Calcutta High Court Asserts: Look Out Circulars Shouldn't Be Issued Indiscriminately for Loan Recovery, Highlights Draconian Consequences
In a recent judgment of Manoj Kumar Jain vs Union of India, the Calcutta High Court strongly emphasized that banks should exercise caution in issuing Look Out Circulars (LOC) and refrain from using them as a uniform method for recovering outstanding payments. Justice Moushumi Bhattacharya, the single-judge presiding over the case, stated that the issuance of LOCs must be regulated and should not become the norm for debt recovery.
Highlighting the severe repercussions associated with issuing LOCs, the court stressed the need for clear guidelines to avoid indiscriminate use. The judgment firmly stated that the isolated instances of individuals defrauding banks and fleeing the country cannot be the sole basis for issuing LOCs extensively. Additionally, the court criticized the practice of deboarding individuals from flights without informing them of the reason behind it, deeming it draconian and uncivilized.
The court recognized that LOCs significantly restrict an individual's right to free movement and travel. It emphasized that such measures should only be employed in exceptional cases where there is a genuine risk of the person fleeing the country and evading loan repayment. The court further asserted that LOCs cannot be issued arbitrarily, particularly at the behest of banks seeking to limit travel as a means of pressuring borrowers to settle outstanding debts. Instead, each borrower's circumstances and ability to repay should be taken into account.
The case before the court involved Manoj Jain, the Director of Jain Infra Private Limited, who had defaulted on a loan from a consortium of 11 banks. Despite Jain repaying the dues to all the banks and offering a One Time Settlement (OTS) plan to two banks, he was prevented from boarding a flight to the United Kingdom in 2022 due to an LOC issued by the Indian Overseas Bank. The court noted that Jain had a history of compliance with court-imposed conditions and had traveled abroad on multiple occasions without any issues.
The judgment highlighted a concerning trend of banks resorting to LOCs as a mechanism for recovering outstanding dues. While acknowledging that there may be genuine cases where borrowers pose a flight risk, the court underscored the importance of assessing each borrower's creditworthiness and willingness to repay on a case-by-case basis. The court dismissed the banks' argument that Jain posed a threat to the country's economic interests, emphasizing the lack of evidence supporting such claims.
Consequently, the court quashed the LOC issued against the petitioner, affirming the need for a fair and balanced approach in utilizing LOCs. Advocates representing the petitioner and various parties involved appeared before the court during the proceedings.
Click Here to: Download/View Related File
TAGS: Calcutta High Court Look Out Circulars (LOC) indiscriminate issuance defrauding banks fleeing India outstanding payments regulated recovery of loans extreme repercussions caution uniform rationale natural justice right to travel draconian uncivilized restricted movement exceptional circumstances loan repayment borrower's credentials Manoj Kumar Jain Director of Jain Infra Private Limited defaulted loan consortium of banks United Kingdom-bound flight Indian Overseas Bank One Time Settlement (OTS) immovable securities threat to economic interest recovery mechanism credit-worthiness case-by-case basis quashed fair approach.
