Court Quashes Lookout Circular Against Ex-Company Director, Emphasizes Travel Rights

The Delhi High Court stated that banks cannot use lookout circulars (LOC) as tactics to recover debts when there are no allegations of fraud. The court quashed an LOC issued against a former company director who had guaranteed a loan, emphasizing it impedes a person’s right to travel abroad.

In a landmark ruling, the Delhi High Court has reiterated that banks cannot leverage lookout circulars (LOC) as an arm-twisting tactic to recover debts in the absence of allegations of fraud or siphoning off money. The court quashed a LOC issued against a former director of a company that defaulted on a loan, noting that such measures impede an individual's right to travel abroad.

Justice Subramonium Prasad, delivering the judgment on May 28, emphasized that the petitioner was not facing any criminal proceedings nor any allegations of defalcation. The court underscored that the bank had already initiated legal steps under multiple laws, including the SARFAESI Act and the Insolvency and Bankruptcy Code, against both the individual and the company.

The court also criticized the increasing trend of banks requesting LOCs for debt recovery, highlighting that the right to travel is protected under Article 21 of the Indian Constitution. It stated that LOCs should only be issued under compelling circumstances impacting national interests and not as a standard measure in debt recovery cases.