Bank Can't Open LOC As An Arm Twisting Tactic To Recover Debt: Delhi High Court

The Delhi High Court has recently observed that a Bank cannot open a Lookout Circular (LOC) as an arm-twisting tactic to recover debt from an individual.

“This Court is of the opinion that after resorting to all the remedies available in law, the Bank cannot open a Lookout Circular as an arm-twisting tactic to recover debt from a person who is otherwise unable to pay more so when there are no allegations that he was engaged in any fraud or in any siphoning off or defalcation of the amounts given as loan,” Justice Subramonium Prasad said.

Observing that an LOC is a major impediment for a person who wants to travel abroad, the court quashed an LOC opened against him at the request of Union Bank of India against one Rajesh Kumar Mehta.

Mehta was one of the directors of an entity which failed to repay debt as a result of which proceedings under the SARFAESI Act were initiated for repayment of dues.

While quashing the LOC, the court said no criminal proceedings were initiated against Mehta and there was no allegation against him that he was instrumental in siphoning off the money which was given as loan.

The court said that the LOC was issued against Mehta only because of the inability of the company to repay its debts for which he stood guarantee.

“There are no criminal proceedings against the Petitioner and there is no allegation that the Petitioner was instrumental in defalcation or siphoning off the money. The Bank has already initiated steps against the Petitioner and the company by taking steps under the RDDB Act, SARFAESI Act and under the IBC,” the court said.

“In view of the above, the Lookout Circular (LOC) issued against the Petitioner is hereby quashed,” it held while allowing the plea.

Counsel for Petitioner: Mr. Achal Gupta and Ms. Alizaah Rais, Advocates

Counsel for Respondents: Mr. Anurag Ahluwalia, CGSC for UoI; Mr. Samarendra Kumar, Ms. Priyanka Singh and Mr. Adarsh Raj Singh, Advocates for R-3

Title: RAJESH KUMAR MEHTA v. UNION OF INDIA & ORS.

Citation: 2024 LiveLaw (Del) 657

Click here to read order