LOCs requested by public sector bank chiefs cannot stand judicial scrutiny, Delhi High Court holds

M/s Santosh Overseas Ltd. (Respondent No. 6) had availed credit facilities from a consortium of lenders led by IDBI Bank, with Respondent Nos. 1 and 2 acting as personal guarantors.

The account was declared fraudulent by the Appellant Bank on 11 November 2019, following which an FIR was registered by the CBI on 14 January 2020 in relation to the alleged financial irregularities.

On 29 July 2020, the Appellant requested issuance of Look Out Circulars (“LOCs”) against the company’s directors and guarantors, including Respondent Nos. 1 and 2, apprehending that they might leave India to evade repayment.

The Respondents challenged the LOCs through W.P.(C) 11611/2024.

The learned Single Judge set aside the LOCs by order dated 25 February 2026, leading to the present intra-court appeal.

The CBI subsequently clarified that Respondent No. 1 was not an accused in the FIR, while Respondent No. 2 had been named as an accused and charge-sheeted.

1. Whether an LOC issued at the request of the Chairman, Managing Director, or Chief Executive Officer of a public sector bank is legally sustainable and amenable to judicial review.

2. Whether the LOCs issued against Respondent Nos. 1 and 2 could be sustained consistently with the fundamental right to travel and the requirement of exceptional circumstances for restricting that right.

3. Whether the pendency of a challenge before the Supreme Court to Viraj Chetan Shah v. Union of India prevented the High Court from applying that decision in the absence of any stay.

The Court applied the constitutional protection of the fundamental right to travel and the principle that any restriction on that right must be imposed through legally valid procedure and justified by compelling circumstances.

Relying on Bank of Baroda v. Surender Kumar Bansal, 2026 SCC OnLine Del 4574, the Court held that issuance of an LOC is an exceptional and coercive measure which directly affects the right to travel and must therefore be exercised with due care, caution, and only in exceptional circumstances.

It further relied on Viraj Chetan Shah v. Union of India, 2024 SCC OnLine Bom 1195, which quashed the portions of the relevant Office Memorandums authorising the Chairmen, Managing Directors, and Chief Executive Officers of public sector banks to request issuance of LOCs.

The Court held that the pendency of a challenge to Viraj Chetan Shah before the Supreme Court did not affect its applicability because no stay had been granted against that judgment.

The Court rejected the Appellant’s contention that the right to travel could justify the LOCs merely because the Respondents were guarantors of the borrower company.

It treated an LOC as an exceptional coercive measure requiring compelling justification, rather than as an ordinary mechanism for securing recovery of bank dues.

The Court also applied Viraj Chetan Shah and noted that the LOCs had been requested by a public sector bank authority whose power to seek such issuance had been judicially invalidated.

The fact that Respondent No. 1 was not an accused in the FIR further weakened the justification for maintaining the LOC against her, while the status of Respondent No. 2 as an accused and charge-sheeted person did not cure the legal defect concerning the source and exercise of the bank’s authority to request the LOC.

Since there was no stay of Viraj Chetan Shah, the learned Single Judge had correctly applied the prevailing legal position.

It found no infirmity in the learned Single Judge’s order setting aside the LOCs against Respondent Nos. 1 and 2.

The appeal was accordingly dismissed, pending applications were disposed of, and there was no order as to costs.