year limitation did not apply.
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Whether the “detrimental to economic interests” clause was satisfied - The pivotal issue. The Court applied a reasonable-belief test: the authority must form a reasonable belief, not a speculative one, that the respondent’s departure would harm the nation’s economic interests. The Bench examined the material (digital evidence of over-invoiced exports, alleged hawala links, and the draft agreement) and concluded that, while the evidence was not iron-clad, it was sufficient to create a reasonable belief at the time of issuance. The Court emphasized that the sufficiency of material is a matter for the executive, not for judicial substitution, unless the material is manifestly insufficient.
The Court distinguished the respondent’s reliance on Aravindh Narayaswamy by noting that those cases involved registered FIRs and active investigations, whereas here no criminal case had been filed. It further rejected the argument that the LOC’s continuation for three years was unlawful, observing that the 2021 OM expressly allowed continuation until a formal deletion request.
In sum, the Division Bench held that the Single Judge erred in quashing the LOC on the ground of insufficient material and in treating the 2017 OM as inapplicable. The appeal was allowed, the Single Judge’s order set aside, and the LOC upheld.
The Verdict
The Division Bench allowed the Letters Patent Appeal. The judgment dated 12 January 2022, which quashed the Look Out Circular, was set aside. The LOC issued on 25 February 2019 remains in force. The respondent’s writ petition (WP (C) 5374/2021) was dismissed. No costs were awarded.
What This Means For Similar Cases
Scope of Judicial Review of LOCs
- Courts may examine the legality of an LOC but cannot substitute their own assessment for the executive’s reasonable belief unless the action is patently arbitrary.
- The reasonable-belief test is now the benchmark for evaluating the “detrimental to economic interests” clause.
Requirement of Reasonable Belief, Not Proof of Offence
- The 2017 amendment permits LOCs without a cognizable offence, provided there is a reasonable belief of economic detriment.
- Evidence need not be conclusive; it must be sufficient to reasonably justify the restriction on travel.
Duration and Renewal of LOCs
- An LOC does not automatically lapse after one year; subsequent OMs (e.g., 22 Feb 2021) allow continuation until a formal deletion request.
- Parties must track renewal orders to determine the operative period of an LOC.
Practical takeaways for practitioners:
- When challenging an LOC, focus on demonstrating lack of reasonable belief rather than merely the absence of a criminal case.
- Scrutinise the exact wording of the relevant OM; the 2017 amendment is decisive.
- Monitor renewal notices; argue that an LOC has lapsed if no renewal order exists.
