Bombay High Court rules public sector banks do not have power to issue Look Out Circulars

The Bombay High Court on Tuesday held that public sector banks do not have power to issue Look Out Circulars (LOCs) against Indian citizens and foreigners under the office memoranda (OM) of the Central government. [Viraj Shah v. Union of India & Ors].A Bench of Justice GS Patel and Madhav Jamdar pronounced the verdict in a clutch of petitions challenging the LOCs issued to restrain people who are indebted to public sector banks from travelling abroad.The Court clarified that while OMs of the Central government were not ultra vires the Constitution, the subsequent empowerment of bank managers of public sector banks to issue LOCs was arbitrary. In light of this judgment, all LOCs issued at the request of public sector banks were quashed and set aside by the High Court today.The Bench, however, clarified that the present order did not affect any existing order issued by a tribunal or criminal court restraining persons from travelling abroad..LOCs issued by the Union Ministry of Home Affairs' Bureau of Immigration allow the immigration authorities at any port of departure to prevent a person from travelling outside India. LOCs were issued pursuant to a series of circulars or OMs, the first of which was issued on October 27, 2010.The circulars or OMs were amended periodically. One such amendment was made in September 2018, which introduced a new ground to issue an LOC in the “economic interest of India”. This essentially restrained a person from travelling abroad if the departure of such person could be detrimental to the economic interest of the country.A further amendment in October 2018 introduced another clause which stated that the Chairman of the State Bank of India and the Managing Director and Chief Executive Officers of all other public sector banks could also request immigration authorities to issue LOCs.The OMs and subsequent amendments were all challenged in a clutch of petitions before the High Court. .The petitions contended that:The words “economic interest of India” cannot be equated to “financial interests” of any bank.The amendment to include chairmen, managing directors, chief executive officers of all public sector banks is improper and impermissible classification.There was no logical reason why a public sector banks should be treated as a class apart from other banks, especially when all banks, are regulated by the Reserve Bank of India. .The Ministry of Home Affairs (MHA) pointed out that each bank was expected to justify its actions when requesting for an LOC. At best, a particular LOC could be quashed and set aside, but the wrongness or incorrectness of a particular request by a particular public sector bank is not a reason to invalidate either the OM itself or the power to issue OMs, it was contended.The MHA argued that:OMs are wider in concept and addressed concerns regarding security, sovereignty, terrorism and other national interest of the country. The deprivation of life or personal liberty cannot be done except according to the procedure established by law. The OMs are precisely such a procedure established by law. There has been a recent upsurge in the number of wilful defaulters and economic offenders of public financial institutions and some have fled the country ‘usurping public money or defrauding such public financial institutions’.The court noted that this 'monumental problem' of financial fugitives who have settled abroad contained only five people - Vijay Mallya, Nirav Modi, Mehul Choksi, Jatin Mehta and Nitin Sandesara & family."This classification creates a wholly artificial distinction between those who borrow from one or more public sector banks and those who borrow only from private sector banks. The first is liable to have some fundamental right adversely affected. The second is not. Why there should be such a distinction is unclear", the court held. .The court also held that a public bank issuing LOCs was in direct violation of the principles of natural justice as there was no prior hearing before issuing LOCs and the said bank was directly a claimant. "The fact that the public sector bank is directly concerned with the recovery of debt and is yet armed with this unilateral power only makes matters worse. The right to Article 21 cannot be abrogated in this fashion. Here, the public sector bank becomes judge and executioner at once. The LOCs boil down to nothing but a strong-arm tactic to bypass or leapfrog what PSBs clearly see as inconveniences and irritants — the courts of law", the court held. .Senior Advocate (now Advocate General of Maharashtra) Dr Birendra Saraf, briefed by Parinam Law Associates and Advocates Gulnar Mistry and Subit Chakrabarti, briefed by Vidhii Partners, appeared for the petitioners.Then Additional Solicitor General Anil Singh along with Advocates Rui Rodrigues, Sandesh Patil, Aditya Thakkar, YS Bharti and DP Singh appeared for the Union of India.[Read judgment]