LOCs can't be issued for mere bank loan default: Delhi High Court

The Delhi High Court recently observed that mere inability to repay a debt or a routine bank loan default cannot lead to the issuance of a look circular (LOC) against a person. 

Justice Purushaindra Kumar Kaurav said that an LOC is a “coercive executive measure of last resort” and the existence of a criminal case and the person being named in it is essential to curtail his/ her fundamental right to travel under Article 21 of the Constitution of India. 

“The issuance of an LOC cannot be resorted to in every case of bank loan default or credit facility availed for business purposes. Where the person against whom the LOC is opened has not been arrayed as an accused in any offence for misappropriation or siphoning, the LOC cannot be sustained,” the Court said. 

The Bench observed that the burden of justifying the necessity, proportionality and legality of an LOC lies squarely upon the originating agency. 

“In the absence of such justification, the LOC cannot be sustained. Courts must not accept bald assertions of security concerns or economic interest without requiring the originating agency to place credible material before the Court,” it stressed. 

Further, the Court ruled that an LOC cannot be indefinite. It must be periodically reviewed and must be withdrawn when its purpose has been served. 

“The authority charged with opening an LOC must apply its mind independently and cannot act as a mere instrument of the originating agency. There must be a speaking order, based on specific and credible inputs, justifying the necessity of the restraint,” Justice Kaurav underscored. 

The Court rendered these findings while setting aside a bunch of LOCs issued at the instance of financial institutions, banks, investigating agencies and ministries. 

It said that the petitioners shall be entitled to travel abroad without any prior permission of the court, but should inform and provide a full itinerary to the concerned department/ agency at least 48 hours before their departure. 

“If, on account of a change in law, or any other supervening event, including a declaration by a Court, the institutions shall be at liberty to seek the issuance of LOCs in accordance with law,” the Court added. 

[Read Judgment]