Bank of Baroda's Look Out Circular against loan guarantors quashed for lacking criminal proceedings and violating travel rights

Delhi HC quashed Look Out Circular (LOC) issued by Bank of Baroda against petitioners who were guarantors of a borrowing company. Court held that LOCs cannot be opened merely for debt recovery without criminal proceedings or proper application of mind by authorities. The right to travel abroad under Article 21 cannot be arbitrarily restricted. Since no criminal case existed against petitioners, who were only guarantors not involved in company management, and One-Time Settlement was pending with extended payment deadline, the LOC was unjustified and unsustainable.

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Issues Involved:
1. Challenge to the Look Out Circular (LOC) issued by the Bank of Baroda.
2. Allegations of financial mismanagement and non-payment of dues.
3. Petitioners' right to travel abroad under Article 21 of the Constitution of India.

Summary:

1. Challenge to the Look Out Circular (LOC) issued by the Bank of Baroda:
The Petitioners filed writ petitions challenging the LOC issued by the Bank of Baroda. The LOC was issued on the grounds that the company's loan account turned NPA, the unit was closed, and there were allegations of fund diversion and non-payment despite having the capacity to pay.

2. Allegations of financial mismanagement and non-payment of dues:
The company availed credit facilities amounting to Rs. 5.25 crores, which were later enhanced to Rs. 28.50 crores. The loan account was declared NPA on 31.07.2019, leading to proceedings under the SARFAESI Act and demand notices invoking personal guarantees. The Bank alleged that the company diverted funds and made significant payments to related parties. The company and guarantors initiated proceedings before the Senior Civil Judge, who partly allowed interim relief. The Bank also initiated proceedings before the NCLT for Corporate Insolvency Resolution Process and issued a demand notice under IBBI Rules.

3. Petitioners' right to travel abroad under Article 21 of the Constitution of India:
The Petitioners planned a trip to Thailand but were stopped due to the LOC. They argued that the LOC was an abuse of the process of law, tarnishing their reputation and impeding their movement. They cited the fundamental right to travel abroad under Article 21, as held in Maneka Gandhi v. Union of India. The Court noted that the right to travel abroad is guaranteed under Article 21 and cannot be taken away arbitrarily. The Court emphasized that LOCs should not be issued merely for recovery of money without criminal proceedings. The Court found no criminal case or allegations of siphoning funds against the Petitioners at the time of issuing the LOC. The One-Time Settlement (OTS) between the company and the Bank was also considered.

Conclusion:
The Court quashed the LOC against the Petitioners, stating it was unsustainable. However, it allowed for the possibility of issuing a fresh LOC if new material evidence emerged against the Petitioners. The Petitioners were directed to cooperate with the investigation. The writ petitions were allowed, and pending applications were disposed of.

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