Bombay High Court Rules Public Sector Banks Cannot Issue Lookout Circulars Against Loan Defaulters

In a landmark ruling, the Bombay High Court on Tuesday declared that public sector banks do not have the legal authority to issue Lookout Circulars (LOCs) against individuals who fail to repay loans. This decision invalidates all LOCs previously issued by these banks against defaulters.

The bench, comprising Justices Gautam Patel and Madhav Jamdar, also deemed unconstitutional a section of a government memorandum that had granted the chairpersons of public sector banks the authority to issue LOCs against defaulters. The ruling was delivered in response to multiple petitions challenging the validity of this provision.

During the hearing, the government’s attorney, Aditya Thakkar, requested a stay on the order, which the bench denied. The court clarified that its decision would not affect any orders by tribunals or criminal courts that restrict defaulters from traveling abroad.

In 2018, an amendment to the office memorandum had allowed public sector banks to issue LOCs if an individual’s travel abroad could harm the economic interests of India. Petitioners argued that the term “economic interests of India” could not be equated with the “financial interests” of any bank, prompting this judicial review.

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