Bank Can't Seek Issuance Of 'Look Out Circular' For Recovery Of Dues Unless Economic Interest Of Country Is Involved: Karnataka High Court

The Karnataka High Court has said the request for issuance of a Look out Circular (LOC) or preventing a person (defaulter of loan) from travelling abroad cannot be a mode of recovery of dues by a bank, unless there is an element of fraud and economic interest of the country is involved. A single judge bench of Justice SG Pandit partly allowed the petition filed by one Leena Rakesh who had questioned the endorsement issued by the Foreign Regional Registration Officer (FRRO), cancelling her passport and restraining her from travelling back to Philippines from Bengaluru. The action was taken subsequent to the request made by UCO Bank to the authorities for issuing a LOC against the petitioner as she had defaulted in loan payment. The bench said, "It is true that the respondent-Bank is conferred with the power to request respondent Nos.1 and 2 to issue LOC against a person who has committed fraud or default against the Bank. It is for the Bank to take a decision as to, in which case the Bank could request LOC." It added,"Just because power is conferred to request issuance of LOC, such power cannot be exercised arbitrarily. Bank has to take a conscious decision by examining as to whether the petitioner's case falls within the ambit of fraud or default which would affect the economic interest of the Country." The bench accordingly directed the petitioner to deposit a sum of Rs.10,00,000 with the bank which could be adjusted towards the dues and furnish a solvent surety to the satisfaction of the Bank, following which, the latter shall request the authorities to withdraw the LOC and to permit the petitioner to travel outside the country. Case Details: The petitioner along with her husband had obtained loan from the UCO Bank in December 2014. The property which was offered as security to the loan was in their joint names.It was alleged that the couple has not paid the instalments from September 2019 and are due in a sum of Rs.66,11,868/- as of June 2022. The reason for not repaying the loan is that, due to differences between the petitioner and her husband, they are before the Family Court praying for a judgment and decree to dissolve their marriage. The petitioner, to tender her evidence in the pending divorce proceedings, came down to India on 1st June and she was to travel back to Philippines, where she is working, on 5th June. However, she was prevented from leaving the Country by the Bureau of Immigration, putting cancellation seal on her passport on the basis of a Look out Circular issued at the Bank's request. Petitioner's submissions: Senior Advocate Shashikiran Shetty submitted that the action of the respondents in preventing the petitioner from travelling outside the Country is in violation of Articles 14, 19 and 21 of the Constitution of India. Further, the respondent-Bank could not have requested for issuance of LOC as the issuance of LOC is not a recovery proceeding. The Bank had already initiated recovery proceedings and had brought the property offered as security for sale, to realise the dues from the petitioner and her husband. The value of the property, according to the valuation of the Bank is around Rs.75,00,000/- whereas the market value of the property is nearly Rs.1,00,00,000. Thus, it was said when security is available, the respondent-Bank could not have resorted to request for issuance of LOC, so as to recover the amount from the petitioner. It was argued that the LOC could be issued in such cases, only if the authorities come to the conclusion that if a person is permitted to travel outside the Country, the economic interest of the Country would be affected. In the present case, when the security of the property is more than the value of the amount due, which is nearly Rs.66,11,868, the same would have no effect on the economic interest of the Country.It was also said that the Bank did not make any effort to recover the amount from the husband of the petitioner. Respondents opposed the plea: Assistant Solicitor General Shanthi Bhushan drew court's attention to a O.M. dated 04.10.2016 which provides that wherever Bank is of the opinion that fraudsters/persons who wish to take loans, willfully default and then escape to foreign jurisdictions to avoid paying back, against such persons, request could be made to issue LOC and such persons could be restricted from travelling outside the Country. Reliance was placed on High Court's judgment in Dr.Bavaguthuraghuram Shetty v. Bureau of Immigration & Ors., where it was held that there need not be any criminal case registered to issue LOC, but it could be issued at Bank's request, if the Bank is of the opinion that if the borrower is permitted to leave the Country it would not be in a position to recover the dues, by which it would have adverse impact on the economic interest of the Country. Advocate KR Parshuram for the bank submitted that since the...

Bank Can't Seek Issuance Of 'Look Out Circular' For Recovery Of Dues Unless Economic Interest Of Country Is Involved: Karnataka High Court

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