Look Out Circulars Against Bank Borrowers and Guarantors

A Look Out Circular, or LOC, is a request by a government agency to the Bureau of Immigration to watch for a named person at India's immigration check posts, and to stop, detain or merely report that person when he tries to leave or enter the country. It is not an order of a court and it is not made under a statute. It rests on an executive instrument: Office Memorandum No. 25016/10/2017-Imm (Pt.) dated 22 February 2021 of the Ministry of Home Affairs, which consolidated and superseded all earlier guidelines on LOCs for Indian citizens and foreigners.

Borrowers, guarantors and directors of borrower companies usually learn of an LOC at an airport. This note explains which agencies can ask for one, the grounds on which it can stop a person from travelling, the special position of public sector banks, how long an LOC lasts, and the routes for having it withdrawn or set aside in Delhi. It is written for borrowers and guarantors in default, for their families, and for lenders' officers who need to understand what the Office Memorandum does and does not permit.

Key points

• LOCs are governed by the MHA Office Memorandum of 22 February 2021, an executive instruction, not by any Act of Parliament.
• Clause 6(H) confines LOCs to cognizable offences; clause 6(I) says that without one the person cannot be detained, arrested or prevented from leaving India.
• Clause 6(L) allows departure to be refused in exceptional cases, including where it would be detrimental to the economic interests of India.
• Item (xv) of clause 6(B) lists the Chairman, Managing Director or Chief Executive of public sector banks among those who may request an LOC; private banks and NBFCs are not listed.
• It is settled that an LOC is not a debt-recovery tool, and bank-originated LOCs have been repeatedly challenged in the High Courts.
• An LOC stays in force until the originator asks for its deletion; nothing removes it automatically.

What Is a Look Out Circular?

An LOC is entered in the immigration system at the request of an "originating agency". Officers at Immigration Check Posts (ICPs) act on it when the person presents a passport. The Office Memorandum contemplates three outcomes, depending on what the originating agency has requested and on which clause supports the request: the person is detained or arrested and handed over to the agency; the person's departure is refused; or the agency is simply informed of the person's arrival or departure.

Because an LOC is an executive measure, its grounds are found in the Office Memorandum, and its limits have been shaped by Article 21 of the Constitution, which protects the right to travel abroad. It is settled that an LOC is a coercive measure that restricts personal liberty, so it must be issued on the grounds the guidelines permit and on material, not as a matter of routine.

Which Office Memorandum Governs LOCs Today?

The current guidelines are in the Office Memorandum of 22 February 2021. Paragraph 6 records that the earlier guidelines were reviewed in consultation with stakeholders, and that the consolidated guidelines in that paragraph replace all of them and are to be followed by all concerned. The earlier instruments remain relevant mainly to understand how the present text developed.

Who Can Ask for an LOC to Be Opened?

Clause 6(B) of the 2021 Office Memorandum provides that a request for opening an LOC must be issued with the approval of an officer of an originating agency, and lists the officers who may give that approval. The list covers officers of specified rank in the Central and State Governments, the police and the central investigating and enforcement agencies. Item (xv) names the "Chairman/ Managing Directors/ Chief Executive of all Public Sector Banks".

Two consequences follow from the text. First, the list names public sector banks only. A private bank, a small finance bank or an NBFC has no standing under item (xv); where such a lender alleges a criminal offence, it must lodge a complaint, and any LOC is then sought by the police or the investigating agency on the strength of the cognizable offence registered. Second, the approval must come from the named officer. A request generated at branch level without that approval is outside the clause.

On What Grounds Can an LOC Stop a Borrower from Leaving India?

Three clauses carry the weight.

Clause 6(H) provides that recourse to an LOC "is to be taken in cognizable offences under IPC or other penal laws", and that the reason for opening the LOC, given in column IV of the proforma, must invariably be provided, failing which the subject "will not be arrested/detained". The reference to the IPC is now read with the Bharatiya Nyaya Sanhita 2023, which replaced it on 1 July 2024.

Clause 6(I) provides that where there is no cognizable offence under the IPC or other penal laws, "the LOC subject cannot be detained/arrested or prevented from leaving the country", and the originating agency can only ask to be informed of the person's arrival or departure.

Clause 6(L) is the exception. In exceptional cases, LOCs can be issued even where the guidelines above do not cover the case, and departure may be declined at the request of any authority listed in clause 6(B), if it appears to that authority, on inputs received, that departure would be detrimental to the sovereignty, security or integrity of India, to bilateral relations with any country, or to "the strategic and/or economic interests of India", or that the person may indulge in terrorism or offences against the State, or that departure ought not to be permitted in the larger public interest.

For a borrower, the structure is simple. If an FIR or criminal complaint discloses a cognizable offence, clause 6(H) can support an LOC at the instance of the investigating agency. If there is no criminal case, the only route to stopping departure is clause 6(L).

Can a Bank Have an LOC Opened Just Because a Loan Is in Default?

Not under the ordinary clauses. A loan default is a civil liability. It is not a cognizable offence, so clause 6(H) does not apply, and clause 6(I) expressly prevents an LOC from stopping a person's departure where there is no cognizable offence. A bank that wishes to prevent a defaulting borrower from travelling must bring the case within clause 6(L), and must show, on actual inputs, that the person's departure would be detrimental to the economic interests of India.

It is settled that an LOC is not a tool for recovering a debt, that inability to repay a loan is not by itself a ground for restraining a person's liberty, and that the economic-interest limb of clause 6(L) is reserved for exceptional cases of serious impact on the economy, not ordinary commercial defaults. The bank-request limb in item (xv) has also had a difficult time in court: bank-originated LOCs have been challenged in writ petitions before several High Courts, including the Delhi High Court, and have repeatedly been set aside where the only basis was a loan default with no criminal case registered. The validity of item (xv) itself has been called into question and carried further on appeal, so the current state of that litigation should be checked whenever a challenge is drafted.

