Recently, in a significant legal battle over the limits of executive power and personal liberty, the Delhi High Court stepped in to examine whether public sector banks can trigger travel restrictions against borrowers merely on account of loan defaults. The Court was dealing with a clutch of appeals filed by Bank of Baroda, challenging the quashing of Look-Out Circulars (LOCs) issued against company directors and partners whose loan accounts had turned non-performing assets, raising crucial questions on fundamental rights, economic interest of the State, and the legality of LOCs in the absence of criminal proceedings.
The controversy began when Bank of Baroda declared certain borrower accounts as NPAs and subsequently categorised the companies and their directors/partners as wilful defaulters. As recovery proceedings under the SARFAESI Act, 2002 and applications before the Debt Recovery Tribunal were set in motion, the bank requested the Bureau of Immigration to open LOCs against the individuals concerned.
Aggrieved by the travel restrictions, the borrowers approached the High Court, arguing that no criminal cases had been initiated against them and that mere inability to repay loans could not justify curtailment of their right to travel abroad. Accepting these submissions, a Single Judge quashed the LOCs, prompting the bank to carry the matter in appeal.
The Court held that the Ministry of Home Affairs, and not public sector banks or the Ministry of Finance, is the nodal authority governing the LOC regime, observing that the Finance Ministry’s Office Memorandum relied upon by the bank was, at best, advisory in nature. Emphasising that LOCs cannot be issued as a routine measure in financial disputes, the Bench noted that “merely, the inability to repay the debt, without there being a criminal case, cannot be a reason to deprive a citizen of this country of the fundamental rights envisaged and guaranteed under Article 21 of the Constitution of India.” The Court further agreed with earlier rulings that LOCs require a showing of higher gravity and tangible impact on national economic interest, which was absent in the present cases.
Consequently, the High Court dismissed all the appeals and upheld the quashing of the Look-Out Circulars at the admission stage itself.
Case Title: Bank of Baroda v. Sahil Chugh & Ors.
Case No.: LPA 1070/2024
Coram: Hon’ble Mr. Chief Justice Devendra Kumar Upadhyaya and Hon'ble Mr. Justice Tushar Rao Gedela
Advocate for the Petitioner: Advs. Pankaj Vivek, Naveen Malik, Suryansh Jamwal, Tarun Kumar
Advocate for the Respondent: Advs. Jagdish Chandra, Maanya Saxena, Siddharth Bajaj
Read Judgment@ Latestlaws.com
Picture Source :
