Public Sector Banks Lack Legal Authority to Issue Look Out Circulars for Routine Loan Defaults

This batch of 33 writ petitions challenged the legality of Look Out Circulars (LOCs) issued against various individuals.

The petitioners were categorized into three groups: (A) LOCs issued solely by Public Sector Banks (PSBs) for loan defaults; (B) LOCs issued by investigating agencies (CBI, ED, SFIO) or the Income Tax Department; and (C) cases where criminal chargesheets had already been filed in trial courts.

In most cases, petitioners were prevented from traveling abroad despite no evidence of absconding; many had traveled previously under interim court orders and returned as directed.

The court primarily applied Article 21 of the Constitution, asserting that the right to travel abroad is a fundamental facet of personal liberty.

It relied on the "Triple Test" from Maneka Gandhi v. Union of India (law, fair procedure, and non-violation of other rights).

The court applied the framework from Sumer Singh Salkan v. Asst. Director, which restricts LOCs to cognizable offences where the accused is evading arrest.

Following Viraj Chetan Shah v. Union of India (Bombay HC) and Bank of Baroda v. Sahil Chugh (Delhi HC), the court held that PSBs lack the authority to trigger LOCs.

It further held that "economic interest" must involve grave systemic impact, not routine defaults, as per the MHA Office Memorandum (2021).

The court reasoned that an LOC is a measure of "last resort" and cannot be used as an "arm-twisting tactic" for debt recovery.

For Category A (Banks), the court found that Clause 6(B)(xv) of the 2021 OM, which empowered PSBs, had been judicially invalidated; therefore, LOCs based solely on bank requests without criminal proceedings were void ab initio.

For Category B (Agencies), the court observed that where petitioners had cooperated, were not named as accused, or where investigations had stagnated without charges, the continuation of LOCs was disproportionate and lacked "contemporaneous justification".

For Category C, the court applied the principle of institutional primacy, noting that once a Trial Court is seized of a chargesheet, it is the competent forum to decide on coercive measures like LOCs under its jurisdiction to cancel NBWs.

In Category C (4 petitions: Neeraj Singal, Ritu Singal, Kunwer Sachdev, Dharamvir Singh), the Court refused to quash the LOCs but relegated the petitioners to the respective Trial Courts where chargesheets were pending to seek modification or cancellation.

Petitioners in Categories A and B were permitted to travel subject to notifying the agencies/banks 48 hours in advance; The Bureau of Immigration was directed to update its records accordingly.