Look Out Circulars issued at the instance of Public Sector Banks are legally unsustainable and liable to be quashed.

In brief

The question

Whether a Look Out Circular (LOC) issued solely at the instance of Public Sector Banks/financial institutions is legally sustainable

The court held

The Court answered the issues in the negative, holding that an LOC issued at the instance of financial institutions without pending criminal allegations cannot be sustained.

It also directed

The Court set aside and quashed the LOC against the Petitioner

It further ordered that any security deposited by the Petitioner be refunded upon due verification

01Facts

The Petitioner was the former Managing Director of Lanco Infratech Limited (LITL) until 2004, after which he became a non-executive Director

p. 1

In 2017, LITL entered Corporate Insolvency Resolution Process (CIRP) via the NCLT, and the Ministry of Corporate Affairs initiated an investigation

p. 2

Despite these proceedings, no FIR, charge-sheet, or complaint was filed against the Petitioner, and the Serious Fraud Investigation Office (SFIO) closed its investigation regarding him

p. 2

A Look Out Circular (LOC) remained in effect against the Petitioner solely based on requests from financial institutions

p. 2

Consequently, the Petitioner approached the High Court to quash the LOC

p. 4

02Issues

i.Whether a Look Out Circular (LOC) issued solely at the instance of Public Sector Banks/financial institutions is legally sustainable

p. 2 · ¶ 3-4

ii.Whether the continued operation of an LOC is justified when no criminal proceedings are pending and the subject has cooperated with investigations

pp. 2-3 · ¶ 3-4

03Law Applied

The court primarily applied the principles governing the issuance of LOCs as established in *Vineet Gupta v. Union of India* (2026 DHC 1616), which held that LOCs infringe upon the fundamental right to travel under Article 21 of the Constitution of India and must be exercised sparingly

p. 2

The court emphasized that under Clause 6(L) of the Office Memorandum dated 22.02.2021, LOCs are generally restricted to cognizable offences or rare cases involving "national or systemic" economic interests

p. 3

Critically, the rule establishes that LOCs issued at the behest of Chairmen or CEOs of Public Sector Banks do not withstand judicial review

p. 3 · ¶ 28(iv)

04Reasoning

The Court observed that the Petitioner had not been charged with any offence, no investigating agency required his presence, and the SFIO had specifically closed its file on him

p. 2

Applying the *Vineet Gupta* precedent, the Court reasoned that since the sole basis for the LOC was the request of financial institutions (Public Sector Banks), it lacked the necessary statutory and legal backing to restrict the Petitioner’s fundamental right to personal liberty

p. 2 · ¶ 3

The Court found that when a subject has cooperated and no further interrogation is required, maintaining an LOC is an "unreasonable and unjustified restriction" that fails the test of proportionality and fairness

p. 3, para 28(v)

05Holding

The Court answered the issues in the negative, holding that an LOC issued at the instance of financial institutions without pending criminal allegations cannot be sustained.

p. 4

The Court set aside and quashed the LOC against the Petitioner

p. 4

It further ordered that any security deposited by the Petitioner be refunded upon due verification

p. 4

LawLens.Delhi High Court

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