Loanees do not mortgage their constitutional rights with banks: Madras High Court

The Madras High Court has ruled that individuals do not forfeit their constitutional rights when they take out loans or act as guarantors for loans from banks. Justice V. Lakshminarayanan dismissed a petition filed by Bank of Baroda seeking to review an order revoking a Look Out Circular (LOC) against a guarantor, Kondepati Ganga Prasad, who had pledged his services for a high-value loan.

The court emphasized that the right to travel freely is a fundamental right guaranteed under Article 21 of the Constitution, as affirmed by the Supreme Court in the case of Maneka Gandhi vs. Union of India (1978). For a restriction on this right to be valid, it must be in accordance with law. The court clarified that a letter from the bank's manager to the Bureau of Immigration cannot be considered "law."

If banks were allowed to dictate such terms, private creditors and non-banking finance corporations would also abuse this power. Justice Lakshminarayanan went on to state that preventing debtors from leaving the country would be unjust and compared it to placing them at the mercy of unscrupulous creditors. He also highlighted that the bank's insistence on repayment before travel created a self-perpetuating problem.

The judge pointed out that businesses seldom set out with the intention of incurring losses, yet this was the reality of many ventures. Bank officials were aware that loan defaults were inevitable, leading to the creation of a dedicated "stressed accounts" branch to handle such cases. The court also noted that the bank had not filed any criminal fraud complaints against the guarantor or the bank's officials involved in loan processing, as they were confident these individuals had acted within their business judgment.

The court concluded that, in the absence of fraud or misconduct, individuals should not be compelled to remain in the country solely to repay their debts, as this would infringe upon their constitutional rights.