Facts of the Case

  • The respondent, CEO of Huawei Telecommunications (India) Company Pvt. Ltd., was subjected to investigation following a search and seizure action under Section 132 of the Income Tax Act.
  • Authorities alleged non-cooperation, including failure to provide books of accounts, email data, and financial records.
  • Evidence suggested substantial tax evasion and transfer of large funds abroad (approx. ₹750 crores).
  • A Look Out Circular (LOC) was issued against the respondent to prevent him from leaving India.
  • The respondent challenged the LOC before the Trial Court, which quashed the LOC with conditions, including withholding severance benefits.
  • The Income Tax Department filed the present petition challenging that order.

Issues Involved

  1. Whether a Look Out Circular can be issued in non-cognizable offences under the Income Tax Act?
  2. Whether economic interest of India justifies issuance of LOC under amended guidelines (2017 OM)?
  3. Whether the respondent posed a flight risk warranting restriction on travel?
  4. Scope of judicial interference in LOC-related decisions.

Petitioner’s Arguments (Income Tax Department)

  • The respondent deliberately obstructed investigation and failed to provide critical financial data.
  • There was prima facie evidence of large-scale tax evasion and fund diversion abroad.
  • LOC was justified to protect economic interests of India under amended OM (2017).
  • Trial Court failed to consider that LOC can be issued even beyond cognizable offences in exceptional cases.
  • Respondent being a foreign national posed a flight risk.

Respondent’s Arguments (Xiongwei Li)

  • Offence alleged is non-cognizable and bailable, hence LOC is illegal.
  • LOC violates Article 14 and Article 21 (Right to Travel).
  • Respondent has cooperated and appeared before authorities, no evasion.
  • LOC was issued without following proper procedure and guidelines.
  • Travel restriction caused reputational and professional harm. 

Court Findings

  • LOC is a coercive measure, generally applicable in cognizable offences with evasion or non-cooperation.
  • The offence under Section 275B is non-cognizable and bailable, weakening LOC justification.
  • Respondent:
    • Did not evade investigation
    • Appeared before authorities and court
    • Was already on bail
  • Mere apprehension of leaving India is insufficient ground for LOC.
  • LOC cannot be used indiscriminately to restrict travel.
  • Equality principle applies — foreign nationality alone is not a ground.

Important Clarifications by Court

  • LOC may be issued in exceptional cases affecting economic interest, but:
    • Must satisfy strict necessity and proportionality
  • Travel restriction must balance:
    • State interest vs personal liberty
  • Courts can quash LOC with safeguards instead of outright restriction

Final Order / Decision

  • Trial Court’s decision to quash LOC upheld (with conditions).
  • Conditions imposed:
    • Company to withhold severance pay and benefits
    • Undertaking to ensure respondent’s cooperation
  • LOC to be withdrawn upon compliance.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3748/AMA20092022CRLMM44922022_194246.pdf

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