The Delhi High Court held that the issuance of a lookout circular (LOC) cannot be resorted to in every case of bank loan defaults or credit facilities availed for business.

The Court explained that although an LOC can be issued at the request of a public sector bank, the “said power should be used in exceptional circumstances and not as a matter of routine.

Metaphor Exports Private Limited (company) had approached the Bank of Baroda (bank) for availing cash credit facilities by executing a Deed of Guarantee for repaying the amount disbursed.

Cash credit facilities totalling Rs. 7 crores were released to the company based on its stock and book debts, out of which Rs. 5.95 crore was withdrawn by its directors. It was alleged that the said amount was misappropriated, leading to the classification of the company's account as a Non-Performing Asset (NPA) with a balance of Rs. 7.26 crore due and payable by the company.

A Single Bench of Justice Subramonium Prasad observed, “It is well settled that merely because the Office Memorandum permits the issuance of a lookout circular in exceptional circumstances, even when an individual is not involved in any offence under the IPC or any other penal.

Advocate Hrishikesh Baruah represented the petitioner, while ​​CGSC Ajay Digpaul appeared for the respondents.

The bank had initiated proceedings under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI Act) before the Debts Recovery Tribunal (DRT). Further, the Central Bureau of Investigation (CBI) also registered an FIR against the directors of the company under Section 420 of the IPC read with Section 13 (1)(d) and Section 13(2) of the Prevention of Corruption Act.

The Court explained that the Office Memorandum OM permits all Public Sector Banks to issue a request for opening a lookout circular in exceptional cases if the departure of a person could be detrimental to the sovereignty or security of the country, poses a threat to the bilateral relations of any country, or if such departure would threaten the larger public interest.

The Court stated, “The Fundamental Right of a citizen of the country to travel abroad cannot be curtailed only because of failure to pay a bank loan more so when the person against whom the lookout circular is opened has not been even arrayed as an accused in any offence for misappropriation or siphoning off the loan amounts.

The Court remarked that the term ‘detrimental to the economic interests’ should be of such a magnitude that could “significantly affect the economic interest of the country.”

The Court held that the total loan amount disbursed by the bank was about Rs.7 crores and even if the interest was added to it, it cannot be said that the amount was so large that it would affect the economic interests of the country.

Accordingly, the High Court quashed the LOC and allowed the petition.

Cause Title: Shalini Khanna v. Union of India & Anr. (2024-DHC-960)


Petitioner: Advocates Hrishikesh Baruah, Kumar Kshitij and Anurag Mishra

Respondents: CGSC Ajay Digpaul, Advocates Kamal Digpaul, Ishita Pathak, Ashish Verma and Kartikey Bhargava

Click here to read/download the Judgment