The Madras High Court has held that a person who has defaulted on a loan cannot be forced to remain in India only to ensure repayment of the loan when there is no allegation or evidence of fraud. The court observed that taking a loan does not mean that a citizen gives up his constitutional and legal rights, including the right to travel.
Justice V. Lakshminarayanan made the observations while hearing a review petition filed by Bank of Baroda against an earlier order that had revoked a Look Out Circular (LOC) issued against a loan defaulter.
The case concerned Kondepati Ganga Prasad, who was a promoter director of an entity that had taken a loan from Vijaya Bank. Vijaya Bank was later merged with Bank of Baroda. After the loan remained unpaid, Bank of Baroda initiated proceedings under the Insolvency and Bankruptcy Code (IBC) as a financial creditor.
The National Company Law Tribunal (NCLT) subsequently approved a resolution plan, which was implemented and the debt of the principal borrower was settled. However, the LOC issued against Prasad continued.
Prasad then approached the Madras High Court seeking removal of the LOC. During the proceedings, the Central Government informed the court that the LOC had been opened based on a request made by the bank.
The bank acknowledged that the loan account had been closed following implementation of the resolution plan but wanted the LOC against Prasad to continue. The High Court, however, revoked the LOC.
Bank of Baroda subsequently filed a review petition against the order. The bank argued that although the debt of the principal borrower had been extinguished under the resolution plan, the LOC should continue because Prasad was a guarantor.
The bank also submitted that the resolution professional had advised it to initiate bankruptcy proceedings against Prasad and that the matter was being discussed with other consortium banks.
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