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

The mere fact that a citizen of the country either raises a loan from a bank or stands as a guarantor for a loan availed by someone else does not mean that he has mortgaged his constitutional and legal rights lock, stock and barrel with the bank, the Madras High Court has observed.

Justice V. Lakshminarayanan made the observation while dismissing an application filed by Bank of Baroda to review his August 24, 2026 order revoking a Look Out Circular (LOC) issued against Kondepati Ganga Prasad who was a guarantor for a high value loan availed by GVR Infra Projects.

The judge highlighted that the right to travel freely across the world was a fundamental right enshrined under Article 21 of the Constitution as declared by the Supreme Court in Maneka Gandhi Vs. Union of India (1978). In order to have a restriction of that right, it should be in accordance with law.

“The term ‘law’ under Article 21 implies a legislation. A letter written by the Manager of the bank to the Bureau Of Immigration cannot be treated as ‘law.’ If a nationalised bank is permitted to do this, then every private creditor or non-banking finance corporation would also be emboldened to approach the police for issuance of LOC to prevent their debtors from going abroad,” the judge wrote.

He went on to state: “God forbid the debtors from being thrown at the mercy of wolves of creditors. All these observations are made only to point out that the constitutional rights of the petitioner does not come to an end with the commencement of mortgage with the review petitioner’s bank.”

In the present case, the guarantor proposes to go abroad to earn and repay the amount after returning. However, the bank was insisting upon him to repay the money first and then go abroad. “This is a catch-22 situation. If the bank wants the money, the petitioner has to earn it. The petitioner, in his wisdom, has decided to go abroad to earn it. The bank says till he pays the amount, he should not be permitted to go abroad. This vicious circle has to be broken.”

Justice Lakshminarayanan also said, no business venture gets started with an intention to create a loss but such was the nature of life that not every business ends up successful. The bank, while issuing the loan, was well aware that all loans were not going to be repaid and some were bound to become sticky or Non-Performing Assets (NPAs).

“I should point out that the Bank of Baroda, for the very purpose, has a separate branch called the stressed accounts branch. This shows that the number of sticky accounts with the Bank of Baroda is so high that it requires special attention of a team of officers,” he added.

The judge recorded the submission of the bank’s counsel that it had not lodged any criminal complaint of fraud against the guarantor either with the Central Bureau of Investigation or the State police. Even the bank officials who were responsible for clearing the loan in favour of the private company had not been prosecuted.

“The bank has not done so because it is very well aware that it was the business decision taken by the managerial authorities at that relevant point of time to clear the loan in favour of the petitioner. When there is no fraud, either at the instance of the petitioner or at the instance of the managerial staff of the bank, for the mere fact that the petitioner is a defaulter, he cannot be forced to stay within the four corners of this country in order to ensure that the amounts are re-paid,” the judge concluded.