LOCs should not be issued indiscriminately because few persons defrauded banks and fled India: Calcutta High Court

The Calcutta High Court recently said that merely because few persons have defrauded banks and fled from India, banks cannot use the same as a uniform rationale for issuing Look Out Circulars (LOC) in an indiscriminate manner [Manoj Kumar Jain vs Union of India]..Single-judge Justice Moushumi Bhattacharya said that issuance of LOCs should be regulated and must not be a norm for recovery of outstanding payments. "The extreme repercussions of issuing a Look Out Circular must hence be regulated to give it form and certainty and not be made the norm for recovery of outstanding payments to the Bank. Isolated and few-and-far between cases of persons fleeing the country cannot become the uniform rationale for issuing of Look Out Circulars left, right and centre," the judgment stated.Pertinently, the Court said that deboarding a person from a flight at the last moment based on such an LOC is draconian and uncivilised."There is something draconian and uncivilised in a person being deboarded from an aircraft without being informed of the reason for such. In most cases, the person concerned is simply handed a piece of paper and told at the last moment to de-plane without being made aware of the reason. This is against the principles of natural justice and fair play in action where the fundamental right to travel and the right to life is inexorably compromised and with impunity," the bench observed. LOCs have the effect of restricting a person's free movement and the right to travel, and should only be issued in exceptional circumstances when the person is likely to flee the country and not repay the outstanding loan, the Court emphasised. "Look Out Circulars cannot be issued at random and at the slightest provocation particularly at the instance of a bank who seeks restriction on travel as a buffer to payments outstanding to the Bank. The only acceptable logic - albeit with some effort - is that a person may flee the country and not return to repay his/her outstanding loan. This, however, cannot be the rule across the board and a borrower's credentials and circumstances for making payment must be taken into account," the bench held. .The bench was seized of a plea filed by one Manoj Jain, Director of Jain Infra Private Limited. He had defaulted on a loan he availed from a consortium of 11 banks. He was disallowed to board a United Kingdom-bound flight in 2022 after the Immigration Authorities informed him about an LOC pending against him, issued at the instance of the Indian Overseas Bank. The Court noted that Jain had repaid the dues of all the banks and had also offered a One Time Settlement (OTS) plan to two banks - Andhra Bank and IDBI Bank. .As far as the Indian Overseas Bank was concerned, the Court noted that the bank had already realised ₹86 lakh by selling a property mortgaged by the petitioners and the total value of immovable securities given to the said bank was ₹5.45 crores. Besides this, it noted that the petitioner was permitted to travel 19 times by the CBI Court and there was no complaint against him that he failed to comply with the conditions imposed or return to India on the scheduled date. The argument that the petitioner continues to be a threat to the economic interest of the country is far-fetched and suffers from an absence of a rational basis, the Court said. .The Court further said that there is a recent trend of banks issuing LOCs as a recovery mechanism for outstanding monetary dues. The reasoning of the bank is that the person may frustrate settlement of the dues by not returning to India. The logic put forth is that the person’s bona fides in repaying the dues is best ensured if the person remains within reach, i.e. in the territory of India, the Court added. "The Banks’ apprehension may be founded on a real threat of the person leaving the country forever and the Banks’ loans being written off. This reasoning however, cannot apply across the board for all borrowers without exception. The criteria for assessing the credit-worthiness of a borrower and his/her bona fides for repayment must be determined on a case-to-case basis. The individual circumstances of a borrower’s ability and willingness to pay or the mode and manner of repayment must be assessed before the fundamental right of a person to travel is denied," the Court opined. .Further, it noted that the ground used against the petitioners is evidently economic interests of India. "But there is no evidence that the petitioners’ leaving the country for a specific period of time would affect the economic interest of India. The petitioners have not been declared fraudsters or money-launderers or even economic offenders," it was underscored. With these observations, the Court quashed the LOC issued against the petitioner. .Advocates Sudip Deb, Riju Ghosh, Sumitava Chakraborty, Aranyak Saha and Ipsita Ghosh appeared for the petitioner. Deputy Solicitor General Billwadal Bhattacharya along with advocate Narendra Prasad Gupta represented the Central government. Advocates Shiv Mongal Singh and Moriam Sanfui appeared for the banks..[Read Judgment]