LOC Cannot Be Issued Against Director Merely For Company's Loan Default: Delhi High Court
The Delhi High Court on 10 August held that a Look Out Circular (LOC) cannot be issued merely because a person was a non-executive director of a company that failed to repay bank dues, particularly when the bank has already initiated legal proceedings to recover the amount.
Justice Jasmeet Singh cancelled the LOC issued against Tushar Dey, a former independent and non-executive director of Birla Aircon Infrastructure Pvt Ltd (BAIPL), and directed the Bureau of Immigration to communicate the order to him. The Bench held:
"The respondents have already initiated their appropriate action including SARFAESI proceedings against BAIPL and all guarantors. Merely because the petitioner was a non-executive director of a company and the company has been unable to pay its dues to the bank (for which the bank has already initiated appropriate legal action), an LOC against the petitioner to curtail his right to travel cannot be initiated."
The case arose from a Rs. 19 crore loan taken by BAIPL from the respondent bank on 1 August 2011. The account was declared a non-performing asset (NPA) on 31 March 2014, with Rs. 7.20 crore outstanding. Dey had resigned from BAIPL's Board on 3 July 2013, before the alleged default. The bank initially claimed that Dey was a personal guarantor to the loan but later admitted that this was an inadvertent error.
Dey submitted that he learnt about the LOC only on 4 June 2026, when immigration authorities stopped him at Delhi airport while he was travelling to visit his wife and daughter. He argued that he had neither been informed about the LOC nor given an opportunity of being heard.
The bank contended that the LOC had been issued as a preventive measure under the Ministry of Home Affairs' Office Memorandum dated 12 October 2018.
The Court relied on its earlier judgment in Rajesh Kumar Mehta v. Union of India and reiterated that the right to travel abroad is protected under Article 21 of the Constitution and cannot be curtailed arbitrarily. It also noted that there were no allegations that Dey had committed fraud, siphoned funds or defrauded the bank. It observed:
"A perusal of the aforesaid paragraphs demonstrate that the right to travel abroad is a fundamental right. Further, there are no allegations in the counter affidavit filed by the respondent No. 2 that the petitioner was engaged in any fraud or any siphoning or defalcation of the funds given as loan. Further, it is admitted by the respondent No. 2 that the petitioner herein is not a personal guarantor to said loan."
The Bench further noted that the bank had already initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) against BAIPL and its guarantors.
Accordingly, the High Court allowed the petition and cancelled the LOC issued against Dey.
For Petitioner: Advocates Gunjan Sinha Jain, Ishaan Mukherjee, Sahasradeep Sharma, Pragya, Raghav Sharma
For Respondents: Ankur Yadav, SPC with Rahul Kumar Sharma, Govt Pleader for UOI, Kush Sharma, Atharva Gaur, Niharika Tanwar, Nishchay Nigam, Mr. Anmol Gupta