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Loan guarantor stopped from travelling abroad, HC fines bank
Lookout notice had been issued against petitioner, an Ambala resident, who was guarantor for a firm which became a ‘willful defaulter’ to loan; the HC bench of justice MS Ramachandra Rao and justice Harkesh Manuja not only quashed the LOC but also imposed a fine of ₹20,000 on Bank of Baroda, for making such a request to immigration authorities.
The Punjab and Haryana high court (HC) has held that the fundamental right to travel abroad, guaranteed by Article 21 of the Constitution of India, cannot be curtailed by issuing a Look Out Circular (LOC) on the request of a bank in loan default cases.
The HC bench of justice MS Ramachandra Rao and justice Harkesh Manuja not only quashed the LOC but also imposed a fine of ₹20,000 on Bank of Baroda, for making such a request to immigration authorities.
Wasn’t allowed to board flight to Canada
In the case in hand, an Ambala resident applied for a Canadian visitor Visa along with his wife on August 11, 2022. However, when he was to take a flight from Delhi airport, he was not allowed to board the flight due to the LOC. Only his wife was allowed to travel abroad. An endorsement was made in his passport as “cancelled stamp”. The couple was to join their family in Canada. Humiliated, he approached the HC on August 29.
In the HC, the bank had argued that he stood as a guarantor in a loan case of a firm, which became a ‘willful defaulter”.
The bank approached the bureau of immigration, New Delhi, with a LOC request against him in July 2021, which was accepted by the latter.
The court observed that the right to travel falls within the scope of personal liberty enshrined under Article 21 of the Constitution of India. Thus, to deny a person such a right requires a very high threshold.
“..LOCs were permitted to be opened essentially against persons involved in cognisable offences and who were evading arrest and not appearing in the trial court despite non-bailable warrants or other coercive measures, and there was a likelihood that they would leave the country to evade trial/arrest. It was intended as a coercive measure to make a person surrender to the investigating agency or court of law,” the bench observed adding that but where the subject of the LOC is not involved in any cognisable offence, he or she cannot be prevented from leaving the country.
The bank could only have sought to be informed about the arrival/departure, the court ruled.
The bank had relied on the Ministry of Home Affairs’ memorandum to issue LOC to thwart travel of fraudsters/persons laundering money to escape abroad. As per that those with such actions were termed as against the economic interests of India, or in the larger public interest, LOC could be issued. However, the court noted that the amount of the default by a person which would not be in the economic interests of India, or in the larger public interest, for which an LOC can be sought and issued, is not mentioned in the memorandum.
Immigration authorities did not apply their mind before issuing LOC, the HC said, asking the bank to pay ₹20,000 fine to him within four weeks.
What the court held
“When they (banks/RBI) do not themselves draw any line about the quantum of default by a borrower to a financial institution which would be considered detrimental to the economic interests of India and a quantum of default which would not fall in the said category, the fundamental right to travel abroad guaranteed cannot be curtailed by seeking issuance of an LOC,” the bench recorded adding that it cannot be said that the departure of the petitioner from the country would adversely impact the economy of the ‘country as a whole’ and destabilise the ‘entire economy’ of the country.
