At some point in life, financial difficulties can arise, making loan repayments challenging. In such cases, bank loans offer crucial relief. However, failing to pay loan installments on time can lead to serious consequences, including default. One of the actions taken by banks in such situations has been issuing a Lookout Circular (LOC). Now, the Bombay High Court has delivered a significant verdict, providing relief to loan defaulters.
High Court’s Crucial Decision
In a recent case, the Bombay High Court ruled that public sector banks have no legal authority to issue lookout circulars against loan defaulters. The court stated that lookout circulars issued without reasonable grounds and in violation of regulations would be canceled. This ruling comes as a major relief for individuals struggling to repay their loans.
What is a Lookout Circular?
A Lookout Circular (LOC) is an order that can restrict an individual from traveling abroad. It is usually issued against individuals involved in serious crimes or those suspected of fleeing the country. However, in recent years, banks began using LOCs against loan defaulters, preventing them from leaving India.
Government’s Authorization to Banks
In 2018, the central government issued an office memorandum granting public sector banks the authority to issue lookout circulars against loan defaulters. The rationale was to protect the country’s economic interests, as allowing defaulters to leave the country could be detrimental to financial stability.
Why Did the High Court Overrule the Government’s Order?
A two-judge bench of the Bombay High Court declared this government order unconstitutional. The court ruled that loan defaulting is not a criminal offense, and issuing lookout circulars in such cases violates personal liberty. The judgment emphasized that no existing law grants banks the right to issue such circulars.
According to the court, lookout circulars should only be issued in cases involving serious offenses or registered criminal cases. Merely failing to pay EMIs or loans does not justify restricting an individual’s freedom to travel.
Applicability of the Court’s Decision
The Bombay High Court clarified that its ruling does not apply to orders issued by criminal courts. This means that if a loan defaulter is involved in a serious criminal case, the cancellation of the LOC will not be applicable. The verdict specifically benefits individuals who have defaulted solely due to financial constraints and do not face any criminal charges.
Significance of the Verdict for Loan Defaulters
With this ruling, banks and financial institutions can no longer arbitrarily issue lookout circulars against loan defaulters. This decision ensures that individuals facing financial hardships can travel abroad for personal or business purposes without fear of restrictions.
However, it is essential to understand that the ruling does not absolve defaulters of their financial obligations. Loan repayments remain mandatory, and banks can still pursue legal avenues to recover outstanding amounts.
Government’s Response to the Verdict
Following the ruling, the central government filed a petition requesting a stay on the order. The government’s counsel argued that banks should retain the authority to issue lookout circulars against defaulters. However, the High Court dismissed the plea and upheld its decision.
A Step Towards Protecting Individual Rights
This landmark judgment by the Bombay High Court redefines the relationship between banks and borrowers. It establishes that failing to repay a loan is not a criminal offense and should not result in travel restrictions. This ruling strengthens individual rights and ensures that personal freedom is not compromised due to financial struggles.
At the same time, it is crucial for borrowers to fulfill their financial responsibilities. If facing difficulties in repaying a loan, it is advisable to communicate with the bank and explore options such as restructuring the repayment plan or negotiating alternate solutions.
