The Look Out Circulars (LOCs) issued by the Ministry of Home Affairs (MHA) against loan defaulters at the behest of public sector banks (PSBs) are “strong-arm tactics” to bypass the legal processes and violates fundamental rights of the citizens, observed the Bombay High Court.
The high court quashed the clause of an Office Memorandum (OM) issued by the Central government which empowered the Chairman, Managing Directors, and Chief Executive Officers of PSB to issue LOCs against default borrowers or even persons who stood guarantee for such borrowers.
“If the fundamental right to personal liberty is to be compromised like this, we might as well have actual detention. The LOCs boil down to nothing but a strong-arm tactic to bypass or leapfrog what PSBs clearly see as inconveniences and irritants — the courts of law,” a bench of Justices Gautam Patel and Madhav Jamdar said on April 23. The detailed 289-page judgement was made available on Friday.
Court's Assertion On Executive Powers And Fundamental Rights
The court said that the executive cannot encroach upon the private rights of a citizen by contravening the Constitution.
“For the executive to encroach upon the private rights of a citizen, there must be some specific legislation. Even if an executive action is backed by a specific legislation, it is still liable to be struck down if it involves the infringement of fundamental rights,” the bench said.
As far as office memorandums are concerned, the HC said that they are “ex facie not law and are by no stretch of imagination a procedure established by law”. It added, “It is inconceivable that the OMs – purely executive instructions or a framework or guidelines – can ever curtail the fundamental right to travel abroad.”
The court questioned whether it is to be assumed that just because a borrower is travelling abroad therefore, he or she is bound to settle abroad and flee the country.
Court's Doubts On Assumptions Regarding Borrowers Travelling Abroad
The bench also said that is “simply incomprehensible” that the Chairman, MD and CEO of PSBs are given the power to request for issuance of LOC without any other mechanism in place. “.. the public sector bank becomes judge and executioner at once,” the bench underlined. It emphasised that the power given to the PSBs to seek issuance of LOC against a defaulter is “unguided and uncanalized” and that the executive power cannot be arbitrary, whimsical, capricious, or unguided.
“There are no guidelines applied to such public sector banks. We find this particularly problematic. We have been asked simply to trust the public sector banks. We are not told whether this power to trigger a LOC can be utilised above a certain debt threshold or even for a default of a single rupee,” the bench remarked.
Procedures For Issuing LOCs Without Prior Notice
Flagging the “almost invariable feature”, the judges said that no prior notice is given to the borrower while issuing such an LOC. Even a copy of the LOC is not provided, the borrower is simply informed that such an LOC has been issued by a particular bank and the person cannot, therefore, be allowed to travel abroad.
The court has, however, clarified that its judgement should not be misunderstood that it is showing even the “slightest sympathy” for the defaulters and said such defaulters should not be allowed to evade their liabilities. “We emphatically hold that defaulting borrowers and those who guarantee the debt are not to be easily allowed to evade their liabilities. The full brunt of the law must be brought to bear until every bit of the debt is paid or recovered or otherwise settled in a manner known to law,” it added.
Judicial Commentary On Loan Repayment And Borrower Behavior
The judges stressed that there are thousands and millions of borrowers, from the middle and lower income group earners, who take loans to buy flats and do not default to make the loan repayments. “They make no such excuses. Large portion of their salaries get paid out in loan repayment monthly. It is these high-volume borrowers alone who strain every nerve and explore every available legal avenue to avoid their financial obligations,” the bench said.
The HC passed the order on a batch of petitions challenging validity of at least eight circulars issued by the Centre, regarding the guidelines for issuance of LOCs. One such amended circular was issued in 2018 under which “economic interest of India” can be a ground for issuance of LOC. The amended clause empowered the PSBs to issue LOCs in the “economic interest of India”.
