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  • According to the Karnataka High Court, unless there is an element of fraud and national economic interest is at stake, a bank cannot seek the issuing of a Look Out Circular (LOC) or prevent a person (a loan defaulter) from leaving the country. 
  • Leena Rakesh's case, which questioned the FRRO's endorsement cancelling her passport and preventing her from leaving Bengaluru to return to the Philippines, was partially granted by a single judge bench presided over by Justice SG Pandit. 
  • The move was launched when UCO Bank asked the authorities to impose a LOC against the petitioner because she had missed a loan payment.
  • It is true that the respondent-Bank has the authority to ask respondents Nos. 1 and 2 to issue a LOC against a person who has defrauded or defaulted against the Bank, the bench ruled. 
  • Even though the ability to request the issuance of a LOC has been granted, this power cannot be used arbitrarily. In December 2014, the petitioner and her husband received a loan from the UCO Bank. 
  • The pair is said to have stopped making payments starting in September 2019. Differences between the petitioner and her husband are to blame for not returning the loan.
  • The Bureau of Immigration affixed a cancellation seal on her passport to prohibit her from leaving the country in accordance with a Look out Circular.
  • Senior Attorney Shashikiran Shetty argued that the respondents' refusal to allow the petitioner to leave the country violated Articles 14, 19, and 21 of the Indian Constitution. 
  • Furthermore, because the granting of a LOC is not a recovery procedure, the respondent-Bank could not have asked for its issuance. 
  • Additionally, it was claimed that the Bank made no attempt to pursue payment from the petitioner's husband.
  • Shanthi Bhushan, an Assistant Solicitor General, drew the court's attention to an O.M. dated October 4, 2016, which states that whenever the bank believes that fraudsters or people who want to take loans willfully default and then flee to foreign countries to avoid paying back, a request may be made to issue a LOC against such people and that such people may be prohibited from leaving the country.
  • The High Court pointed out that the OM gives the authority  to issue a LOC if it determines that allowing someone to leave the country will hurt India's economic interests. 
  • The sum due by the petitioner in this instance, however, would not have any effect on or harm the nation's economic interests, especially as the third respondent has security valued at more than the amount the petitioner owes. 
  • The SARFAESI Act's provisions preserve the bank's interests and offer a means of recovering possession. Instead of using the recovery process outlined by the SARFAESI Act, the third respondent, the Bank, is applying pressure.
  • As a result, the court concluded that given the unusual facts and circumstances of the case, the respondents' action was arbitrary, unreasonable, and unfair.
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