Bank Can't Seek Issuance Of 'Look Out Circular' For Recovery Of Dues Unless Economic Interest Of Country Is Involved: Karnataka High Court

A single judge bench of Justice SG Pandit partly allowed the petition filed by one Leena Rakesh who had questioned the endorsement issued by the Foreign Regional Registration Officer (FRRO), cancelling her passport and restraining her from travelling back to Philippines from Bengaluru. The action was taken subsequent to the request made by UCO Bank to the authorities for issuing a LOC against the petitioner as she had defaulted in loan payment.

The bench said, "It is true that the respondent-Bank is conferred with the power to request respondent Nos.1 and 2 to issue LOC against a person who has committed fraud or default against the Bank. It is for the Bank to take a decision as to, in which case the Bank could request LOC."

It added,

"Just because power is conferred to request issuance of LOC, such power cannot be exercised arbitrarily. Bank has to take a conscious decision by examining as to whether the petitioner's case falls within the ambit of fraud or default which would affect the economic interest of the Country."

The bench accordingly directed the petitioner to deposit a sum of Rs.10,00,000 with the bank which could be adjusted towards the dues and furnish a solvent surety to the satisfaction of the Bank, following which, the latter shall request the authorities to withdraw the LOC and to permit the petitioner to travel outside the country.

Case Details:

The petitioner along with her husband had obtained loan from the UCO  Bank in December 2014. The property which was offered as security to the loan was in their joint names.

It was alleged that the couple has not paid the instalments from September 2019 and are due in a sum of Rs.66,11,868/- as of June 2022. The reason for not repaying the loan is that, due to differences between the petitioner and her husband, they are before the Family Court praying for a judgment and decree to dissolve their marriage.

The petitioner, to tender her evidence in the pending divorce proceedings, came down to India on 1st June and she was to travel back to Philippines, where she is working, on 5th June. However, she was prevented from leaving the Country by the Bureau of Immigration, putting cancellation seal on her passport on the basis of a Look out Circular issued at the Bank's request.

Petitioner's submissions:

Senior Advocate Shashikiran Shetty submitted that the action of the respondents in preventing the petitioner from travelling outside the Country is in violation of Articles 14, 19 and 21 of the Constitution of India.

Further, the respondent-Bank could not have requested for issuance of LOC as the issuance of LOC is not a recovery proceeding. The Bank had already initiated recovery proceedings and had brought the property offered as security for sale, to realise the dues from the petitioner and her husband. The value of the property, according to the valuation of the Bank is around Rs.75,00,000/- whereas the market value of the property is nearly Rs.1,00,00,000. Thus, it was said when security is available, the respondent-Bank could not have resorted to request for issuance of LOC, so as to recover the amount from the petitioner.

It was argued that the LOC could be issued in such cases, only if the authorities come to the conclusion that if a person is permitted to travel outside the Country, the economic interest of the Country would be affected. In the present case, when the security of the property is more than the value of the amount due, which is nearly Rs.66,11,868, the same would have no effect on the economic interest of the Country.

It was also said that the Bank did not make any effort to recover the amount from the husband of the petitioner.

Respondents opposed the plea:

Assistant Solicitor General Shanthi Bhushan drew court's attention to a O.M. dated 04.10.2016 which provides that wherever Bank is of the opinion that fraudsters/persons who wish to take loans, willfully default and then escape to foreign jurisdictions to avoid paying back, against such persons, request could be made to issue LOC and such persons could be restricted from travelling outside the Country.

Reliance was placed on High Court's judgment in Dr.Bavaguthuraghuram Shetty v. Bureau of Immigration & Ors., where it was held that there need not be any criminal case registered to issue LOC, but it could be issued at Bank's request, if the Bank is of the opinion that if the borrower is permitted to leave the Country it would not be in a position to recover the dues, by which it would have adverse impact on the economic interest of the Country.

Advocate KR Parshuram for the bank submitted that since the petitioners had inducted a tenant, the bank is not able to sell the property even after 3 occasions. Further, it was said the security offered for the Bank is the Apartment, which is valued at Rs.68,00,000/- according to the Bank. If the petitioner is permitted to leave the Country, they will not be able to recover outstanding dues.

