Banks cannot use Look Out Circulars as a way to recover money, the Delhi High Court has said, holding LOCs can't be opened on mere possibility of a person being made an accused in a criminal case as they take away a person's right to travel abroad which is a fundamental right under the Constitution.

A Look Out Circular (LOC), the high court said, is a measure to make a person surrender before investigating authorities or a court of law and can be issued only when there are sufficient reasons for it.

The court made the observations while quashing the LOC issued at the insistence of Bank of Baroda against Nipun Singhal, a former director at Lloyd Electric and Engineering Limited which is facing a CBI probe over certain transactions.

The court was informed that about 18 months after the petitioner had left the company, it was declared as a non-performing asset in November 2018, and in January 2022, the petitioner received a show cause notice from Bank of Baroda about having been declared a wilful defaulter.

Justice Subramonium Prasad noted as per the CBI, the petitioner was not an accused in the matter and most of the transactions had taken place after his resignation. The court said the petitioner was sought to be kept as a hostage in the country only for the purpose of recovery of money which is payable by the company.

The petitioner's movement has been severely impeded from June, 2022 i.e., for more than one year when the petitioner is not even an accused in any FIR... A mere probability/possibility that a person might ultimately be made an accused cannot be the sole basis for opening a Look Out Circular which has the effect of impeding the movement of a citizen and which takes away its right to travel abroad which has been elevated as a fundamental right under Article 21 of the Constitution of India, said the court in a recent order.

Holding that LOC cannot be opened unless and until the conditions in the Centre's office memorandum on its issuance are satisfied, the court said there is nothing in the present case to justify that there was any input that the departure of the petitioner was detrimental to the economic interest of India or that his departure from the country should not be permitted in the larger interest.

Phrases like 'detriment to the economic interest of India' cannot be permitted to be used without there being any substantial material before the Look Out Circular is opened," the court said.

It said,"Banks cannot use LOCs only as a measure of recovering money because the remedy as available under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Insolvency and Bankruptcy Code, 2016 is not sufficient and that opening of Look Out Circular will result in a faster remedy to recover money from the creditors.

It said an LOC can be issued only when there are sufficient reasons, and if there is a condition precedent for issuance of such LOC, the same must be provided in it.