Look Out Circulars cannot be used for civil debt recovery absent a cognizable offence or recognised exceptional ground.

A Look Out Circular cannot be justified merely as a debt-recovery measure in a loan default dispute where no cognizable offence or other recognised exceptional ground is shown. The Patna HC found that the bank had already pursued SARFAESI and DRT remedies, no charge-sheet had been filed against the petitioner, and no fresh material supported the LOC request under the governing guidelines. On that basis, the requisition and consequential LOC were held unsustainable in law and set aside, while the writ petition succeeded subject to undertakings and conditions requiring cooperation with the bank in resolving outstanding liabilities.

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Issues: Whether the requisition for opening the Look Out Circular and the consequential Look Out Circular issued at the instance of the bank were sustainable in the absence of a cognizable offence or any criminal proceeding against the petitioner, and whether the restrictive action could be justified merely as a recovery measure in a loan default case.

Analysis: The request for issuance of the Look Out Circular was founded on the petitioner's association with the borrower company, its defaulted loan account, and the pending recovery proceedings. The materials showed that the bank had already resorted to recovery mechanisms under the SARFAESI regime and before the DRT, while no charge-sheet had been filed against the petitioner in the criminal case and no fresh material was shown to bring the case within the exceptional grounds for restriction under the LOC guidelines. The Court found that the requisition did not disclose any legally sustainable ground fitting the governing criteria for issuance of an LOC and that the continuation of the LOC operated as a coercive device for debt recovery.

Conclusion: The requisition dated 30.03.2024 for issuance of the Look Out Circular was held unsustainable in law and was set aside, along with the consequential Look Out Circular.

Final Conclusion: The writ petition succeeded, subject to undertakings and conditions imposed on the petitioner for cooperation with the bank in resolving the outstanding liabilities.

Ratio Decidendi: A Look Out Circular cannot be sustained merely to secure recovery of a civil debt where no cognizable offence or other legally recognized exceptional ground is shown and the bank has already pursued ordinary recovery remedies.

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