Bombay HC: PSBs had become Judge and executioner at once; the LOCs their strong-arm tactic to bypass law courts

MUMBAI: In having look out circulars (LOCs) issued against its defaulters, public sector banks had become judges and executioners at once, held the Bombay high court while quashing the LOCs and the enabling powers that the Centre gave to such banks, ostensibly in the larger public interest. The fundamental rights under Art 21 of personal liberty and the right to travel abroad cannot be abrogated in this fashion, by an executive action held by the HC division bench of Justices Gautam Patel and Madhav Jamdar, in its reasoned judgment of the April 23 pronouncement.The power given to the PSB through its top brass is also manifestly arbitrary as it creates an invalid classification and thus violates the fundamental right to equality too, the HC held, and hence every LOCs so issued is invalid.
The PSBs’ case was that, the HC said, “(perhaps because PSBs seem to be more liberal (or less cautious) in lending)’’ their problem was "more acute in terms of volumes, and consequently a trammelling of Article 21 rights of PSB borrowers may be perfectly all right.’’ The HC said, “that borders on the absurd.’’
When asked, how many such financial fugitives there are abroad. The PSBs said, “There are five’’.
“That is all. Exactly five: Vijay Mallya, Nirav Modi, Mehul Choksi, Jatin Mehta and “Sandesnas (Sterling Biotech)” (sic; presumably Nitin Sandesara and family). This, we are asked to believe, is such a monumental problem that every single borrower from a PSB, with no regard at all to a degree, must be lumped in the class,’’ wrote Justice Patel, authoring the judgment. Justice Patel retired on April 25.
The HC said the banks were silent on the next question. “Is it to be assumed by a court that just because a borrower is travelling abroad, therefore, he is bound to settle abroad and flee the country?’’
Rejecting the Centre’s argument of bank-triggered LOCs being in, exceptional cases and public interest, the HC said, no one denies that economic offenders must be brought to book, but clearly, “no amount of ‘public interest’ can substitute for a ‘procedure established by law’, -- by a statute, statutory rule or statutory regulation in the matter of deprivation of the right to life and personal liberty guaranteed under Article 21 of the Constitution of India.’’
The public sector banks (PSBs) flouted two fundamental legal canons. No person may be judged in his own cause and the principles of natural justice—there was no prior hearing at all in the issuance of the LOCs by the public sector banks. Both sides must be heard—audi alteram partem—is a principle so ancient , its presence is there in every sacred text somewhere, said the Judges, referring to the Bible, New King James version. The HC said, “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.’’ “There is, therefore, a complete and direct violation of both rules of natural justice, and a resultant bias,’’ the court concluded.
A large batch of petitions challenged the constitutionality of these LOCs issued by the Ministry of Home Affairs (MHA) at the instance of various public sector banks, through their top brass.
The HC also said “Not once have we been shown that preventing anyone travelling abroad has even remotely addressed the issue — that debt has been recovered because the person has been denied permission to travel.’’ The HC said, “…there is no reason on this logic why a person should simply be prevented from travelling overseas’’ adding but even if some reason was shown it would still not bring it within the ambit of reasonable restriction of Art 21—right to life and personal liberty.
“If the fundamental right to personal liberty is to be compromised like this, we might as well have actual detention,’’ said the Judges and, “The LOCs boil down to nothing but a strong-arm tactic to bypass or leapfrog what PSBs clearly see as inconveniences and irritants — the courts of law.’’
The Centre defended its 2010 office memorandum (OM)and all subsequent communications that empowered the Banks Chairman, MD, CEOs to opt for the LOCs as an arsenal against defaulting borrowers. “The economic interests of India” and “larger public interest” was the Centre’s mantra. The Centre’s contention that the OMs confer only a ‘limited power to be exercised in exceptional cases’ does not commend itself, held the HC. The raft of LOCs disproved the ' ‘exceptional power’’ argument, said the HC and “Curtailing a fundamental right under Article 21 is not a ‘limited power’’’ it noted.
“Every single case is being treated as ‘exceptional’,’’ the HC observed, noting that there was no discernible or disclosed basis on which the LOCs are in fact being issued against any borrower.
The argument of a ‘wider public interest’ is simply contrary to settled law, the HC stated.
“If a fundamental right under, say Article 19 is to be constrained, the restriction must fit exactly within Articles 19(2) to 19(6). Restrictions are narrow and limited; freedoms are not. They are, indeed, infinitely elastic, and nothing demonstrates this better than the steady expansion of the ambit of Article 21 over the last six or seven decades,’’ the judges held.
The centre said the OM was framed because of a legislative vacuum. The HC said the Fugitive Economic Offenders Act, 2018 to deter economic offenders from evading Indian courts, has precisely the avowed objective of these PSB-driven LOCs and can be invoked by the Banks. It is a more long drawn process and an FEO is an individual against whom an arrest warrant has been issued by a court.
That part of OM which empowers the CMDs, CEOS of PSBs was struck down by the HC for being arbitrary, unreasonable, improper and on grounds of uncanalised and excessive power.
A plea was made by the Centre’s counsel for a stay for a few weeks a part of the order. The HC rejected such a plea.