Bank's Look Out Circular against borrower unjustified when secured property value exceeds loan amount

Karnataka HC held that a bank's request for Look Out Circular (LOC) against petitioner was unjustified where secured property value exceeded loan amount. The court found the travel restriction violated Articles 14, 19, and 21, noting petitioner was employed in Philippines and had returned to India for matrimonial proceedings, not to avoid loan repayment. The bank's action was deemed arbitrary and unreasonable. HC directed petitioner to deposit Rs.10 lakh with the bank and provide solvent surety, upon which the bank must request LOC withdrawal and permit travel. Petition allowed in part.

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Issues Involved:
1. Legality of the cancellation of the petitioner's passport and issuance of Look Out Circular (LOC).
2. Violation of Articles 14, 19, and 21 of the Constitution of India.
3. Justification for the respondent-Bank's request for LOC.
4. Impact of the petitioner's debt on the economic interest of the country.
5. Procedural adherence to the Official Memorandum (OM) guidelines for issuing LOC.

Detailed Analysis:

1. Legality of the Cancellation of the Petitioner's Passport and Issuance of Look Out Circular (LOC):
The petitioner sought a writ of mandamus to declare the cancellation of her passport and the issuance of an LOC by respondent No.2 as arbitrary, illegal, and without authority of law. The petitioner argued that the LOC was issued at the request of the 3rd respondent-Bank, which was not a legitimate recovery procedure.

2. Violation of Articles 14, 19, and 21 of the Constitution of India:
The petitioner claimed that the actions of the respondents violated her fundamental rights under Articles 14, 19, and 21 of the Constitution. She emphasized that her right to travel abroad was unduly restricted, impacting her personal liberty and livelihood.

3. Justification for the Respondent-Bank's Request for LOC:
The respondent-Bank justified the LOC issuance by citing the petitioner's outstanding loan amount of Rs.66,11,868/-. They asserted that the petitioner and her husband had defaulted on loan repayments and that the Bank had initiated recovery proceedings under the SARFAESI Act. The Bank contended that the petitioner had inducted tenants into the secured property, complicating the sale and recovery process.

4. Impact of the Petitioner's Debt on the Economic Interest of the Country:
The Court examined whether the petitioner's debt of Rs.66,11,868/- had an adverse impact on the economic interest of the country. It was noted that the value of the secured property was around Rs.75,00,000/-, which exceeded the amount due. The Court concluded that the petitioner's debt did not significantly affect the country's economic interest, especially given the available security.

5. Procedural Adherence to the Official Memorandum (OM) Guidelines for Issuing LOC:
The Court scrutinized the adherence to the OM dated 22.02.2021, which outlines the circumstances under which an LOC can be issued. The OM permits LOC issuance if a person's departure from India is detrimental to the country's economic interests. The Court found that the 3rd respondent-Bank had not disclosed the value of the secured property, raising questions about the Bank's intentions. The Court emphasized that LOC issuance should not be used as a recovery tactic by the Bank.

Judgment Summary:
The Court ruled that the respondent-Bank was not justified in requesting the issuance of an LOC against the petitioner. The Court highlighted that the petitioner's debt did not impact the economic interest of the country, especially given the security available. The Court also noted that the Bank had other remedies under the SARFAESI Act to recover the dues.

The Court directed the petitioner to deposit Rs.10,00,000/- with the 3rd respondent-Bank and furnish a solvent surety. Upon compliance, the 3rd respondent-Bank was instructed to request the withdrawal of the LOC, allowing the petitioner to travel abroad.

The judgment underscored that the actions of the respondents were arbitrary, unreasonable, and unfair, and thus, the writ petition was allowed in part.

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