Loan default can’t be construed as fraud: Punjab and Haryana High Court

Tribune News Service

Saurabh Malik

Chandigarh, June 18

The Punjab and Haryana High Court has made it clear that default in loan payment cannot be construed as fraud on the borrower’s part as businesses can fail for more than a few reasons.

The Bench also made it clear that the quantum of the alleged default by itself could not be the basis for seeking the issuance of an extreme process like a “lookout circular” (LOC) for restricting the borrower’s personal liberty to travel abroad.

The Bench of Justice MS Ramachandra Rao and Justice Harminder Singh Madaan also ruled that LOC could not be issued by the Bureau of Immigration,MHA, to detain a person when admittedly not even an FIR had been registered against her and “there is no question of her being ‘accused’ of any non-cognizable offence”.

The ruling came on a petition by the director of a shoe manufacturing company run by her husband and others. The Bench was told that the company availed a loan from a bank for which the petitioner stood as a guarantor, along with others.

The petitioner contended her eldest child, settled in Australia, was to deliver a child in July last week and she wanted to be with her at antenatal and postnatal time. But she received a caveat petition filed at the bank’s instance, mentioning that a lookout circular was issued against her, her family and associate directors by the airport immigration authorities.

The Bench asserted the respondent-bank appeared to be of the opinion that default in the loan payment resulting in account becoming a non-performing asset was only because of a fraud by the borrower. “This court can take notice of the fact that businesses can fail for several reasons such as market conditions, labour unrest, lack of raw material, events like Covid-19 etc. Merely looking at the quantum of loss caused to a banker, it cannot be presumed that there was a fraud committed by the borrower/guarantor, more so when no criminal case alleging fraud has even been filed against the guarantor. Suspicion cannot take the place of proof,” the Bench said

Allowing the plea, the Bench added it was of the opinion that the MHA, the Bureau of Immigration and the Foreign Regional Registration office did not follow fair, just and reasonable procedure to deprive the petitioner of her fundamental right to travel abroad.

The Bench added they did not follow the principles of natural justice and did not even supply the LOC’s copy to her despite her request. Setting aside the LOC against the petitioner, the Bench directed the respondents concerned to permit her to travel to Australia to be with her daughter till August-end.

Petitioner was guarantor

The ruling came on a petition by the director of a shoe manufacturing company run by her husband and others. The Bench was told that the company availed a loan from a bank for which the petitioner stood as a guarantor, along with others.

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