Public Sector Banks Do Not Have Power In Law To Issue LOCs Against Default Borrower: Bombay HC

Mumbai: In a significant ruling, the Bombay high court ruled on Tuesday that public sector banks do not have the power in law to issue Look Out Circulars (LOCs) against default borrowers, who are either Indian citizens or foreigners.

A bench of Justices Gautam Patel and Madhav Jamdar held as unconstitutional the clause of an Office Memorandum issued by the Central government which empowered the Chairman of public sector banks to issue LOCs against default borrowers.

The bench refused to stay the order as requested by the Union government’s counsel Aditya Thakker.

In effect, the high court has quashed all the LOCs issued by the public sector banks against defaulters. The court has also directed the Bureau of Immigration not to act upon such LOCs.

The bench has, however, clarified that the judgment would not affect those orders issued against any defaulter by a tribunal or a criminal court restraining them from travelling abroad.

Banks Can Approach Courts To Get LOCs

Liberty has been granted to public sector banks to approach courts or tribunals to get LOCs issued against defaulters.

The judges have emphasised that while the Office Memorandum issued by the Centre was not ultra vires the Constitution, but the clause empowering the Chairman of a public sector bank to issue LOC was “arbitrary and without power in law”.

The HC passed the judgemnt while bearing a batch of petitions challenging the validity of at least eight circulars/ office memoranda (OM) issued by the central government regarding the guidelines for issuance of Look Out Circulars (LOCs) in respect of Indian citizens and foreigners.

One such amended circular which has been challenged was issued in September 2018 under which “economic interest of India” can be a ground for issuance of LOC. This would restrain a person from travelling if the departure of such a person could be detrimental to the economic interest of the country.

Another amendment was carried out in October 2018, which empowered public sector banks to issue LOCs in the “economic interest of India”. This essentially restrained a person from travelling abroad if the departure of such a person could be detrimental to the economic interest of the country.

The petitioners had contended that the words "economic interest of India" cannot be equated with the "financial interests" of any bank. Also, they argued that the circulars curtails fundamental rights, more specifically, the fundamental right under Article 21 of the Constitution of India.