Case at a glance: The Delhi High Court has quashed lookout circulars issued at the request of banks against directors of a company whose loan accounts were declared fraud. It held that “an LOC is a coercive measure and cannot be resorted to as a matter of routine”, and that a bank's fear of flight and its money claim cannot keep an LOC alive in perpetuity once chargesheets are filed.
The petitioners are directors of Hind Agro Industries Ltd, whose accounts with four banks became NPAs and were declared fraud. CBI registered an FIR in 2020 and the ED recorded an ECIR. Lookout circulars were opened at the instance of two banks, the ED and the CBI. The petitioners were granted bail without travel restrictions in the PMLA case.
The petition was restored in 2024 limited to the bank-initiated LOCs, after the trial court said it had no jurisdiction over them. Both the ED and CBI have filed chargesheets.
The Key Question Before the Court
Can bank-initiated lookout circulars continue while the accused are facing trial, after investigation is complete?
LOCs Are Coercive, Not Routine
The Court held that with investigation complete and chargesheets filed, continuing the LOCs served no purpose. The trial court was supervising foreign travel, and the petitioners had travelled abroad several times on suspended-LOC conditions without misuse.
It said the banks' apprehension and money claim “cannot be the sole reason” to keep LOCs alive “in perpetuity”, referring to the MHA Office Memorandum on LOCs and Articles 14 and 21.
What the Court Actually Held
- Bank-initiated LOCs quashed.
- Liberty to approach the trial court regarding the CBI LOCs, to be decided expeditiously.
- Criminal proceedings and the trial court's power to restrict travel are unaffected.
- Liberty to return to the High Court.
Why This Judgment Matters
- It limits banks' use of LOCs as a debt-recovery tool.
- It ties the continuation of LOCs to investigative need.
- It respects the trial court's control over travel.
What Should Advocates Take Away From the Judgment?
For Borrowers' and Directors' Counsel
- Show completion of investigation, compliance with travel conditions, and trial court supervision.
- Distinguish bank-initiated LOCs from those of investigating agencies.
For Banks' Counsel
- Show specific risk, not just the size of the dues, to justify an LOC.
Key Takeaways
- LOCs are coercive and not routine.
- Bank money claims alone cannot sustain an LOC.
- Chargesheet filing weakens the case for continuing LOCs.
- Bank LOCs were quashed.
Frequently Asked Questions
Only the bank-initiated ones. The petitioners may approach the trial court about the CBI LOCs.
No. The proceedings and the trial court's power to restrict travel remain.
Investigation was complete, chargesheets were filed, and there was no misuse of travel permissions.
Conclusion
The ruling reins in the use of lookout circulars as a tool for recovering bank dues.
Practical takeaway: Challenge LOCs where investigation is complete and the trial court supervises travel.