Absence of Criminal Proceedings and Fraud Allegations Renders Look Out Circulars for Debt Recovery Unjustifiable

The petitioners are directors, promoters, and guarantors of M/s Pomegranate Coaters Private Limited, a company that defaulted on various credit facilities availed from Respondent No. 2, Bank of Baroda.

The bank initiated recovery proceedings under the SARFAESI Act, 2002, and the Recovery of Debts Due to Financial Institutions Act, 1993.

Simultaneously, at the instance of the bank, the Bureau of Immigration opened Look Out Circulars (LOCs) against the petitioners.

Notably, no FIR or criminal investigation was pending against the petitioners at the time of the decision.

The court primarily relied on Ministry of Home Affairs Office Memorandum No. 25016/10/2017, the validity of which regarding public sector banks was struck down in Viraj Chetan Shah v. Union of India.

It applied the principle from Maneka Gandhi v. Union of India that the right to travel abroad is an integral part of Article 21 of the Constitution.

It further relied on Rajesh Kumar Mehta v. Union of India and Prateek Chitkara v. Union of India, which established that "detrimental to economic interest" requires a high gravity impact such as siphoning of funds or hawala transactions, and cannot be used as an "arm-twisting tactic" for debt recovery in routine default cases.

The court reasoned that since no FIR was pending and no criminal investigation had been initiated, there was no evidence of non-cooperation with investigative agencies.

It observed that the bank’s power to request LOCs under the 2021 Guidelines had been declared bad in law by the Bombay High Court due to arbitrariness.

Following the precedent in Vineet Gupta v. Bureau of Immigration, the Court noted that while the bank claimed the LOC was a measure of "abundant caution," such drastic measures require sufficient material evidence of fraud or siphoning of funds, which were absent here.

The court emphasized that mere inability to pay debts as a guarantor does not justify an LOC when the bank has already resorted to statutory recovery remedies under the SARFAESI and RDDB Acts.

It answered the issues by setting aside the impugned Look Out Circulars while granting the respondents liberty to take any other appropriate legal actions for recovery.

The petitions and pending applications were disposed of accordingly.