Findings:

The bench went through the records and noted that petitioner is working in the Philippines to eke out her livelihood, had come to India to tender her evidence in the matrimonial case pending between the petitioner and her husband. The petitioner tendered her evidence before the Family Court on 02.06.2022, when the petitioner was to leave on 05.06.2022 from India to Philippines, the petitioner was prevented from leaving the Country and cancellation seal was put on her passport and at the request of the 3rd respondent-Bank, LOC was issued against the petitioner.

Further it said LOC could be issued in terms of O.M. dated 22.02.2021. No one has the absolute right to travel abroad or in other words, a person's right could be curtailed by following the procedure prescribed thereunder. A person could be prevented from travelling abroad or LOC could be issued only in terms of O.M. dated 22.02.2021. The above stated O.M. permits issuance of LOC against a person under various circumstances. In the instant case, no criminal case is registered against the petitioner nor any cognizable offence is alleged

It then referred to Clause 6(L) of the O.M. dated 22.02.2021 which reads as follows:

"In exceptional cases, LOCs can be issued even in such cases as may not be covered by the guidelines above, whereby departure of a person from India may be declined at the request of any of the authorities mentioned in clause (B) above. If it appears to such authority based on inputs received that the departure of such person is detrimental to the sovereignty or security or integrity of India or that the same is detrimental to the bilateral relations with any country or to the stranger and/or economic interests of India or if such person is allowed to leave, he may potentially indulge in an act of terrorism or offences against the State and/or that such departure ought not be permitted in the larger public interest at any given point of time."

The High Court noted that the OM empowers the authority to issue LOC if it comes to the conclusion that permitting a person to leave the Country would have adverse impact on the economic interest of India. However, in the instant case, it said,

"The amount due by the petitioner to the 3rd respondent-Bank in a sum of Rs.66,11,868/- would have no impact or affect the economic interest of the Country, more so, when the 3rd respondent is having security of value of which is more than the amount due from the petitioner."

The court rejected the contention of the bank that due to petitioners inducting tenants in the property it could not sell the property, it said,

"The provisions of SARFAESI Act, 2022 safeguard the interest of the Bank and provide a mode of recovery of possession. The 3rd respondent-Bank instead of following the recovery procedure prescribed under SARFAESI Act is resorting to pressure tactics by preventing the petitioner from travelling abroad where she is working."

Remarking on the issuance of the LOC by the authorities on the request made by the bank, the bench said, "Respondent Nos.1 and 2 are also not justified in issuing LOC for mere asking by the 3rd respondent-Bank. Respondent Nos.1 and 2 under O.M. dated 22.02.2021 are required to examine as to whether 3rd respondent-Bank's request to issue LOC against the petitioner would affect the economic interest of the Country. Mere due of Rs.66,11,868/- cannot be the basis for seeking issuance of LOC by 3rd respondent-Bank that too, restrict the personal liberty of the petitioner to travel outside the Country."

The court also observed that ,

"The petitioner is not leaving the Country to avoid repayment of loan of the Bank, but the petitioner is employed in the Philippines and she had come to India to tender her evidence in a pending matrimonial case." Dismissing the reliance placed by the authorities on the judgment in the case of Dr.Bavaguthuraghuram Shetty. The bench said "In the said case, the petitioner was due to the Bank in a sum of Rs.2800.00 Crores and the same would definitely affect the economic interest of the Country."

Accordingly it held, "Thus, I am of the opinion that action of the respondents is arbitrary, unreasonable and unfair in the peculiar facts and circumstances of the case. Any action of the State if it is arbitrary and unreasonable is liable to be interfered."

Case No: WP 11213/2022

Citation: 2022 LiveLaw (Kar) 231

Date of Order: 20th Day of June, 2022

Appearance: Senior Advocate Shashikiran Shetty a/w Advocate Latha Shetty for petitioners; ASG Shanthi Bhushan H for R1 & R2; Advocate K R Parshuram for R3

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