PSBs can't issue LOCs for default

Indian and foreign borrowers

- URVI MAHAJANI

In a significant ruling, the Bombay High Court ruled on Tuesday that public sector banks do not have the power in law to issue Look-Out Circulars (LOCs) against default borrowers, whether they are Indian citizens or foreigners.

A bench of Justices Gautam Patel and Madhav Jamdar held as unconstitutional the clause of an office memorandum issued by the Central government, which empowers the chairmen of public sector banks to issue LOCS against default borrowers.

The bench refused to stay the order, as requested by the Union government's counsel Aditya Thakker.

In effect, the high court has quashed all the LOCs against defaulters issued by public sector banks. The court has also directed the Bureau of Immigration not to act upon such LOCs.

The bench has, however, clarified that the judgment would not affect those orders issued against any defaulter by a tribunal or a criminal court, restraining them from travelling abroad.

However, PSBs are at liberty to approach courts or tribunals to get LOCs issued against defaulters.