The Bombay High Court has ruled that public sector banks in India do not have the power in law to issue Look Out Circulars (LOCs) against default borrowers. The court’s verdict renders all LOCs issued by such banks against defaulters as quashed.
A division bench of Justices Gautam Patel and Madhav Jamdar held as unconstitutional the clause of an office memorandum issued by the central government that empowered the chairpersons of public sector banks to issue LOCs against default borrowers.
The court passed its verdict on a bunch of petitions challenging the validity of the said clause. The bench stated that the Bureau of Immigration shall not act upon such LOCs issued by banks against defaulters.
The court clarified that its judgment would not affect the orders issued against any defaulter by a tribunal or a criminal court restraining them from traveling abroad.
While the office memorandum issued by the Centre was not ultra vires the Constitution, the clause empowering the chairperson of a public sector bank to issue LOC was deemed “arbitrary and without power in law” by the High Court.
The Centre’s office memorandum, in an amendment made in 2018, empowered public sector banks to issue LOCs in the “economic interest of India” to restrict a person from traveling abroad if their departure could be detrimental to the economic interest of the country.
The petitioners argued that the words “economic interest of India” cannot be equated with the “financial interests” of any bank.