Issuance of LOCs at instance of PSBs violation of fundamental rights: Bombay High Court [26.4.2024]

The Bombay High Court has said that issuance of a Look Out Circular (LOC) at the instance of public sector banks against alleged default borrowers in the absence of a statute or law is violative of a person's fundamental rights.

The court made the observation on April 23 while quashing the Centre's decision empowering such banks to seek issuance of LOCs.

A division bench of Justices Gautam Patel and Madhav Jamdar had on April 23 held as unconstitutional the clause of an Office Memorandum issued by the Central government empowering the Chairman, Managing Directors and Chief Executive Officers of public sector banks to seek issuance of LOCs against default borrowers or even persons who stood guarantee for such borrowers.

In its 289-page judgment made available on Friday, the bench said an executive function cannot substitute a statute and the executive cannot in any event contravene the Constitution.

"For the executive to encroach upon the private rights of a citizen, there must be some specific legislation. 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.

The high court said the Office Memorandums are "ex facie not law and are by no stretch of imagination a procedure established by law".

"It is inconceivable that the OMs - purely executive instructions or a framework or guidelines - can ever curtail the fundamental right to travel abroad," it said.

"Is it to be assumed or pre-supposed that just because a borrower is travelling abroad therefore, he or she is bound to settle abroad and flee the country," the court questioned.

The bench also said it was incomprehensible as to how the chairman, managing directors and chief executive officers of public sector banks are given the power to request for issuance of LOC without any other mechanism in place.

The bench said with such powers, the public sector banks become judge and executioner at once.

27 Apr 2024