Bombay High Court: Public Sector Banks Have No Power To Issue ‘Look-Out Notice’ Against Defaulters

Bombay High Court: Public Sector Banks Have No Power To Issue ‘Look-Out Notice’ Against Defaulters

The verdict was passed on a bunch of petitions challenging the validity of the central government’s memorandum.

The Bombay High Court has ruled that public sector banks do not have the power to issue Look Out Circulars (LOCs) against default borrowers. Therefore, all such circulars issued by them are nullified.

A division bench of Justice Gautam Patel and Justice Madhav Jamdar held that the clause of an office memorandum issued by the central government, empowering the chairpersons of public sector banks to issue LOCs against defaulters, was unconstitutional.

The court passed its verdict on a bunch of petitions challenging the validity of the clause.

While appearing for the Government of India, advocate Aditya Thakker sought the court to stay its order, but the bench rejected it. The court stated that the Bureau of Immigration will not act upon such LOCs.

However, the judges added that the judgment would not affect the orders issued against any defaulter by a tribunal or a criminal court restraining them from traveling abroad.

The court stressed that while the office memorandum issued by the Centre was not ultra vires the Constitution of India, the clause empowering the chairperson of a public sector bank to issue LOC was "arbitrary and without power in law.”

In the 2018 amendment, the memorandum empowered the public sector banks to issue LOCs in the "economic interest of India.” This restrained a person from traveling abroad if his/her departure was detrimental to the country’s interest.

However, the petitioners contended that the words ‘economic interest’ of the country could not be equated with ‘financial interests’ of any bank.