Public Sector Banks Can’t Issue Look Out Circulars Against Defaulters: Bombay HC

Mumbai: In a significant ruling today, the Bombay High Court declared that public sector banks lack the legal authority to issue Look Out Circulars (LOCs) against defaulting borrowers.

This decision invalidates all existing LOCs issued by such banks against defaulters.

The verdict, delivered by a division bench comprising Justices Gautam Patel and Madhav Jamdar, deemed unconstitutional a clause in a central government office memorandum empowering public sector bank chairpersons to issue LOCs against defaulters.

The court’s judgment came in response to multiple petitions challenging the legality of the aforementioned clause. Despite a plea from Advocate Aditya Thakker representing the Union government, the bench declined to stay its order. The ruling specifies that the Bureau of Immigration must refrain from acting upon LOCs issued by banks against defaulters.

However, the judgment does not affect orders issued by tribunals or criminal courts restraining defaulters from travelling abroad. While acknowledging the validity of the Centre’s office memorandum, the court deemed the clause granting public sector bank chairpersons the authority to issue LOCs as “arbitrary and without legal basis.” The memorandum, amended in 2018, empowered public sector banks to issue LOCs in the “economic interest of India,” preventing individuals from travelling abroad if their departure posed a risk to the country’s economic interests.

Petitioners argued that the phrase “economic interest of India” cannot be synonymous with the “financial interests” of any bank.