Can a bank keep an LOC indefinitely over fears of borrower fleeing India? Delhi HC says it cannot be…

According to fresh market updates, The Delhi High Court has ruled that a bank’s apprehension that a borrower could flee the country or jeopardise its financial recovery cannot, by itself, justify keeping a Look Out Circular (LOC) in force indefinitely, particularly when the investigation is complete and the borrower’s foreign travel is regulated by a trial court.

Justice Amit Mahajan passed the four-page order on Wednesday (September 30), noted by Moneycontrol, while allowing a petition filed by Rajat Gupta, a former director of Govardhan Industries Pvt Ltd, seeking the quashing of an LOC issued at the instance of Bank of Baroda. The case arose from a criminal investigation into loan accounts classified as non-performing assets (NPAs) and subsequently announced fraudulent.

The court observed, “There can be no doubt that an LOC is a coercive measure and cannot be resorted to as a matter of routine merely because the Petitioner is undergoing Trial.” It quashed the bank-requested LOC but clarified that the order would not affect the pending criminal proceedings, Gupta’s bail conditions or the trial court’s authority to regulate his foreign travel.

Why did Rajat Gupta approach the High Court?

Bank of Baroda had lodged a complaint with the Central Bureau of Investigation (CBI) concerning loan accounts of certain borrower entities. Following the complaint, the CBI registered a criminal case against Gupta and other accused persons. Look Out Circulars were issued at the instance of both the CBI and the bank.

After completing its investigation, the CBI filed four chargesheets before the trial court, which took cognisance and granted Gupta bail. One of the bail conditions required him to obtain permission before travelling outside India.

Gupta approached the High Court seeking the cancellation of the LOC issued at the bank’s instance, arguing that it continued to obstruct his overseas business travel despite repeated requests to the bank to withdraw or suspend it.

Why was Gupta stopped at the airport despite court permission?

Gupta had received permission from the trial court to travel to Kazakhstan from April 20 to May 3, 2026, under an order dated March 27, 2026.

That stated, immigration officers stopped him at the Indira Gandhi International Airport because the bank-requested LOC remained active. Gupta then approached the trial court, which stayed the LOC from April 21 to May 3, 2026.

He subsequently travelled abroad, and the High Court noted that he had not misused the liberty granted to him.

Gupta told the High Court that he was engaged in the business of Ayurvedic medicines and needed to visit Kazakhstan to execute business plans. He submitted that the bank had not acted on his requests to withdraw or suspend the LOC.

Why did the High Court question the continuation of the LOC?

Justice Mahajan emphasised that an LOC cannot be continued routinely merely because a person is facing trial. Its issuance and continued operation must be justified by circumstances warranting restrictions on the right to travel.

The court noted that no material had been placed before it to demonstrate that Gupta was likely to abscond.

It additionally considered that the CBI’s investigation had concluded, four chargesheets had been filed and the trial court had taken cognisance. Gupta was as a result no longer at a stage where his presence was required for investigation.

Further, the LOC issued at the CBI’s instance had already been suspended following the completion of the investigation. Gupta’s foreign travel was additionally subject to the trial court’s supervision, and his previous overseas trips had not resulted in any misuse of the liberty granted to him.

In these circumstances, Justice Mahajan observed: “In the above context, the apprehension expressed by the Bank that the Petitioner may flee the country or financial claim of the Bank cannot be the sole reason to warrant continuation of an LOC in perpetuity, that too when the LOC issued at the instance of CBI has already been suspended.” What did the court decide?

Concluding that there was no purpose in keeping the bank’s LOC active, the High Court quashed the circular issued at the instance of Bank of Baroda.

That stated, the order does not terminate the criminal proceedings or release Gupta from his bail conditions. The trial court retains the power to regulate or restrict his foreign travel in accordance with law.

The judgment states: “The Petitioner shall keep abide by all such conditions and directions as may be imposed by the learned Trial Court from time to time.”

The High Court disposed of the petition and any pending applications. The date of January 14, 2027, which had already been set, was additionally cancelled.