Court Rules Look Out Circular Cannot Be Maintained Without Fraud Allegation or Legal Backing; Emphasizes Fundamental Right to Freedom of Movement under Article 21
In a landmark judgment dated October 1, 2026, the Madras High Court, presided over by Justice V. Lakshminarayanan, dismissed the review petition filed by Bank of Baroda (formerly Vijaya Bank) seeking to continue a Look Out Circular (LOC) against Mr. Kondepati Ganga Prasad, a guarantor of a defaulted loan. The court held that mere loan default or status as a guarantor, in the absence of any allegation of fraud, criminal complaint, or statutory authority, cannot justify restriction on the fundamental right to travel abroad under Article 21 of the Constitution of India.
The case arose when the writ petitioner, Mr. Ganga Prasad, a promoter-director of M/s. GVR Infra Projects, challenged the issuance of an LOC that prevented him from traveling abroad. The principal debtor company had taken a loan from Vijaya Bank, which later merged with Bank of Baroda. The loan account had gone bad, and insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) were initiated. A resolution plan approved by the National Company Law Tribunal (NCLT) satisfied the debt against the principal debtor. However, the LOC against the guarantor petitioner remained in force.
Upon hearing the writ petition, the High Court initially directed the removal of the LOC, allowing the petitioner to travel freely. The bank, aggrieved by this order, sought a review on the grounds that: (i) the petitioner was a guarantor and the LOC should continue; (ii) the resolution professional had advised initiating bankruptcy proceedings against the petitioner, a fact allegedly suppressed by him; and (iii) a Supreme Court interim order required persons in similar positions to seek permission before traveling abroad.
Justice Lakshminarayanan, after careful consideration, rejected all these grounds. The court emphasized that the review petition was essentially an attempt to reargue points not previously urged, which is impermissible as per settled law. The bank failed to demonstrate any error apparent on the face of the record warranting review.
Critically, the court noted that the bank had not lodged any complaint alleging fraud by the petitioner, nor had any criminal proceedings been initiated. It differentiated between a borrower who incurs loss due to business failure and one who commits fraud. The court observed that business ventures inherently carry risk and not all loans will be repaid. The presence of a special branch in the bank to manage stressed assets underscored the commonality of non-performing assets.
The court also underscored the constitutional principle that the right to travel abroad is a fundamental right under Article 21 and any restriction must be in accordance with law, implying proper legislation. A mere letter from a bank manager to the Bureau of Immigration requesting an LOC does not constitute "law" for restricting personal liberty. The court warned against the dangerous precedent of allowing financial institutions to restrict travel rights without legal sanction, which could expose borrowers to unchecked creditor powers.
Referring to the Supreme Court's interim order cited by the bank, the High Court clarified that the order was limited to the parties before the Supreme Court and did not constitute binding precedent under Article 141 for all cases. The petitioner had expressed intent to travel abroad to earn and repay the loan, and the court recognized the unfair "catch-22" situation where the bank demanded repayment before permitting travel, yet the petitioner needed to travel to earn.
Summarizing, the court held that constitutional and legal rights are not mortgaged away merely by availing a loan. The bank's review petition was dismissed with no order as to costs, reinforcing the protection of fundamental rights against arbitrary executive actions by financial institutions.
This judgment provides crucial clarity on the limits of Look Out Circulars and reinforces that banks cannot curtail fundamental rights without statutory authority or criminal allegations, preserving the balance between creditor interests and individual liberties.
Bottom Line:
Look Out Circular - Mere loan default or status as guarantor, in absence of fraud allegation, criminal complaint or statutory backing, cannot justify curtailment of right to travel abroad under Article 21 - Review jurisdiction cannot be used to re-argue points not urged earlier.
Statutory provision(s):
Article 21, Constitution of India; Insolvency and Bankruptcy Code, 2016 (IBC)
Bank of Baroda v. Kondepati Ganga Prasad, (Madras) : Law Finder Doc Id # 2993440
