Look Out Circulars against directors cannot be used as recovery tactics absent fraud or criminal investigation.

In brief

The question

Whether a public sector bank is justified in maintaining a Look Out Circular (LOC) against individuals solely for the recovery of dues in the absence of criminal proceedings or allegations of fraud.

The court held

The court answered the issues in the negative, holding that there was no justification for the continuation of the LOCs.

It also directed

The court set aside the impugned Look Out Circulars issued against all three petitioners.

However, it granted the respondents liberty to take any other appropriate legal actions for recovery in accordance with law.

The petitions were disposed of accordingly.

01Facts

The petitioners (Manju Jindal, Sunil Jindal, and Yatin Jindal) were directors, promoters, and guarantors of M/s Pomegranate Coaters Private Limited.

¶ 2

The company had availed credit facilities from Bank of Baroda (Respondent No. 2), which subsequently initiated recovery proceedings under the SARFAESI Act, 2002, and the Recovery of Debts Due to Financial Institutions Act, 1993.

¶ 2

Simultaneously, the Bank requested the opening of Look Out Circulars (LOCs) against the petitioners to prevent them from traveling abroad.

¶ 3

Notably, no FIR had been registered, and no criminal investigation was pending against the petitioners at the time of the judgment.

¶ 4

02Issues

i.Whether a public sector bank is justified in maintaining a Look Out Circular (LOC) against individuals solely for the recovery of dues in the absence of criminal proceedings or allegations of fraud.

¶ 1, 13

ii.Whether the petitioners’ travel can be restricted under the ground of being "detrimental to the economic interests of India" without evidence of siphoning of funds or money laundering.

¶ 11, 14

03Law Applied

The court relied on the Bombay High Court decision in *Viraj Chetan Shah v. Union of India*, which struck down the power of public sector banks to issue LOCs under the Ministry of Home Affairs' 2021 Guidelines as arbitrary.

¶ 5, 10

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.

¶ 13

The court further utilized the interpretation of "detrimental to economic interest" from *Prateek Chitkara v. Union of India*, which limits the term to high-gravity offenses like siphoning public money or hawala transactions, excluding simple loan defaults.

¶ 14

04Reasoning

The court reasoned that an LOC is a "drastic action" that cannot be invoked merely as a measure of "abundant caution".

¶ 12

In this case, since there was no pending FIR or investigation, there was no issue of non-cooperation with investigative agencies.

¶ 4

The court observed that while the amount due was significant, banks cannot use LOCs as "arm-twisting tactics" to recover debts from personal guarantors where no fraud, siphoning, or defalcation is alleged.

¶ 13, 15

Following the precedent in *Vineet Gupta v. Bureau of Immigration*, the court held that unless the circumstances reveal a higher gravity and a larger impact on the country's economy, a citizen’s fundamental right to travel cannot be curtailed for civil recovery purposes.

¶ 14, 16