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Kondepati Ganga Prasad: Lifts LOC Citing Article 21 Right to Travel
In a significant ruling that reinforces the primacy of over creditor-driven administrative restrictions, the has refused to reinstate a issued against a at the behest of . Justice V. Lakshminarayanan held that a bank manager’s letter cannot be treated as “law” under , and warned that allowing nationalised banks to use LOCs as a debt recovery tool could embolden private creditors to leave debtors “at the mercy of wolves of creditors.”
The judgment came in a review petition filed by seeking to overturn an earlier order that directed the removal of an LOC against Kondepati Ganga Prasad, a former promoter director of GVR Infra Projects. The bank had argued that despite the closure of the principal loan account under a approved by the , the LOC should remain in force because Ganga Prasad continued to be a . The court, however, found no merit in the bank’s contention and dismissed the review petition, thereby affirming the fundamental right of the individual to travel abroad.
Background: Trapped in a Catch‑22
The case originated from a loan extended by to GVR Infra Projects, for which Ganga Prasad stood as a personal . After the company defaulted, merged with , which initiated under the . The NCLT approved a that satisfied the debt of the , but the LOC against Ganga Prasad—opened on the bank’s requisition—remained active.
When Ganga Prasad moved the High Court seeking revocation of the LOC, the confirmed that the circular had been issued based solely on the bank’s request. The bank, while acknowledging that the loan account was closed, insisted that the LOC should continue because of Ganga Prasad’s status as a . The court initially ordered the LOC to be lifted, prompting to seek a review.
During the review hearing, the bank further argued that the resolution professional had advised stakeholders to consider initiating against Ganga Prasad after a repayment proposal was rejected. The bank claimed that Ganga Prasad had suppressed this material fact. The court, however, noted that the financial institutions were still consulting on their next course of action and no proceedings had actually been initiated. “The petitioner cannot be accused of when no further steps have been taken,” Justice Lakshminarayanan observed.
The Core Legal Issue: Can a Bank’s Letter Be ‘Law’?
The central question before the court was whether a requisition letter from a bank manager could override the constitutional guarantee under Article 21, which protects the . The court emphatically answered in the negative.
“Law under Article 21 implies a legislation. A letter written by the Manager of the bank to the cannot be treated as ‘law’,” the judge stated. He warned that if a nationalised bank is permitted to impose such a restriction, “every private creditor or would also be emboldened to approach the police for issuance of LOC to prevent their debtors from going abroad.”
The court distinguished between a borrower who obtained a loan with fraudulent intent and one who made a business decision that turned out to be unwise. Justice Lakshminarayanan noted that not every business venture succeeds, and banks are well aware when lending that some loans may become sticky or . He further observed that taking a does not mean a citizen has “mortgaged his , , with the bank.”
Crucially, the bank had not lodged any against Ganga Prasad with the or local police. In the absence of an , the court held that the mere fact of being a defaulter could not justify forcing a person to remain in India to ensure repayment.
The Catch‑22 and the Court’s Solution
Ganga Prasad’s stated reason for wanting to travel abroad was to earn money abroad and return to repay the bank. The bank, on the other hand, insisted that he must repay before leaving the country. Justice Lakshminarayanan described this as a “” that had to be broken.
“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 has to be broken,” the court remarked. By lifting the LOC, the court effectively allowed Ganga Prasad the opportunity to earn and discharge his liability, while preserving the bank’s right to pursue other remedies.
Reliance on Precedent Rejected
The bank attempted to rely on a 2024 order concerning the right of persons to travel abroad, arguing that persons in Ganga Prasad’s position must obtain permission from the High Court before leaving the country. The rejected this argument, holding that the ’s order was confined to the specific petitioners in that case and was not a direction under applicable to all persons.
Implications for Creditor‑Initiated LOCs
This judgment sends a strong signal to banks and financial institutions that LOCs cannot be used as a routine , especially in the absence of fraud allegations. The court’s warning about emboldening private creditors and NBFCs underscores a broader concern about the potential misuse of immigration restrictions to pressure debtors. Legal professionals should note that the decision reinforces the principle that any restriction on a fundamental right must be backed by statutory law, not merely by administrative letters or bank requisitions.
For guarantors and principal debtors alike, the ruling provides a clear avenue to challenge LOCs that are not supported by a criminal complaint or a specific legislative mandate. The court’s observation that a mortgage does not involve a surrender of constitutional rights may also be invoked in other contexts where creditors seek to impose extra‑legal restraints.
Conclusion
The ’s dismissal of ’s review petition, without costs, reaffirms the constitutional hierarchy that places above the contractual interests of creditors. By breaking the “” that trapped the , the court has underscored the need for proportionality and legal authority before curtailing a citizen’s freedom to travel. The decision will likely be cited in future challenges to creditor‑initiated LOCs and may prompt a re‑examination of the that governs the issuance of such circulars.
