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  • Writer's pictureRahul Narayan

C&M E-ALERT: The High Court of Bombay strikes down the authority of public sector banks to issue Look Out Circulars

Updated: May 9

On 23 April 2024, in a far reaching judgment, the High Court of Bombay, held that public sector banks (PSBs) do not have authority to issue Look Out Circulars (LOCs) against Indian citizens and foreigners under the Office Memorandums (OMs) of the Central Government.[1] Consequently, all LOCs previously issued at the behest of PSBs were invalidated by the High Court of Bombay.


 BACKGROUND                                                                                                                                  


An LOC is an alert created by Bureau of Immigration under the Ministry of Home Affairs at Indian entry points. The alert is in respect of a subject individual who is involved in a cognisable offence, against whom an action is proposed. Persons against whom LOCs are issued are not allowed to travel outside the country. LOCs are created pursuant to a request made by certain designated Indian authorities.

The petitions filed before the High Court of Bombay, challenged the constitutionality of the practice of issuing LOCs under the cover of the OM dated 27 October 2010 read with the successive OMs dated 5 December 2017, 19 July 2018, 19 September 2018, 4 October 2018, 12 October 2018 and 10 May 2019 issued by the Union of India through Ministry of Home Affairs, on the primary ground that they encroached upon fundamental rights guaranteed under Article 21 of the Constitution of India.

The Ministry of Home Affairs released an OM dated 27 October 2010 which laid down key guidelines for issuance of LOCs. The OM underwent periodic amendments, with significant modification in September and October 2018, which broadened the criteria for issuing LOCs. By way of OMs dated 19 September 2018 and 4 October 2018, the office of the Serious Fraud Investigation Office and PSBs through their managing director or chief executive officer came to be included in the list of officers who could request issuance of LOCs.

The petitioners inter alia contented that the OMs were mere executive directions without any statutory backing and are unconstitutional, being violative of the rights of citizens, under Article 14, 19(1)(g) and 21 of the Constitution of India. Furthermore, even if the impugned OMs were to be statutory enactments rather than executive directions, the OMs did not meet the constitutional test of due process under Article 21 of the Constitution, which requires that the procedure laid down by the law be just, fair, and reasonable.

In defence of the OMs, the Ministry of Home Affairs (MHA) asserted that they serve essential national interests, including security and sovereignty of the country. MHA highlighted the presence of checks, balances, and safeguards in the process of issuance of LOCs. MHA further contended that a particular LOC could be quashed and set aside, but the incorrectness of a particular request by a particular PSBs is not a valid reason to invalidate either the OM or the power to issue LOCs.


 KEY OBSERVATIONS AND FINDINGS OF THE HIGH COURT OF BOMBAY                           


In a learned and detailed the judgement, the Court considered the law on LOCs it has emerged over the years in the light of various constitutional provisions from Articles 21 sand 19 of the Indian Constitution. The court framed various questions it was called upon the answer.

In its judgement the court was careful to separate the broader legal question of whether LOCs could be issued at all from the question at hand which pertained to LOCs issued at the behest of PSBs.

As regards the general legal validity of LOCs, the Court was not persuaded that “the OMs generally are without the authority of law, arbitrary or illegal per se. As we have seen, there are many situations, diverse purposes and varied actions that might legitimately form the basis of a specific LOC.[2]” “For instance, it can hardly be suggested that a detain-and-hand-over to local police (in cognizable offences) LOC, or prevent entry into India (only in case of foreigners) LOC; or an inform-only of arrival/departure (discreet watch) LOC, a customs LOC or an LOC in enforcement of a court prohibition are all universally bad or covered by the Passports Act.[3]

LOCs issued by PSBs were struck down by the Court on the ground of impermissible or invalid classification ultra vires Article 14 of the Constitution and on the ground manifest arbitrariness[4]. The court found no logical reason why PSBs and private sector banks were treated differently under the OMs[5]. The under-inclusion could not be justified on the basis that it was experimental but was per se exclusionary[6]. The court also found that it could not be assumed that every person traveling abroad was seeking to settle abroad and flee the country[7].

