Look-Out Circular Cannot Bar Bankrupt Guarantor's Travel For Official Duties: Karnataka High Court

The Karnataka High Court on 30 April held that a Look-Out Circular (LOC) cannot operate as an absolute bar on a bankrupt guarantor's overseas travel where such travel is required to discharge professional obligations, and that authorities must balance such restrictions against constitutional protections and employment needs.

Justice Sachin Shankar Magadum passed the order while disposing of a writ petition filed by Aditya Arora challenging an LOC issued at the instance of Bank of Baroda. He held:

“Therefore, this Court is of the view that unrestricted travel by the petitioner in his individual capacity cannot be permitted.”

Arora earlier worked with Base Corporation Limited, a company managed by his father. Though he left the company to pursue higher studies, he executed a personal guarantee in favour of a consortium of 12 banks for credit facilities aggregating to approximately Rs 1,400 crores.

The company later faced financial distress and underwent restructuring under a Master Restructuring Agreement. Thereafter, the National Company Law Tribunal (NCLT) initiated insolvency proceedings at the instance of State Bank of India and declared Arora bankrupt under the Insolvency and Bankruptcy Code, 2016.

The LOC restricted Arora's international travel. He approached the High Court and contended that he needed overseas travel to discharge his duties as Chief Executive Officer of Boit Technologies Pvt. Ltd., a company engaged in the international luxury automotive sector requiring frequent travel for procurement, trading, customisation and fleet management across jurisdictions including the UAE, Germany, Italy and the United Kingdom.

He argued that the restriction violated his fundamental rights under Articles 19 and 21 of the Constitution by preventing him from fulfilling professional obligations.

Counsel for Bank of Baroda justified the LOC on the basis of the NCLT bankruptcy order and the appointment of a bankruptcy trustee under Section 125 of the Insolvency and Bankruptcy Code. It submitted that the restriction protected the interests of the lending consortium until recovery of dues.

The Court noted that Arora did not face any criminal proceedings but recorded that he executed the guarantee in 2014 and later stood declared bankrupt by the NCLT. It held that it cannot permit unrestricted travel in Arora's individual capacity. The Bench observed:

“At the same time, this Court cannot lose sight of the fact that the petitioner is presently employed in a corporate entity and that his professional obligations, as an employee holding the position of Chief Executive Officer, necessitate travel abroad in connection with the affairs of the company. Therefore, a balance will have to be struck between the interest of the financial institutions and the professional obligations of the petitioner.”

Balancing these considerations, the Court held that Arora's personal liberty could not extend to unrestricted foreign travel, but his professional duties warranted limited relaxation. It directed him to apply for a short validity passport after obtaining a No Objection Certificate (NOC) from the NCLT in the pending bankruptcy proceedings, and to furnish a declaration from the company certifying that all travel remains strictly official.

Accordingly, the High Court permitted Arora to travel abroad strictly in his capacity as an employee and representative of Boit Technologies Pvt. Ltd., subject to safeguards and conditions.