In a landmark judgment, the Calcutta High Court has criticized the indiscriminate issuance of Look Out Circulars (LOCs) by banks as a means to recover outstanding payments. The court ruled that the mere occurrence of a few individuals defrauding banks and fleeing the country cannot serve as a uniform justification for the widespread use of LOCs.

Highlighting the severe consequences of such actions, the court emphasized the need to regulate the issuance of LOCs and ensure they are not employed as the norm for debt recovery. Deboarding individuals from flights at the last moment based on an LOC was described as draconian and uncivilized, violating principles of natural justice and compromising fundamental rights.

LOCs, which restrict a person's freedom of movement and right to travel, should only be employed in exceptional cases where there is a genuine risk of the individual absconding without repaying loans, the court stressed. It cautioned against banks using LOCs indiscriminately and solely as a buffer for outstanding payments, urging a careful consideration of the borrower's circumstances and ability to make payments.

The case before the court involved Manoj Jain, Director of Jain Infra Private Limited, who had defaulted on a loan from a consortium of 11 banks. Despite repaying dues to all the banks and offering a One Time Settlement plan to two of them, Jain was prevented from boarding a UK-bound flight due to an LOC issued by the Indian Overseas Bank.

Examining the facts, the court found that Jain had complied with previous travel permissions and there was no evidence to suggest he posed a threat to the country's economic interests. It further criticized the recent trend of banks using LOCs as a recovery mechanism, emphasizing that assessing a borrower's creditworthiness and willingness to repay should be done on a case-by-case basis.

Consequently, the court quashed the LOC issued against Jain, emphasizing the lack of rational basis and evidence to support the bank's claims.

With this judgment, the Calcutta High Court has delivered a significant blow to the practice of indiscriminate LOC issuance by banks. The ruling ensures that the fundamental right to travel is not compromised without due process, upholding principles of fairness, natural justice, and individual circumstances in debt recovery cases.