The Court also struck down the portion of the OMs dealing with PSBs on the following grounds:

  1. There was no oversight mechanism on PSB chairmen (unlike other authorities such as the NCW or the NHRC) and that “such a coercive power impinging on the fundamental rights of a person can be exercised against him by a private party who is his opponent in a lis and has the mandate to recover monies from him. This is manifestly arbitrary and in violation of Articles 14 and 21 of the Constitution.[8]

  2. There were no stated or disclosed guidelines prescribed and the power was unguided and unanalyzed[9].

  3. There was a complete failure of both principles of natural justice. “In the issuance of LOCs by public sector banks, there is no prior hearing at all; and, equally, there can be no doubt that the issuing bank is directly a claimant. There is, therefore, a complete and direct violation of both rules of natural justice, and a resultant bias. This is not just a likelihood of bias, for the self-interest of the bank is actually the avowed reason for the unilateral action.[10]” “The fact that the public sector bank is directly concerned with the recovery of debt and is yet armed with this unilateral power only makes matters worse... the Supreme Court specifically noted, inter alia, that the principles of audi alteram partem would be read into any processual system that affected civil rights. But these are fundamental rights; and the right to Article 21 cannot be abrogated in this fashion. Here, the public sector bank becomes judge and executioner at once. The canon of nemo judex in causa sua is automatically violated.[11]

  4. There was no demonstrated nexus to the object sought to be achieved[12].

  5. The LOCs fail both the tests of reasonableness and proportionality[13].

  6. Fundamental rights cannot be curtailed or violated merely because of economic interest or to punish economic offenders without following the procedure established by law or beyond the bounds of reasonable restrictions as enshrined in the Constitution[14]

  7. The Fugitive Offenders Act, 2018 “on its own negates the entire justification for the PSB driven LOCs. It upends every argument in defence, including that of ‘larger public interest’ and the ‘economic interests of India’. Notably the SOR does not speak of the ‘economic interests of India’. It restricts itself to the ‘financial health of the banking sector’ — quite correctly — and observes that this is adversely affected by non-repayment of bank loans. But that is precisely the justification and only justification for the issuance of the LOCs.[15]


While striking out as unconstitutional the OMs that allowed PSB chairmen to issue LOCs, and striking down the attendant LOCs, the verdict, clarified that the verdict does not impinge upon any pre-existing orders issued by Tribunals or Criminal Courts that restrain individuals from travelling abroad. Conversely, the Court upheld the legitimacy of OMs issued by the Breau of Immigration of MHA, which empowers immigration authorities to prohibit individuals from leaving India.


 REMARKS AND TAKEAWAYS                                      


This judgement, which has not yet been challenged in the Supreme Court, will go a long way towards checking abuse of the system of LOCs at the cost of individuals. It carefully deals with both the necessity of the system of LOCs and the vigorous procedural requirements that must be followed to ensure Constitutional justice. The striking down of the power given to PSBs is based on reasoning that has its basis in the traditional principles of fundamental right jurisprudence in our law. It ensures that scores of persons who have been unjustly denied their right to travel will be allowed to do so. 


[1] Viraj Chetan Shah v. Union of India, Writ Petition No. 719 of 2020

[2]¶ 133 of the Judgement.

[3] ¶ 132 of the Judgement.

[4] ¶¶ 149-150 of the Judgement.

[5] ¶¶ 138-140 of the Judgement.

[6] ¶ 143 of the Judgement.

[7] ¶ 148 of the Judgement.

[7] ¶ 156 of the Judgement.

[9] ¶¶ 158-159 of the Judgement.

[10] ¶ 163 of the Judgement

[11] ¶ 165 of the Judgement.

[12] ¶¶ 166-167 of the Judgement.

[13] ¶¶ 176-177 of the Judgement.

[14] ¶¶ 181-182 of the Judgement.

[15]¶ 192 of the Judgement.


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© 2024 Chandhiok & Mahajan, Advocates and Solicitors

This alert is for information purposes only and does not constitute legal advice.

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