38 writ petitions later: why your bank LOC may be unconstitutional now.

Stopped at the Airport, No Warning, No Law

Viraj Chetan Shah had a ticket, a passport, and a destination. What he did not have was a warning. At the airport, he was stopped. A Look Out Circular—a LOC—had been issued against him. Not by a court. Not by a police officer investigating a crime. By a public sector bank that said he owed it money.

Shah was one of dozens. Thirty-eight writ petitions landed before the Bombay High Court, each telling the same story: a person with a defaulted loan or a personal guarantee, a bank that wanted to prevent them from leaving India, and an executive instruction—an Office Memorandum from the Ministry of Home Affairs—that let the bank head pick up the phone and request a LOC. No notice. No hearing. No statute. Just a letter from a banker to the Bureau of Immigration.

The stakes were constitutional. Article 21 of the Constitution guarantees the right to travel abroad. The Supreme Court has called it part of personal liberty. The question before Justice G.S. Patel and Justice Madhav J. Jamdar was simple: can a public sector bank, using nothing but an executive instruction, take that right away?

The banker who became a gatekeeper

The story of the Look Out Circular in India begins in 1979. Back then, the Ministry of Home Affairs issued an Office Memorandum—OM 1979—that said LOCs could only be issued at the request of the Central Government or a State Government. The purpose was narrow: prevent suspects in criminal cases from fleeing the country.

Over the decades, the OMs changed. By 2010, the list of authorities who could request a LOC had grown. By 2017, it included the Serious Fraud Investigation Office and the Enforcement Directorate. Then came the 2018 amendment. OM-II of 2018 added a new category: the Chairman or Managing Director of a public sector bank could request a LOC against a borrower who had defaulted or whose guarantee had been invoked.

The 2019 OM went further. It said LOCs could be issued against defaulting borrowers in cases where the amount involved was over Rs 50 lakh. The 2021 OM removed even the automatic lapsing of LOCs. Once issued, a LOC could last forever.

None of these OMs were passed by Parliament. None were notified under the Passports Act, 1967. They were executive instructions—internal memos from the Ministry of Home Affairs to the Bureau of Immigration. And yet, they were being used to stop citizens at airports, turn them back, and effectively imprison them within India's borders.

What the petitioners told the Court

The petitioners, led by Viraj Chetan Shah, argued that the OMs were unconstitutional on multiple grounds. First, they said, the right to travel abroad under Article 21 could only be restricted by a law—a statute passed by Parliament. The Passports Act, 1967, already occupied the field. It laid down when a passport could be impounded or revoked. The OMs, being executive instructions, could not operate in that field.

Second, they invoked Article 14. The OMs created a classification—defaulting borrowers—but there was no intelligible differentia. Why should a borrower who owes money to a PSB be stopped at the airport, while a borrower who owes the same amount to a private bank walks through? The object of the OMs was economic interest, but the classification was arbitrary.

Third, they argued procedural due process. A LOC is issued without notice. The affected person learns about it only when they are stopped at immigration. There is no hearing, no appeal, no oversight. The Court had earlier noted, in Sumer Singh Salkan v Asst. Director & Ors, that LOCs are "coercive measures." The petitioners said you cannot use a coercive measure without a law.

The Union of India took a neutral stand. It said it merely processed LOC requests. It did not defend the OMs. The banks, however, argued that defaulting borrowers posed a flight risk. If they left the country, they said, India's economic interests would be harmed. The banks needed the power to stop them.

The doctrine that mattered: executive power has limits

The Court turned to Article 73 of the Constitution. That article defines the extent of the executive power of the Union. It says the executive power extends to matters on which Parliament can legislate. But—and this was the key—it does not extend to matters where Parliament has already legislated, unless the executive action is consistent with that legislation.

The Passports Act, 1967, is a complete code. It lays down who can issue a passport, who can impound it, and on what grounds. It provides for appeals. It creates offences. The field is occupied. The OMs, the Court held, could not operate in that field. They were executive instructions trying to do what only a statute could do.

The Court also examined the phrase "economic interests of India." The OMs allowed LOCs to be issued in exceptional cases to protect India's economic interests. The banks argued that recovering bad loans was in India's economic interest. The Court disagreed. A PSB's financial interest in debt recovery, it said, cannot be equated with the economic interests of India. The two are not the same. If every defaulting borrower could be stopped at the airport on the ground that the bank's recovery is India's economic interest, the exception would swallow the rule.

The Court also found the OMs violated Article 14. The classification was arbitrary. It gave PSBs a power that no other creditor had. It did not distinguish between a wilful defaulter and a borrower who had fallen into genuine hardship. It did not require the bank to exhaust other remedies before requesting a LOC. It was, the Court held, an impermissible classification.

What the Court actually did

The operative order, though truncated in the available text, is clear in structure. The Court declared the OMs ultra vires insofar as they empowered PSBs to request LOCs against defaulting borrowers. The individual LOCs issued at the instance of PSBs under the impugned provisions were set aside. The Court also directed that procedural safeguards be put in place for future LOC issuance.

The judgment does not say that LOCs can never be issued against a borrower. It says they cannot be issued on the say-so of a bank head, without a statutory foundation, without notice, and without oversight. If Parliament wants to give banks this power, it must pass a law. Until then, the right to travel abroad remains intact.

THE PLAY: If you are a borrower or guarantor with a LOC issued at the request of a PSB, move the Bombay High Court under Article 226. The OMs that authorised that LOC have been declared unconstitutional. The LOC itself is liable to be set aside.

Why this matters in practice

For advocates, this judgment is a reminder that executive instructions have limits. No matter how many OMs the MHA issues, they cannot override fundamental rights. The Passports Act is the only law that governs travel. If a client is stopped at the airport because of a bank LOC, the first question is: what is the statutory basis? The answer, after this judgment, is: none.

For CFOs and founders, the message is equally clear. A defaulted loan does not mean you lose your right to travel. The bank cannot unilaterally decide to ground you. If you receive a notice from a bank threatening a LOC, you now have a constitutional argument to resist it. The judgment also means that banks will have to go to court—or to Parliament—if they want to stop a borrower from leaving the country. They cannot do it through a memo.

The Court also noted, in obiter, that the 2021 OM's removal of automatic lapsing of LOCs was a "complete reversal" of earlier protections. That observation may be used to challenge indefinite LOCs as disproportionate. For now, the immediate relief is for the petitioners: the LOCs issued against them are gone.

The bottom line

If you are a borrower or a guarantor and a public sector bank has requested a LOC against you, the legal basis for that LOC has been struck down by the Bombay High Court. Move quickly. The right to travel is fundamental. No banker's memo can take it away.