• Written by: admin
• October 31, 2026

A look out circular for loan default has become a common pressure tactic in bank recovery. However, Indian courts increasingly reject it when no fraud or criminal case exists. This guide explains the rules, recent rulings and practical steps.

What Is a Look Out Circular for Loan Default?

A look out circular (LOC) lets the Bureau of Immigration stop or report a person at an airport or port. No statute governs it. Instead, Ministry of Home Affairs office memoranda (OMs) of 2010, 2017 and 2021 set the framework.

The 2021 OM consolidated the earlier rules. Its Clause 6(B)(xv) let chairpersons, MDs and CEOs of public sector banks request LOCs. Clause 6(L) also allows an LOC where departure would harm the “economic interests of India”.

Because the right to travel abroad flows from Article 21, any restriction must rest on law and fair procedure.

Key Case Law on LOCs Against Loan Defaulters

Sumer Singh Salkan v. Director (Delhi HC, 2010). The court set the base rule. An LOC may issue in cognizable offences where the accused deliberately evades arrest or trial.

Viraj Chetan Shah v. Union of India (Bombay HC, April 2024). A Division Bench struck down the clause that allowed public sector bank heads to request LOCs. However, the Supreme Court stayed this ruling in August 2024. It also directed the borrowers in that batch to seek High Court permission before travelling abroad.

Rajesh Kumar Mehta v. Union of India (Delhi HC, 28 May 2024). The court quashed an LOC that Union Bank of India had obtained against a former director and guarantor. It held that a bank cannot use an LOC to arm-twist a debtor when it alleges no fraud or siphoning.

Ritu Singal v. Bureau of Immigration (Delhi HC, 17 April 2026, 2026:DHC:3806). Justice Purushaindra Kumar Kaurav decided a batch of 33 petitions. He set aside the bank-originated LOCs and laid down ten principles:

• Inability to repay a debt does not, by itself, justify restricting liberty.
• Public sector banks cannot seek LOCs under Clause 6(B)(xv).
• Courts must read the “economic interests” ground narrowly.
• Directors, guarantors and family members need specific material showing personal involvement.
• The authority must pass a speaking order and review the LOC periodically.
• The originating agency carries the burden of justification.

Bank of Baroda v. Kondepati Ganga Prasad (Madras HC, October 2026). The court dismissed the bank’s review petition against an order removing a guarantor’s LOC. It noted that no fraud complaint existed and that a bank’s letter is not “law” under Article 21.

Step-by-Step: How to Challenge a Look Out Circular

1. Confirm the LOC. Identify the originating agency through counsel.
2. Check the basis. Find out whether any FIR, CBI case or ED case exists. A pure civil default makes a weak basis.
3. Write to the originator. Seek withdrawal and show your cooperation, repayments, DRT orders or an IBC resolution.
4. Approach the trial court. Where a criminal case is pending, ask that court for travel permission or modification.
5. File a writ petition. Otherwise, move the High Court under Article 226. Seek quashing or interim permission to travel.
6. Offer safeguards. Courts often accept an itinerary, an undertaking to return, or security.

What Should Banks and NBFCs Do Instead?

Lenders should not treat an LOC as a routine recovery step. Before seeking one, they need strong grounds, such as a forensic audit showing diversion, a fraud classification under RBI rules, or a registered FIR.

Meanwhile, lenders can pursue DRT recovery, SARFAESI enforcement, IBC proceedings or wilful defaulter classification. None of these restricts travel.

For broader strategy in recovery and criminal proceedings, see our civil and criminal litigation services.

Frequently Asked Questions

Can a bank issue a look out circular for loan default?

A bank cannot issue an LOC itself; it can only request one. The Delhi High Court held in 2026 that default alone, without a criminal case, cannot justify an LOC.

Can a loan defaulter travel abroad?

Yes, unless a court or a valid LOC restrains them. Courts often permit travel on conditions such as an undertaking to return.

How do I remove a look out circular?

First, ask the originating agency to withdraw it. If that fails, approach the trial court or file a writ petition in the High Court.

Can authorities open an LOC against a guarantor or director?

Only with specific material showing their personal involvement in wrongdoing. Courts reject LOCs based merely on a person’s role as guarantor or director.

Who can request an LOC in India?

Officers listed in the 2021 MHA office memorandum, such as investigating agencies, can request one. Courts dispute whether public sector bank heads still qualify.

Does a look out circular expire?

Courts require periodic review. In addition, the originating agency must withdraw the LOC once its purpose ends.

Lex Pleaders advises banks, NBFCs, businesses and individuals on look out circulars, loan recovery, fraud classification and related criminal and writ proceedings. Write to us at lexpleadersindia@gmail.com to discuss your matter.

Disclaimer: This article offers general information only and does not constitute legal advice.