Public sector banks cannot issue look out circular to defaulters, says Bombay HC

Mumbai: The Bombay high court' on Tuesday said public sector banks cannot issue look out circulars, or LOCs, against Indian and foreign citizens.

The order follows a clutch of petitions challenging the LoCs which were issued against defaulting account holders which restrained individuals from travelling abroad.

A detailed order is awaited in the matter.

The Centre had in 2018 allowed public sector banks to issue these circulars in the “economic interest of India”.

Also read: Indian banks are battling the worst deposit crunch in 20 years 

A bench, led by justices Gautam Patel and Madhav Jamdar, said while the central government's circular was constitutionally valid, the subsequent empowerment of bank managers to issue LOCs was ‘arbitrary’ and without the ‘power of law’.

The court also clarified that its order will not affect any existing order issued by a tribunal or criminal court restraining persons from travelling abroad.

The court denied a request by the Centre's representative to stay the judgment pending appeal.

What the LOC debate is all about

Petitioners alleged that the circular infringed on fundamental rights under Article 21 of the Constitution. They argued that a bank's “financial interest” cannot be equated with “economic interests of India”.

The ministry of home affairs said each bank was asked to justify its actions when requesting for an LOC. They contended that while specific LOCs could be problematic and could be set aside, this could not invalidate the overall authority to issue them.

The ministry pointed out that office memoranda issued by the Centre are wider in concept and address concerns regarding security, sovereignty, terrorism and other national interests of the country.

The origin of LOCs dates back to 27 October, 2010, with further enhancements in 2018 allowing senior bank officials more leeway in requesting immigration authorities to prevent individuals from leaving the country. 

Also Read: HDFC Bank: A long haul to put the merger pain behind?