The finance ministry is reportedly examining a recent Bombay High Court order barring PSU banks from seeking the issuance of look-out circulars (LOCs) against wilful defaulters.

A division bench of the Bombay High Court comprising Justices Gautam S. Patel and Madhav J. Jamdar had on April 23 passed a judgement after hearing a batch of writ petitions and interim applications.

The petitioners included 38 individuals who were apparently issued LOCs. It is not clear if they were classified as wilful defaulters or stood as guarantors.

The Bombay High Court in a 289-page order quashed and set aside all LOCs and directed that the “Bureau of Immigration will ignore and not act upon any LOCs issued by any public sector banks’’.

The division bench further said that Clause 8(b)(xv) of amended OM (Office Memoranda) 2010 be quashed. The memoranda empower the chairman, MDs and CEOs of PUS banks to seek LOCs.

Banks, however, are always at liberty to apply to any court or tribunal for an order against an individual borrower and guarantor from travelling overseas, the court said.

They can also invoke powers under the Fugitive Economic Offenders Act, 2018, where applicable, despite its judgment on LOC.

The court was examining the constitutionality of the LOCs issued by the Ministry of Home Affairs (MHA) at the instance of various PSU banks. These LOCs are issued under a set of OMs.

According to the order, while the OMs are not challenged in their entirety, only that portion of the OMs is assailed which, by amendment, allows PSU banks to request the issue of LOC against individuals said to be in default.

It added that these individuals may not be borrowers personally, but may in some cases be guarantors for the repayment of debts by others or even principal officers (directors in particular) of corporate debtors.

The individual has no prior notice of the issuance of LOC, and is not even given a copy of the LOC, the division bench said. The individual is merely told that there is such LOC issued by a particular bank and the person cannot, therefore, be allowed to board the flight.

“The LOCs boil down to nothing but a strong-arm tactic to bypass or leapfrog what PSBs (PSU banks) clearly see as inconveniences and irritants — the courts of law,’’ the division bench said while adding, ``the fact that the public sector bank is directly concerned with the recovery of debt and is yet armed with this unilateral power only makes matters worse’’.

“In effect, the Chairmen, Managing Directors and Chief Executive Officers have been elevated to the same status as high-ranking police officers. This is simply incomprehensible,’’ the bench said.

A PTI report quoting finance ministry officials said North Block is aware of the judgement and will make a detailed assessment.