2022 (6) TMI 1475 - HC - Indian Laws

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. ... Cancellation of an endorsement of cancellation on the passport of the petitioner by respondent No.2 and not permitting the petitioner to travel from Bengaluru to Philippines - violation of Articles 14, 19 and 21 of the Constitution of India - whether the respondent-Bank is justified in requesting respondent Nos.1 and 2 to prevent the petitioner from travelling outside the Country and to issue LOC against the petitioner? - HELD THAT:- It is true that the respondent-Bank is conferred with the power to request respondent Nos.1 and 2 to issue LOC against a person who has committed fraud or default against the Bank. It is for the Bank to take a decision as to, in which case the Bank could request LOC. Just because power is conferred to request issuance of LOC, such power cannot be exercised arbitrarily. Bank has to take a conscious decision by examining as to whether the petitioner’s case falls within the ambit of fraud or default which would affect economic interest of the Country. In the instant case, value of the secured property is more than the amount due from the petitioner to the 3rd respondent-Bank. In that circumstance, 3rd respondent-Bank is not justified in requesting for issuance of LOC. The petitioner is not leaving the Country to avoid repayment of loan of the Bank, but the petitioner is employed in Philippines and she had come to India to tender her evidence in a pending matrimonial case. The decision relied upon by the learned Assistant Solicitor General on Dr. Bavaguthuraghuram Shetty [2021 (5) TMI 1037 - KARNATAKA HIGH COURT] case would have no application to the facts of the present case. In the said case, the petitioner was due to the Bank in a sum of Rs.2800.00 Crores and the same would definitely affect the economic interest of the Country. The action of the respondents is arbitrary, unreasonable and unfair in the peculiar facts and circumstances of the case. Any action of the State if it is arbitrary and unreasonable is liable to be interfered. The petitioner is directed to deposit a sum of Rs.10,00,000/- with the 3rd respondent-Bank, which could be adjusted towards the dues and furnish a solvent surety to the satisfaction of 3rd respondent-Bank - On deposit of Rs.10,00,000/- and on providing a solvent surety by the petitioner, the 3rd respondent-Bank shall forthwith request respondent Nos.1 and 2 to withdraw the LOC and to permit the petitioner to travel outside the Country. The petition allowed in part. 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.