Mortgage Does Not End Right To Travel Abroad, Says Madras High Court

If a borrower fails to repay the loan due to genuine reasons, will it restrict the borrower’s right to travel abroad? In a recent ruling, the Madras High Court dismissed a review petition regarding a matter filed by Bank of Baroda. The Bank sought to maintain a Look Out Circular (LOC) against a person, a promoter director and guarantor of a defaulted corporate loan.

The court criticised the arbitrary travel restrictions imposed by financial institutions, emphasising that taking a mortgage loan does not mean that the borrower or guarantor has surrendered one’s constitutional and legal rights to travel abroad. The court said: “The right to travel freely across the world is a fundamental right. It is enshrined under Article 21 of the Constitution of India.”

The court upheld its previous direction to revoke the LOC and reinforced that the fundamental right to travel abroad, protected under Article 21 of the Indian Constitution, cannot be curtailed if a manager of a bank sends a request for it, and there is no statutory authority or criminal proceedings involved.  

Case Background

It started with the payment default by the company, M/s. GVR Infra Projects, where Kondepati Ganga Prasad served as a promoter director and guarantor. The company took the loan from the former Vijaya Bank, which was merged with the Bank of Baroda. When the loan defaulted, Bank of Baroda initiated corporate insolvency resolution proceedings under the Insolvency and Bankruptcy Code (IBC) before the National Company Law Tribunal (NCLT).

NCLT approved a resolution plan under which the debt against the principal corporate debtor was satisfied, but the bank kept the LOC active against Prasad, as he was the guarantor of the loan.

So, to seek relief from the travel restriction, Prasad filed a writ petition. The high court passed directions to the authorities to remove the LOC, allowing Prasad to live his life normally. However, Bank of Baroda filed a review petition seeking to recall the order and reinstate the travel restrictions.  

Arguments

The counsel representing the bank argued that the LOC must remain active against the guarantor even if the principal debtor’s obligations were satisfied. The counsel contended that the resolution professional had advised the bank to initiate personal bankruptcy proceedings against Prasad after his proposal was rejected, and that Prasad had suppressed this information from the court. The counsel further added that the individuals who are subject to LOC must obtain explicit permission from the high court if they want to travel abroad.

However, the court noted that the bank did not raise these points during the original writ hearing. The court observed that the bank was involved in internal discussions between April and September 2026 and had not proceeded with bankruptcy proceedings against Prasad. It said: “When further proceedings have not been initiated, the petitioner cannot be accused of having suppressed facts.”

Court Observation

The court made several critical observations. It observed that the non-performing assets (NPAs) are an inherent risk in commercial banking and that the bank has a dedicated branch for managing stressed assets. It further noted that the bank had not lodged any criminal or CBI complaint against Prasad alleging any fraud activity.  

It added, “As much as the petitioner is responsible for the loss that has been caused to the bank, the bank should have also prosecuted the officials who were responsible for having cleared the loan in favour of the petitioner.”

It noted a contradiction in the bank’s stance that it wants repayment of the loan while restricting Prasad from going abroad to earn income. Calling it a ‘Catch-22 Dilemma ’, the court remarked that “vicious circle has to be broken”.

Citing Maneka Gandhi vs Union of India, the court held that the right to travel abroad is a fundamental right under Article 21, and ruled that a bank manager’s letter to the Bureau of Immigration does not constitute a law that can restrict one’s constitutional liberties, and thus, permitting any such restrictive action would leave debtors “at the mercy of wolves of creditors”.

Clarifying further on one’s constitutional rights, the court said, “For a mere fact that a citizen of this country raises a mortgage loan does not mean that he has mortgaged his constitutional and legal rights, lock, stock and barrel, with the bank.”

Court Judgment

The court held that there was no error on the face of the record and, finding no merit in any arguments presented by the Bank of Baroda, the court maintained the LOC revocation and dismissed the review petition.