Two related classifications are often confused with grounds for an LOC. A wilful-defaulter classification is a consequence under the RBI's directions on wilful defaulters; it is not a ground listed in the Office Memorandum; see Wilful Defaulter Declaration: Defence. A fraud classification is different in effect, because the bank must then report the fraud to the law-enforcement agencies, and an FIR, if registered, can found an LOC under clause 6(H) at the agency's request; see Fraud Classification of a Borrower Account.

Are Guarantors and Directors Treated Differently?

The Office Memorandum has no category for guarantors, directors or family members of a borrower. An LOC against any of them must satisfy the same clauses as one against the borrower: a cognizable offence in which that person is an accused, for clause 6(H), or the exceptional ground in clause 6(L) as it applies to that person. Holding the office of director, or having signed a personal guarantee, does not by itself bring a person within either clause. A guarantor's liability is contractual, and it is enforced through civil, DRT or insolvency proceedings; see Personal Guarantor Insolvency in India.

How Long Does an LOC Remain in Force?

Clause 6(J) provides that an LOC "shall remain in force until and unless a deletion request is received by BoI from the Originator itself", and that "No LOC shall be deleted automatically." The originating agency must review the LOCs opened at its instance on a quarterly and annual basis and propose deletion immediately after such a review. Where the person is no longer wanted by the agency or by a competent court, the deletion request must be sent to the Bureau of Immigration immediately so that the person's liberty is not jeopardised.

In practice, an LOC opened during an investigation can outlive the reason for it: after a settlement, a closure report, a discharge or an acquittal, the LOC remains on the system until the originator asks for deletion. That request should be pursued in writing as soon as the reason ends.

How Do You Find Out Whether an LOC Exists, and Who Opened It?

There is usually no notice. Most people learn of an LOC when they are stopped at an immigration counter. The first task is to identify the originating agency, because clause 6(J) allows only the originator to seek deletion, and clause 6(K) requires court orders on an LOC to reach the Bureau of Immigration through the same originator. Where a criminal case is pending, the investigating officer or the court record will usually show whether an LOC was requested. Where a bank is suspected, a written request to the bank asking whether it has requested an LOC, and on what material, creates a record for any later petition.

How Can an LOC Be Withdrawn or Quashed?

The route depends on whether a criminal case is pending and who opened the LOC.

Where a criminal case is pending, the court seized of it can regulate travel directly. A court granting bail can attach a condition that the accused shall not leave India without its previous permission, which Section 482(2)(iii) of the Bharatiya Nagarik Suraksha Sanhita 2023 expressly provides for in anticipatory bail; see Anticipatory Bail under Section 482 BNSS. Permission to travel is ordinarily granted on conditions: a detailed itinerary, an undertaking to return, security or a deposit, and in some cases disclosure of assets abroad.

Where there is no criminal case, the writ petition under Article 226 is the principal remedy. In Delhi it is filed before the Delhi High Court, where the Bureau of Immigration and the Ministry of Home Affairs are located. It should annex proof of the travel refusal or the communication disclosing the LOC, the correspondence with the originator, the loan record showing that the dispute is civil, and the status of any DRT, SARFAESI or insolvency proceedings.

Clause 6(K) has a practical consequence for every route. Because ICPs cannot verify the genuineness of a court order, orders for deletion, quashing or suspension must be communicated to the Bureau of Immigration through the originator that requested the LOC. The order should direct the originating agency to communicate it, and the person should carry a certified copy when travelling.

How Is an LOC Different from a Passport Impounding or a Bail Condition?

Three separate restraints can prevent travel, and each has its own legal source.

• An LOC is an executive measure under the Office Memorandum, acted on at the immigration counter.
• Impounding or revoking a passport is done by the passport authority under Section 10(3) of the Passports Act 1967, which includes a ground where criminal proceedings against the holder are pending before a criminal court in India; the authority must record its reasons.
• A court's travel condition is a judicial order, made as a bail condition or as an interim measure in a pending case, and is varied by applying to that court.

A lender with a genuine fear that a debtor will leave to defeat a decree also has judicial routes. In a civil suit, Order XXXVIII Rule 1 of the Code of Civil Procedure 1908 allows the court, where a defendant is about to leave India in circumstances that make it reasonably probable that execution of a decree will be obstructed or delayed, to call on him to show cause why he should not furnish security for his appearance. Those routes involve a judge applying stated tests, which is the safeguard an executive LOC lacks.

A Practical Checklist for a Borrower or Guarantor

1. Before international travel, check whether any FIR or complaint names you, and whether any court has imposed a travel condition.

2. If a bank has threatened an LOC, ask it in writing whether a request has been made, by whom and on what material.

3. If stopped at an immigration counter, note the time, the counter and any document or reference shown to you.

4. Identify the originating agency before choosing the remedy.

5. If a criminal case is pending, apply to that court for permission to travel, with an itinerary and an undertaking.

6. If no criminal case is pending, make a representation to the originator and, if it fails, consider a writ petition in the Delhi High Court.

7. Once an order is obtained, ensure the originator communicates it to the Bureau of Immigration, and carry a certified copy.

A Note on Scope

This article is general information on the law and executive guidelines governing Look Out Circulars and is not legal advice. The remedy turns on who opened the LOC, on what material, and whether a criminal case is pending. The wider practice area is described on the criminal defence page, borrower-side banking disputes on the banking disputes page, and the Delhi forums on the courts and tribunals page. Queries may be directed through the contact page.

Related reading: Regular Bail and Default Bail | Quashing under Section 528 BNSS | One-Time Settlement