Karnataka High Court says MHA Office Memoranda on Look Out Circulars invalid, banks can't use them to recover loans

The Karnataka High Court on Friday held that the Office Memoranda (OMs) issued by the Ministry of Home Affairs (MHA) to regulate the issuance of Look Out Circulars (LOCs) are non-est or invalid [Dr. Bavaguthu Raghuram Shetty vs Bureau Of Immigration]..In particular, Justice Krishna S Dixit examined the validity of the OMs that were being used by public sector banks to prevent foreign travel of persons with pending loan default cases.The Court looked into Section 21 of the Passports Act, 1967, which enables the Central government to delegate its powers to any officer subordinate to it, State governments, or the officer of the Indian Consul abroad.“Thus, there can be can be no delegation to any other entity like the Chairman/Managing Director/Chief Executive of Public Sector Banks,” Justice Dixit said..The Court opined that the power to delegate cannot be broadly interpreted to rope in those which the Parliament itself did not intend.It also reasoned that delegation of power under Section 21 of the Passports Act can be made only by a “Notification published in the Official Gazette." No such notification was placed on record before the Court.“It has long been settled that when power is given to do a thing, it should be done as specified; otherwise it should be left un-done,” the Court observed..The Court also found it was not shown how the ‘Director, Immigration’, who is the ‘author’ of the OMs, could exercise the power of the Central government.“Therefore, the subject OMs being can be said to be non est and therefore, they would not come to the aid of Respondent – Banks,” it thus held..While the OMs have been issued by the MHA since 1979 to allow investigating agencies to monitor and regulate the travel of certain persons traveling abroad, it was only in 2018 that Public Sector Banks were permitted to open LOCs. .OMs on LOCs can be said to be non est and therefore, they would not come to the aid of the banks.Karnataka High Court.The judgment was passed by the Court in a case filed by Indian-born Emirati businessman and founder of NMC Health, Bavaguthu Raghuram Shetty, who had been restrained from traveling back to the United Arab Emirates since February 2020 on the basis of LOCs issued against him in connection with a default of loans..Though there was no formal challenge to the OMs, Justice Dixit emphasized that this would not prevent a Writ Court from exercising its powers as custodians of the Constitution and protectors of fundamental rights.The Court further said that the OMs have not been shown to be issued under any provision of the Passports Act or any other statute.“When such instruments are pressed into service by the State Entities under Article 12, to repel the complaint of violation of Fundamental Rights, Constitutional Courts cannot blindfoldedly accept the same as being valid & enforceable, merely because no challenge in the pleadings is laid to their vires.” Thus, the Court held that even without a formal challenge, the courts can refuse to take cognizance of such instruments when their “voidness is apparent on their face.".In the context of Shetty’s case, the Court went on to observe that it is a case of a citizen aged 78 years who was complaining of a violation of constitutional guarantees. Conventional rules of pleadings that govern ordinary litigations cannot tie the hands of constitutional courts, it added..The Court was told that Shetty in his personal capacity and as a personal guarantor owed the Bank of Baroda ₹2,324 crores. The bank was able to obtain money decrees against Shetty in Abu Dhabi. Further, the Karnataka High Court had also granted a temporary injunction restraining the alienation of any property in a case against him and his wife, the Court was told. .The Court noted that for issuing an LOC, a person need not be an accused in any criminal case. It then noted in the absence of any criminal case, the grounds to issue a LOC against a person bear a thick relation to what is enlisted under Article 19(2) of the Constitution, which contains reasonable restrictions against fundamental rights (detrimental to sovereignty, public interest etc.)“Obviously, non-payment of debt howsoever huge, is not enlisted as a ground and therefore, no LoC can be issued for the mere recovery of loans, as rightly submitted by Mr.B.V.Acharya [petitioner counsel],” the Court added..No LoC can be issued for the mere recovery of loans.Karnataka High Court.While so, the Court noted that the banks had not filed any criminal case against Shetty in India or abroad.“A perusal of subject LoCs leaves no manner of doubt that they have been issued not on any of the specified grounds; they are couched in a language that gives an impression that they intend only the recovery of debts. This is impermissible, to say the least. The subject Office Memoranda purportedly being an instrument of law, cannot be used for a purpose alien to their intent,” the Court added.The Court also noted that the Bank of Baroda has obtained an injunction order against Shetty. .In this backdrop, the Court rejected the contention that Shetty’s abroad travel would defeat the loan recovery. However, it said the apprehension of the banks can be taken care of by directing Shetty to not alienate or deal with any of his properties. The Court proceeded to grant relief to Shetty, observing that his right to associate with his family, friends and relatives abroad, especially when one is at an advanced stage of life, needs to be recognised as a facet of personal liberty constitutionally guaranteed under Article 21..Thus, the Court allowed the petition and suspended the LOCs. It directed the authorities to permit Shetty to travel to the UAE. However, the Court also imposed various conditions on him, including the filing of an undertaking along with two sureties of ₹ 1 crore each, a direction to appear as required for legal proceedings in India and to refrain from travel abroad without prior permission. .Senior Counsel BV Acharya with Senior Counsel Prabhuling K Navadgi and Advocate Keerthi Reddy represented the petitioner.Deputy Solicitor General of India H Shanthi Bhushan and Advocate Aditya Singh represented the Bureau of Immigration, MHA.Senior Counsel DR Ravishankar and Advocate B Prasanna Kumar represented the Punjab National Bank.Advocates Manu P Kuklarni, Dharmendra Chatur, Manoj J Raikar and Advocate Ishi Prakash represented the Bank of Baroda..[Read Judgment]