Mumbai: The Bombay High Court on Tuesday ruled that public sector banks do not have the legal power to issue Look Out Circulars (LOCs) against defaulting borrowers.
With the HC decision, all LOCs issued by such banks against defaulters will be cancelled.
A division bench of Justices Gautam Patel and Madhav Jamdar held as unconstitutional the clause of an office memorandum issued by the Central government empowering chairmen of public sector banks to issue LOCs against defaulting borrowers.
Advocate Aditya Thakkar, appearing for the central government, asked the High Court to stay its order, but the bench refused.
The court gave its verdict on several petitions challenging the validity of the said section.
The bench said that the Bureau of Immigration will not act on such LOCs (issued by banks against defaulters).
The court also said that its decision will have no effect on any order barring foreign travel by a tribunal or criminal court against a defaulter.
Though the office memorandum issued by the Center is not beyond the scope of the Constitution, the clause empowering the chairman of a public sector bank to issue LOC was "arbitrary and without force in law", the HC said.
An amendment to the Centre's office memorandum in 2018 empowered public sector banks to issue LOCs in the "economic interest of India".
It essentially prohibits a person from traveling abroad if his departure could be detrimental to the economic interest of the country.
The petitioners argued that the term "economic interests of India" cannot be equated with "financial interests" of any bank.
With the HC decision, all LOCs issued by such banks against defaulters will be cancelled.
A division bench of Justices Gautam Patel and Madhav Jamdar held as unconstitutional the clause of an office memorandum issued by the Central government empowering chairmen of public sector banks to issue LOCs against defaulting borrowers.
Advocate Aditya Thakkar, appearing for the central government, asked the High Court to stay its order, but the bench refused.
The court gave its verdict on several petitions challenging the validity of the said section.
The bench said that the Bureau of Immigration will not act on such LOCs (issued by banks against defaulters).
The court also said that its decision will have no effect on any order barring foreign travel by a tribunal or criminal court against a defaulter.
Though the office memorandum issued by the Center is not beyond the scope of the Constitution, the clause empowering the chairman of a public sector bank to issue LOC was "arbitrary and without force in law", the HC said.
An amendment to the Centre's office memorandum in 2018 empowered public sector banks to issue LOCs in the "economic interest of India".
It essentially prohibits a person from traveling abroad if his departure could be detrimental to the economic interest of the country.
The petitioners argued that the term "economic interests of India" cannot be equated with "financial interests" of any bank.
