Bombay High Court Rules Against Public Sector Banks' Authority to Issue Look Out Circulars

In a significant decision, the Bombay High Court on Tuesday declared that public sector banks lack legal authority to issue Look Out Circulars (LOCs) against defaulting borrowers. The court’s ruling renders all such LOCs issued by these banks against defaulters as invalid.

A division bench comprising Justices Gautam Patel and Madhav Jamdar deemed unconstitutional a clause in an office memorandum issued by the central government that permitted chairpersons of public sector banks to issue LOCs against defaulting borrowers.

Advocate Aditya Thakker, representing the Union government, requested the court to stay its order, but the bench declined this request.

The court issued its judgment in response to multiple petitions challenging the validity of the clause in question.

Furthermore, the bench directed that the Bureau of Immigration should not act on any LOCs issued by banks against defaulters.

However, the court clarified that its decision would not impact orders issued by a tribunal or criminal court restricting a defaulter from traveling abroad.

While acknowledging that the office memorandum issued by the Centre was not unconstitutional, the High Court found that the clause empowering public sector bank chairpersons to issue LOCs was “arbitrary and lacked legal basis.”

The amended office memorandum from 2018 empowered public sector banks to issue LOCs in the “economic interest of India,” which could prevent individuals from traveling abroad if their departure was deemed detrimental to the country’s economic interests.

Petitioners argued that the phrase “economic interest of India” should not be equated with the “financial interests” of any specific bank.

This ruling marks a significant legal development impacting the travel restrictions imposed by public sector banks on defaulting borrowers.