The Bombay High Court held that PSBs don’t have the power to request issuance of Look Out Circulars against defaulting borrowers as the fundamental right to personal liberty cannot be compromised
On April 23, 2024, the Bombay High Court clarified that public sector banks (PSBs) do not have the legal power to issue Look Out Circulars (LOCs) against defaulting borrowers. The division bench of Justice Gautam S Patel and Justice Madhav J Jamdar delivered the verdict on petitions challenging the LOC issued to prevent borrowers of PSBs from travelling abroad.
The challenge before the Court was the constitutionality of LOCs issued by the home ministry at the instance of PSBs. These LOCs are issued under a set of “Office Memoranda” which are amended periodically.
The petition touched only that portion of the Office Memoranda which, by amendment, allows PSBs to request the issuance of a LOC against defaulting borrowers. These individuals may not be borrowers personally, but may in some cases be guarantors for the repayment of debts by others or even principal officers (directors in particular) of corporate debtors.
Once issued, an LOC of this kind (triggered by a request from a PSB) is typically deployed to prevent the individual in question from travelling overseas. An almost invariable feature is that the individual has no prior notice of the issuance of the LOC, and is not even given a copy of it. He is merely told that there is such an LOC issued by a particular bank and therefore, he won’t be allowed to board the flight
Various courts have passed interim or final orders staying the LOCs and allowing travel. The petitioners said that amendments to Office Memorandas that allow PSBs to trigger or request such LOCs are ultra vires Article 21 of the Constitution. These are, they say, without the authority of “law” as understood under Article 13. Mere executive instructions cannot trammel fundamental rights. Besides, regulating travel comes under the Passports Act, 1967.
The PSBs argued that the petitioners were all defaulters and the defaults are not trivial amounts. These are “public funds”. Many of these persons have deliberately avoided their obligations to repay. They present a flight risk. If allowed to travel freely, it will be impossible to get them back into local jurisdiction for pursuing or enforcing the banks’ claims to recover huge debts. Thus, allowing such defaulters to freely travel overseas is detrimental to the economic interests of India.
The first Office Memorandum was on September 5, 1979. It is still not available in the public domain. There was an amendment of December 27, 2000, which too is unavailable. The first tangible reference point is an Office Memorandum of October 27, 2010, which explains that LOCs are issued to keep a watch on the arrival and departure of foreigners and Indians. It notes that apart from the home ministry, the other authorities empowered to issue LOCs are the Ministry of External Affairs, Directorate of Revenue, CBI, Interpol, Regional Passport Officers, Customs and Income Tax Departments and police authorities from various states. The 2010 Office Memorandum mentions that LOCs lapse after a year.
In 2010, before the October 27, 2010 Office Memorandum was issued, the first challenge before the Delhi High Court came in Vikram Sharma vs Union of India. The Court was asked to decide if statutory bodies like the National Commission of Women (NCW) could request the issuance of LOCs. The High Court held that statutory bodies like the NCW did not fall under the ambit of “authorities concerned”; the request for issuance of an LOC had to come from either the central or state government. The Court held that statutory bodies like the NCW and NHRC could only notify law enforcement, which could then request the issuance of an LOC.
The Court said that justice has to be tempered with compassion, but that compassion is for those deserving of it. Idle and faux sympathy can have no role to play in our assessment, it said. “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.”
The Court further said that the Viraj Chetan Shah lead case is an excellent example. Shah joined the company’s Board at a young age, executed without understanding a personal guarantee, never attended a single meeting of the company or its board, resigned, went overseas—and therefore, presumably, his liability is to be wiped out. “That is not the law. That is not justice. That is not equity. It is especially not so when there are thousands and millions of smaller borrowers—middle and lower income earners, those who take loans to buy residential flats, salaried employees of the government; why, of this court itself—who do not default, but make loan repayments a part of their routine, regular lives. They make no such excuses. Large portions 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. That this comes at a cost to the lender banks and perhaps even to the entire banking sector can hardly be denied,” the Court said.
It also said that the challenges before it must also be understood in context. There is simply no factual material, and therefore, neither cause of action regarding the issuance of LOCs per se. Every single one of the petitions in the group is focussed only on a PSB-triggered LOC and the amendments to the Office Memorandums that permit these.
The Court observed: “Not once have we been shown that preventing anyone travelling abroad has even remotely addressed the issue—viz., that debt has been recovered because the person has been denied permission to travel. Indeed, carried further there is no reason on this logic why a person should simply be prevented from travelling overseas. Even if it were so shown, this would not bring it within the framework of a permissible restriction on an Article 21 right.
“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.”
Curtailing a fundamental right under Article 21 is not a “limited power”; and it is certainly not being exercised in “exceptional cases”. Every single case is being treated as “exceptional”, it said. There is little achieved by pointing out that not all borrowers have LOCs issued against them. The more telling point is that there is no discernible or disclosed basis on which the LOCs are in fact being issued against any borrower, the Court said. Fundamental rights are not meant to protect the majority. The argument of a “wider public interest” is simply contrary to settled law, it said.
—By Adarsh Kumar and India Legal Bureau