PSB’s LOC is violative of fundamental right: HC

On April 23, the court quashed Centre’s circular empowering top bank officials to issue LOCs

The lookout circulars (LOC) issued by the Ministry of Home Affairs (MHA) against loan defaulters at the behest of public sector banks (PSBs) are “strong-arm tactics” to bypass the legal processes, and violates fundamental rights of the citizens, observed the Bombay High Court.

On April 23, the HC quashed the clause of an office memorandum (OM) issued by the Centre, which empowered the chairman, managing directors and chief executive officers of a PSB to issue LOCs against default borrowers or even persons who stood guarantee for such borrowers. The detailed 289-page judgement, delivered by a bench of Justices Gautam Patel and Madhav

Jamdar, was made available on Friday.

The court said that the executive cannot encroach upon the private rights of a citizen by contravening the constitution. “Even if an executive action is backed by a specific legislation, it is still liable to be struck down if it involves the infringement of fundamental rights,” the bench said.

As far as the OMs are concerned, the HC said that they are “ex facie not law and are by no stretch of imagination, a procedure established by law”. It added, “It is inconceivable that the OMs – purely executive instructions or a framework or guidelines – can ever curtail the fundamental right to travel abroad.” The court questioned whether it is to be assumed that just because a

borrower is travelling abroad therefore, he or she is bound to settle abroad and flee the country.

The bench also said that is “simply incomprehensible” that the top officials of the PSBs are given the power to request for issuance of LOC without any other mechanism in place. “.. the public sector bank becomes judge and executioner at once,” the bench underlined. Flagging the “almost invariable feature”,

the judges said that no prior notice is given to the borrower while issuing such an LOC. Even if a copy of the LOC is not provided, the borrower is simply informed that such an LOC has been issued by a particular bank and the person cannot, therefore, be allowed to travel abroad.

The court has, however, clarified that its judgement should not be misunderstood that it is showing even the “slightest sympathy” for the defaulters and said such defaulters should not be allowed to evade their liabilities. The judges stressed that there are thousands and millions of borrowers, from the middle and lower income group earners, who take loans to buy flats and do not default to make the loan repayments. “They make no such excuses. Large portion of their salaries get paid out in loan repayment monthly. It is these high-volume borrowers alone who strain every nerve and explore every available legal avenue to avoid their financial obligations,” the bench said.

The HC passed the order on a batch of petitions, challenging validity of at least eight circulars issued by the Centre, regarding the guidelines for issuance of LOCs.