Karnataka High Court: Loan default no reason to curtail travel of citizen
The petitioner was neither an accused in any crime, nor sought to be made one; he was only a loan guarantor
Karnataka High Court: Loan default no reason to curtail travel of citizen
The petitioner was neither an accused in any crime, nor sought to be made one; he was only a loan guarantor
The Karnataka High Court has reiterated that a Look Out Circular (LOC) cannot be misused by banks to violate a citizen's right to travel on account of loan default.
The Court was dealing with a plea by the suspended director (petitioner) of a company that defaulted on certain bank loans. The petitioner had moved the Court for relief after a LOC issued against him hindered him from traveling abroad for business purposes.
In the Farooq Ali Khan v. Bureau of Immigration & Ors case, Justice M Nagaprasanna observed that the petitioner was neither an accused in any crime, nor sought to be made one; he was only a loan guarantor.
The bench stated, “The petitioner, even if it is construed to be that he is the director of the company, for setting the record straight, the travel of a citizen cannot be curtailed by the bank on the ground that he is in default of loan amount.”
The Judge also referred to the Karnataka High Court's judgment in the Leena Rakesh vs Bureau of Immigration case, wherein it was held, "the issuance of Look Out Circular or preventing a person from traveling abroad cannot be a mode of recovery of dues to the bank."
He observed that the ruling applied to the present case.
The case pertained to the defaulter company, which took a loan from a consortium of banks. In 2016, a dispute arose between the promoters of the company, and they suffered immense losses. As a result, the company defaulted on the repayment of bank loans.
Consequently, the banks initiated proceedings against the company under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act to discharge its outstanding liability of Rs.2277.68 crores, including interest.
Meanwhile, insolvency proceedings were also initiated against the company and personal guarantors, including the petitioner, were issued LOCs restricting their ability to travel abroad.
While the move obstructed the petitioner and others from conducting business activities overseas, it led the petitioner to plead before the high Court.
The Court examined whether the bank could curtail the fundamental right of the petitioner to travel. The company was the borrower from the bank, while the petitioner claimed to be a non-functional director.
Thus, the Court observed that the issuance of LOC had serious repercussions, including that the petitioner would not be able to move out of the country’s shores even if no such embargo was placed by any Court of law.