Banks acting as both an executioner and a judge: Bombay HC on LOCs

MUMBAI: The Bombay High Court ruled against the powers provided by the Center to public sector banks, claiming that these institutions had simultaneously become judges and executioners by issuing lookout circulars or letters of intent against defaulters, allegedly in the broader public interest.

An executive action cannot in this way violate the basic rights guaranteed by Article 21 of personal liberty and the freedom to travel, according to a high court division bench composed of Justices Gautam Patel and Madhav Jamdar. Their reasoned ruling was posted on Thursday.

The ruling was made in response to a sizable number of petitions contesting the constitutionality of LOCs that the Ministry of Home Affairs had issued on behalf of many public sector banks.

According to the HC, the authority granted to a public sector bank by its top brass is also blatantly arbitrary, as it establishes an erroneous categorization and therefore infringes against the fundamental right to equality.

The bank disregarded two basic rules of law. A previous hearing was not held before issuing LOCs by them; the other is based on natural justice principles. One is that an individual cannot serve as a judge in their own case. “It only gets worse that the public sector bank is armed with this unilateral power and is directly concerned with debt recovery,” which encourages prejudice.

HC on LOCs: Banks is acting as both a judge and an executioner.

According to the statement, “The LOCs amount to nothing more than a strong-arm strategy to get around or outpace what PSBs view as annoyances and irritants—the legal system.” The Center’s position that bank-triggered LOCs and power should only be granted in restricted circumstances and where it is in the public interest was rejected by the HC.

Nobody contests the need to prosecute economic violators. However, in the event that the right to life and personal liberty provided by Article 21 of the Indian Constitution is violated, no amount of public interest may take the place of a method established by law, whether it be by legislation, statutory rule, or statutory regulation, the court said.

A portion of the office letter that gave public sector bank CEOs and CMDs more authority was overturned by the HC because it was illogical, irrational, inappropriate, and based on an abuse of power. As for the second query, HC stated the banks remained mute. The question posed was, “Is a court to assume that a borrower is bound to settle abroad and flee the country just because he is traveling abroad?”

According to the HC, the 2018 Fugitive Economic criminals Act, which banks may use to prevent economic criminals from avoiding Indian courts, has the same purpose that these public sector bank-driven LOCs purport to pursue.