Relief in loan recovery, big relief for those who could not repay the loan

Delhi High Court has given a historic decision in the interest of customers in loan recovery cases. The court clarified that banks will have to follow the law and rights during loan recovery. This decision has brought relief to those who are unable to repay the loan but are not involved in any criminal activity.

Banks cannot issue LOC in every situation

Delhi High Court has taken a strict stance on issuing Look Out Circular (LOC) saying that it cannot be implemented in every situation.

• When can LOC be issued?
  • LOC can be issued only if a person is accused of fraud or misappropriation of funds.
  • Issuance of LOC is inappropriate in cases of normal loan default.
• Emphasis on stopping misuse of LOC:
  The court said that LOC cannot be used by banks only to recover Rs.

Right to go abroad reserved

The High Court also made it clear that a person cannot be deprived of the right to travel abroad.

• Quoting Article 21:
  • Referring to Article 21 of the Constitution, the court said that the right to travel abroad is a fundamental right.
  • This right cannot be taken away from anyone without a valid reason.
• LOC not issued without additional compulsion:
  The court said that LOC can be issued only in unavoidable circumstances.

Background of the case: Loan worth crores

This case was related to loan default of Rs 69 crore of a company.

• Guarantee of former director of the company:
  • The petitioner, who was a former director of the company, had guaranteed a loan of Rs 69 crore.
  • Later he left the company and went to another place.
• Bank demanded LOC:
  • The bank demanded to issue LOC against the petitioner for loan recovery.
  • However, the petitioner was neither accused of fraud nor of embezzlement.

Court decision: LOC canceled

The High Court canceled the look out circular issued against the petitioner.

• It is mandatory to follow legal provisions:
  • The court said that banks will have to follow all legal provisions.
  • LOC cannot be issued without proving a criminal case.
• No criminal case against the director:
  • The Court found that there was no criminal case against the petitioner.

Strong message for banks

The High Court directed the banks not to adopt illegal methods for loan recovery.

• Respect for customers’ rights:
  • Banks have to ensure that the fundamental rights of customers are not violated.
• Legitimate Uses of LOC:
  • LOC should be issued only if fraud or misappropriation is proven.