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The Punjab & Haryana High Court has directed the State Bank of India to pay a compensation of Rs. 1 Lakh for serving a Look-Out Circular (LOC) mechanically by which a woman was prevented from traveling to Dubai. The woman had alleged that due to the LOC, she had suffered not only the loss of reputation but also lost the cost of the ticket bought by her for traveling from India to Dubai.

A bench of Justice MS Ramachandra Rao and Justice Harminder Singh Madaan stated , "We don't think that the respondents followed fair, just and reasonable procedure to deprive the petitioner of her fundamental right to travel abroad."

The bench observed that "businesses can fail for several reasons such as market conditions, labour unrest, lack of raw material, events like pandemic of Covid-19 etc."

"Merely looking at the quantum of loss caused to a banker, it cannot be presumed that there was a fraud committed by the borrower/guarantor, more so when no criminal case alleging fraud has even been filed against the borrower/guarantor. Suspicion cannot take the place of proof," the bench added.

Court further observed that the bank had abused its authority to request the opening of the LOC.

The bench was hearing a plea filed by the director of M/s Drish Shoes Ltd. The company availed a loan from the State Bank of India keeping the director/petitioner as guarantor. Later the petitioner resigned from the board of the company but continued to be the guarantor for the loan taken by the company from the Bank.

Later on, there was a default committed by the company in servicing the loan so the said bank recalled the loan by issuing the demand notice demanding a sum of Rs.121,17,11,148.70.

In furtherance of this, one of the operational creditors of the company filed an application under Section 9 of the IBC, 2016 before the NCLT, Chandigarh, and counsel for the company had informed the NCLT that they were admitting the claim of the said creditor and also sought time to file reply before the next date.

In addition to this, the company through one of its directors sent a letter on December 18, 2021, offering a ‘voluntary and peaceful handover and possession of all mortgaged assets’ of the company to the Bank and requested the latter to sell them and appropriate the proceeds of the sale to the amount due to the Bank.

However, on February 22, 2022, the petitioner was prevented from boarding the flight to Dubai on the ground that a Look-Out Circular (LOC) was issued against her, her family members, and associate directors of the Company by the Airport Immigration authorities.

The petitioner had applied for a Postgraduate MBA Program being offered by prestigious Boston University Questrom School of Business, Massachusetts, USA. She was successful in getting a seat to study the said MBA Programme in the said University and was also awarded a 90% scholarship for the said study by the said University.

Counsel appearing for the petitioner informed the bench that the scholarship secured by her was for study in a prestigious institution and was a once-in-a-lifetime opportunity; that she is one among 130 students selected from 34 countries for the MBA study program and is only 2nd person from India to have been offered 90% scholarship.

"The bank cannot be permitted to hold her entire future to ransom and deprive her of her right to travel abroad and pursue her education, and her academic career would be ruined on account of the wrong action of the Bank," woman's counsel argued.

"The petitioner is not an ‘accused’ in any criminal case evading the process of law since no criminal case has been registered against her and there is no declaration issued either that she committed any fraud or that she was a willful defaulter by any competent authority as per the law and therefore, the LOC itself ought not have been issued," the Counsel added while placing reliance on the Judgment of Madras High Court in S.Martin vs. The Deputy Commissioner of Police, Central Crime Branch Egmore, Chennai & Ors. 

Whereas, the counsel appearing for the bank argued that they had strong apprehension and had reason to believe that the Directors/guarantors of the company might leave the country without paying back their huge debt and without informing the Bank.

The bench opined, "We do not understand how the petitioner can be termed as an ‘accused’ as is mentioned in the LOC when admittedly no criminal case has been initiated in any court in the country against her."

The bench further observed, "We are of the view that there has been non-application of mind by respondent No.3 (Bureau of Immigration, New Delhi,) while issuing LOC dt. 28.12.2021 against the petitioner, and mechanically it appears to have been issued without there being any material to show that the petitioner would fall in the category of a person against whom a LOC is permitted to be issued by the guidelines framed in that regard by the respondent No.1 (Central Government)."

Cause Title: Noor Paul Vs. Union of India & Ors.