Look Out Circulars Violates Fundamental Right Of Movement, Banks Can’t Make It A Recovery Norm: Calcutta High Court

The Calcutta High Court has held that the Look Out Circulars causes an immediate and irrevocable violation of a person’s fundamental right to movement.

"Look Out Circulars," which have the effect of restricting a person's free movement and the right to travel, should only be issued in exceptional circumstances. Lookout Circulars cannot be issued at random or at the slightest provocation, particularly at the instance of a bank that seeks a restriction on travel as a buffer for payments outstanding to the bank. The only acceptable logic, albeit with some effort, is that a person may flee the country and not return to repay his or her outstanding loan. This, however, cannot be the rule across the board, and a borrower's credentials and circumstances for making payment must be taken into account," the bench of Justice Moushumi Bhattacharya observed.

Look Out Circulars are issued where the concerned persons are considered flight risks, that is, it is apprehended that they will fail to return to India. The originator of a "look out" circular, which is the entity at whose instance the circular is issued, usually takes recourse to pending criminal cases against the person or an ongoing proceeding where the continuous presence of the person is required. The apprehension is that the person concerned cannot be allowed to travel since the person, presumably in search of a safe haven, will not return to India for the logical culmination of the proceedings.

The recent trend, however, is for banks to issue "Look Out Circulars as a recovery mechanism for outstanding monetary dues. The reasoning of the bank is that the person may frustrate the settlement of the dues by not returning to India. The logic put forth is that the person’s bona fides in repaying the dues are best ensured if the person remains within reach, i.e., in the territory of India.

The petitioners were prevented from traveling to the United Kingdom by reason of a "look out" circular on the basis of a request made by the Indian Overseas Bank. The petitioner challenged the Look Out Circular issued by the Indian Overseas Bank.

The petitioners obtained loans for the expansion of their businesses from various banks. The petitioners have settled the claims of all the banks except the respondent bank, Indian Overseas Bank (IOB).

The Indian Overseas Bank and the Immigration Authority contended that the Central Bureau of Investigation (CBI) should be implemented as a necessary party to the proceedings as the cases are pending against the petitioners before the 3rd Special CBI Court, among other cases.

The petitioner contended that the IOB has already realised Rs. 86 lakh by selling a property mortgaged by the petitioners. The petitioner was permitted to travel 19 times by the CBI Court, and there was no complaint that the petitioner had failed to comply with the conditions imposed or return to India on the scheduled date. The petitioner has assets in India and continues to be a director of a company in India. The IOB has not denied the fact that the petitioners have made partial payments to the respondent or that the petitioners have settled the claims of the remaining banks of the consortium.

The court noted that there is no evidence that the petitioners’ leaving the country for a specific period of time would affect the economic interests of India. The petitioners have not been declared fraudsters, money-launderers, or even economic offenders.

The court stated that once a "look out" circular is issued, it remains alive and kicking for almost all time to come. This has dangerous repercussions for the person’s right to freely move across and beyond the country and remain mobile. The banks have been given untrammelled powers to issue, use, and exploit the lock-in power of a Look Out Circular without sufficient recourse being provided in law to the person at the receiving end of it.

The court, while quashing the Look Out Circular issued by the IOB, held that the Writ Court can and should step in to check such unregulated abuse of power by banks where the facts demand relief.

Case Title: Mannoj Kumar Jain & Anr. Versus Union of India

Case No.: WPA 22748 of 2022

Date: 09.06.2023

Counsel For Petitioner: Sudip Deb, Riju Ghosh, Sumitava Chakraborty, Aranyak Saha, Ipsita Ghosh

Counsel For Respondent: Billwadal Bhattacharya, Narendra Prasad Gupta, Suhrid Sur, Shiv Mongal Singh, Moriam Sanfui

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