Delhi High Court upholds quashing of LOC against loan guarantor, says PSU bank’s request cannot by itself justify travel curbs

M/s Santosh Overseas Limited, Respondent No. 6, had availed credit facilities from a consortium of lenders led by IDBI Bank Limited, with Respondent No. 1 acting as a personal guarantor. The Appellant Bank declared the company’s account fraudulent on 11 November 2019. An FIR was thereafter registered by the CBI on 14 January 2020, and criminal proceedings remained pending before the ACJM-02-cum-ACJ, Rouse Avenue Courts

apprehending that the company’s directors and guarantors might leave India to avoid repayment, the Appellant requested Respondent No. 2 to issue a Look Out Circular (“LOC”), including against Respondent No. 1, on 29 July 2020. Respondent No. 1 challenged the LOC before the learned Single Judge, who allowed the writ petition and set it aside. The present intra-court appeal was filed by the Bank against that order

The Division Bench also condoned the Appellant’s 26-day delay in filing the appeal

Whether an LOC issued at the request of a public sector bank against a personal guarantor could be sustained when the guarantor was not an accused in the pending criminal proceedings?

Whether the impugned LOC impermissibly restricted the Respondent’s fundamental right to travel abroad, absent compelling and exceptional circumstances?

Whether the safeguards imposed by the learned Single Judge—requiring prior permission of the Trial Court before foreign travel—were sufficient?

The Court applied the principle that the power to issue an LOC is an exceptional coercive measure directly affecting an individual’s fundamental right to travel and must therefore be exercised with due care, caution, and only in exceptional circumstances

Relying on Bank of Baroda v. Surender Kumar Bansal, 2026 SCC OnLine Del 4574, the Court held that, in the absence of compelling reasons, a person cannot be deprived of the right to travel abroad

It further relied on Viraj Chetan Shah v. Union of India, 2024 SCC OnLine Bom 1195, which quashed the relevant Office Memorandum provisions insofar as they permitted the Chairman, Managing Director, or Chief Executive Officer of a public sector bank to request issuance of an LOC; the Delhi High Court noted that the Supreme Court had not stayed that judgment

The Court also considered Shalini Khanna v. Union of India, 2024 SCC OnLine Del 837, which had been relied upon by the learned Single Judge

The Division Bench rejected the Appellant’s contention that the learned Single Judge had treated the right to travel as absolute and had mechanically relied upon precedent

Applying Surender Kumar Bansal and Viraj Chetan Shah, the Court held that an LOC requested by a public sector bank could not be sustained merely on the basis of apprehension regarding repayment or possible departure from India. The decisive circumstance was that Respondent No. 1 was not an accused in the criminal proceedings pending before the Trial Court

Since the LOC was issued at the instance of a public sector bank and no compelling exceptional circumstance was demonstrated, the restriction on travel was legally unsustainable. The Court also found that the Single Judge had adequately protected the proceedings by requiring Respondent No. 1 to obtain prior permission from the Trial Court before travelling abroad

The Division Bench found no infirmity in the learned Single Judge’s order and dismissed the appeal. The requirement that Respondent No. 1 obtain prior permission from the Trial Court before travelling abroad was maintained as an adequate safeguard

Pending applications were disposed of, with no order as to costs