Loan Default Alone Not Ground for Travel Restriction: Delhi HC quashes LOC Issued by Bank of Baroda against Director in ₹130 Crore UAE Loan Default Case [Read Order]

The Delhi High Court has quashed a Look-Out Circular (LOC) issued by Bank of Baroda against a director, ruling that a loan default by itself is not sufficient grounds to restrict a person's right to travel. The court held that in the absence of a cognizable offence, the 'economic interest of India' exception cannot be invoked to justify an LOC in a case involving a foreign loan default where the petitioner was merely a guarantor.

The writ petition was filed by Manan Goel, an Indian citizen and Director of Gulf Petrochem FZC, UAE, challenging the LOC issued against him by the Sharjah Branch of Bank of Baroda. The LOC was issued after the company, for which Mr. Goel had provided a personal guarantee, defaulted on a loan of approximately ₹130 crores.

The petitioner argued that no criminal proceedings were pending against him in India, and the loan dispute was a civil matter concerning a foreign entity.

The Counsel for the petitioner contended that the LOC was issued solely as a debt recovery measure, which is not a permissible ground under the governing Office Memorandums. They argued that the bank's action violated his fundamental right to travel under Article 21 of the Constitution, especially since there was no FIR, court summons, or evidence of criminal culpability against him. The petitioner relied on several precedents to argue that LOCs cannot be used to harass individuals in cases of pure commercial defaults.

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The Counsel for the Bank of Baroda opposed the petition, asserting that the LOC was a 'last resort' issued after the loan account was declared a 'fraud' and the borrower and guarantor failed to cooperate. They argued that the petitioner's conduct amounted to wilful default and that the loss to a nationalized bank impacted the economic interest of India. The bank also questioned the petitioner's integrity, pointing to a previous instance where he had allegedly breached a court's travel conditions.

A single bench comprising Justice Sachin Datta analyzed the provisions of the Office Memorandums governing LOCs and found merit in the petitioner's arguments. The court relied on the Division Bench judgment of the Bombay High Court in Viraj Chetan Shah v. Union of India, which had quashed the very provision empowering public sector banks to request LOCs.

It further noted that as per the 2021 consolidated guidelines, an LOC can typically be issued only in cognizable offences, and the 'economic interest' exception cannot be invoked in a vague manner for simple loan defaults, particularly those involving foreign entities and no allegation of misappropriating public funds.

Finding that the bank had not established any exceptional circumstance that would detrimentally affect India's economic interest, the court allowed the petition and quashed the impugned LOC. However, the court subject the order to the petitioner furnishing an affidavit undertaking to fully cooperate with any investigation and provide all requested documents. It was clarified that any breach of this undertaking would be treated as a wilful disregard of the court's order.

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