No Fraud Proved against Erstwhile Director of Insolvent Company: Calcutta HC Quashes SFIO Look Out Circular [Read Order]

The Calcutta High Court, in a recent matter, observed held that in the absence of any material establishing fraud or a cognizable offence, the issuance of a Look Out Circular against the erstwhile director of a company undergoing insolvency proceedings was unsustainable.

Accordingly, the Calcutta High Court quashed the Look Out Circular issued at the instance of the Serious Fraud Investigation Office (SFIO) against Sunil Kumar Agarwal, the erstwhile director of an insolvent company which was involved in the construction business in India, specializing in the infrastructure construction segment including buildings and highways.

The company was admitted into Corporate Insolvency Resolution Process (CIRP) on 30 November 2021 on an application filed by the State Bank of India under Section 7 of the Insolvency and Bankruptcy Code, 2016. Once the CIRP commenced, the Resolution Professional took over the management affairs of the company.

Mid-CIRP, a transaction audit was conducted by a forensic auditor and a report was prepared on the same. The audit did not record any finding of fraud in respect of the transactions undertaken by the company through its board of directors. Despite this, the SFIO proceeded on the basis of an ex parte order passed under Section 208 of the Companies Act, 2013.

The petitioner was later served summons from the SFIO under Section 217 of the Companies Act, 2013 in January and March 2025 in connection with an investigation under Section 212 of the Act and duly cooperated with the investigation.

Subsequently, the SFIO issued a Look Out Circular against the petitioner pursuant to a communication of the Ministry of Corporate Affairs dated 19 July 2022. The existence of the LOC came to light when another erstwhile director of the Company was apprehended by the immigration authority while travelling to Nepal.

It is against this Look Out Circular that the present petition has been instituted by the petitioner, seeking its quashal of the LOC and permission to travel abroad.

The SFIO was directed by the High Court directed to place on record all relevant facts by way of an affidavit. While the affidavit initially filed by the SFIO did not disclose the existence of any Look Out Circular, the same was subsequently produced before the Court in a sealed cover by the Deputy Solicitor General of India.

Sabyasachi Chaudhury appearing for the petitioner submitted that the SFIO proceeded on the basis of an ex parte order despite the transaction audit revealing no fraud in the affairs of the company or its erstwhile board of directors, and that the petitioner was not afforded an opportunity of hearing prior to the order.

It was further argued that given the lack of any cognizable offences, there was no material to justify the apprehension that the petitioner would flee the country.

Dhiraj Trivedi, Deputy Solicitor General of India appeared for the SFIO and appraised the court that the petitioner is the Chief Executive Officer of the Company and was key in finalizing the decision of taking huge loans from the banks and financial institutions. Further He submitted that the Company has an outstanding claim amount of ₹3,897 crores with secured creditors having filed their claims before the National Company Law Tribunal.

Justice Krishna Rao noted that the Look Out Circular had been issued pursuant to a communication of the Ministry of Corporate Affairs dated 19 July 2022, but did not disclose any material indicating the commission of a cognizable offence by the petitioner.

The Court further took note of the transaction audit report prepared during the CIRP, which did not record any finding of fraud against the company or its erstwhile directors.

Further noting that the petitioner had cooperated with the investigation conducted by the SFIO and had appeared pursuant to summons, the Court formed the opinion that there was no material placed before the Court to establish any apprehension that the petitioner would flee the country or evade the investigation.

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