In a significant verdict delivered on Tuesday, the Bombay High Court declared that public sector banks lack the authority to issue Look Out Circulars (LOCs) against loan defaulters based on office memoranda issued by the Ministry of Home Affairs (MHA).

The ruling was pronounced by a division bench of Justice GS Patel and Justice Madhav Jamdar on a series of petitions challenging the legality of the LOCs issued against the individual petitioners.

While the court affirmed the constitutionality of the central government’s office memoranda, it deemed the empowerment of bank managers to issue LOCs ‘per se arbitrary.’ “We do not expect public sector banks to do this (issue LOCs),” the bench said. It is worth noting that the ruling does not impact existing orders issued by criminal courts and debt recovery tribunals, restricting individuals involved in cases before them from traveling abroad.

The bench further clarified that the Bureau of Immigration will not enforce the LOCs issued by banks and emphasized that the fundamental right to travel abroad cannot be curtailed by executive fiats.

This verdict comes a year and a half after the conclusion of hearings in July 2022, when the bench reserved its judgment on the matter.

Look Out Circulars, overseen by the Bureau of Immigration under the aegis of the MHA, serve as means to prevent individuals from leaving India. Initially issued in 2010 and subsequently amended to empower public sector banks to authorise issue LOCs, these circulars drew legal scrutiny, particularly concerning clauses related to the “economic interest of India.”

The circulars underwent several amendments, including the introduction in September 2018 of a new ground for issuing LOCs in the ‘economic interest of India,’ restricting individuals from traveling abroad if their departure was deemed detrimental to the country’s economic interests.

A subsequent amendment in the following month granted authority to the chairman of the State Bank of India, as well as the managing directors and chief executive officers of other public sector banks, to request immigration authorities to issue LOCs.

Petitioners argued that such circulars infringed upon fundamental rights, particularly Article 21 of the Indian Constitution. They contended that the financial interests of banks should not equate to the economic interests of the nation.

In response, the MHA defended the validity of the OM, asserting that they served broader national interests such as security, sovereignty, and counter-terrorism measures. The ministry highlighted the presence of checks and balances in the issuance of LOCs and maintained that they did not constitute a blanket infringement of fundamental rights.

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