In their bid to recover money stuck with absconding wilful defaulters, six public sector banks (PSUs) have issued 1,071 look-out circulars (LOCs) since 2018 to prevent them from fleeing to other countries, according to their replies to the Right to Information (RTI) requests filed by The Indian Express. The State Bank of India (SBI), the largest commercial bank in the country, said as many as 583 LOCs were issued by the bank. While RTI applications were filed with 11 PSU banks, three banks — Canara Bank, UCO Bank and Bank of Baroda (BoB) — refused to give the data and Bank of Maharashtra did not reply to the application even after a month. Reply from Indian Bank is awaited. After SBI, Union Bank of India, Punjab National Bank (PNB) and Indian Overseas Bank (IOB) issued 260, 131, and 42 LOCs, respectively. Bank of India also issued 42 LOCs and Central Bank of India 13 circulars. However, on April 23, the Bombay High Court (HC) held that public sector banks do not have powers to recommend or request the central government for issuance of LOCs against default borrowers who are Indian citizens or foreigners under the office memoranda (OM) of the central government. LOCs issued by PSU banks belonged to the wilful default category. Banks have categorised 17,713 accounts involving loans of Rs 353,129 crore in the wilful default category as of December 2023. Banks were given permission to seek LOCs after a bevy of defaulters from Vijay Mallya, Nirav Modi to Jatin Mehta of Winsome Diamonds fled abroad after defaulting thousands of crores of rupees. Refusing to share the information, UCO Bank said, “this information is exempted from disclosure under section 8(1) (d) and 8(1) (e) of RTI Act, 2005.” “The information sought by you is not available with this PIO. Further, your query is vague and unclear,” Canara Bank said in its RTI reply. BoB also refused to share the LOC data, saying, “the information sought with respect to the documents related to LOCs. The documents related to LOCs are classified in nature and such classified documents are not to be disclosed to any individuals.” When asked about the identity of the defaulters against whom LOCs were issued, SBI said, “the information cannot be provided as per section 8(1) (e) & (j) of the RTI Act 2005, being third party personal information available with the bank in fiduciary capacity.” Other five banks also gave a similar reply on the identity of defaulters. “Banks issued LOCs against defaulters who refused to respond to bank notices and were suspected to be absconding or planning to flee or fled abroad after taking substantial loans. It’s the depositors’ money. We have to recover these loans,” said an official of a PSU bank. The LOC circulars were amended from time to time and in September 2018, a new ground was introduced to issue LOC in the ‘economic interest of India,’ that restrained a person from travelling abroad if his or her departure was detrimental to economic interest of the country. Another clause was introduced later, empowering the Chairman of SBI and the managing director and chief executive officer of all other PSUs to request immigration authorities to issue LOCs. The LOCs were issued by the Bureau of Immigration of the Union Ministry of Home Affairs (MHA) that allow the authorities at any port of departure — mainly airports — to prevent a person from travelling outside India. The LOCs were issued based on a series of OMs or circulars of the ministry since October 27, 2010. The SBI alone has classified 2,048 accounts relating to Rs 81,673 crore as wilful defaults. Punjab National Bank has 2,279 wilful defaults for Rs 43,112 crore and Union Bank 1,967 accounts for Rs 37,241 crore. As per the Reserve Bank of India classification, a ‘wilful default’ would be deemed to have occurred if the borrower has defaulted in meeting their repayment obligations to the lender even when they have the capacity to honour the obligations. A wilful default happens when the borrower has not utilised the finance from the lender for the specific purpose for which finance was availed, and has diverted the funds for other purposes, or siphoned off funds, or disposed of or removed the movable fixed assets or immovable property given for the purpose of securing a term loan without the knowledge of the bank. Bombay HC said while OMs of the central government were not ultra vires the Constitution or ‘per se arbitrary’, the subsequent empowerment of bank managers of PSUs to issue LOCs was arbitrary. “We do not expect public sector banks to do this (issue LOCs),” the bench said. The HC passed a judgment in a batch of petitions and set aside the LOCs issued to restrain persons indebted to public sector banks from travelling abroad. The HC said that the Bureau of Immigration will not act on the said LOCs. The bench also held that the fundamental right to travel abroad cannot be curtailed by executive or controlling statute. LOCs issued by PSU banks belonged to the wilful default category. A wilful default happens when the borrower has not utilised the finance from the lender for the specific purpose for which finance was availed, and has diverted the funds for other purposes, or siphoned off funds, or disposed of or removed the movable fixed assets or immovable property given for the purpose of securing a term loan without the knowledge of the bank.
