Prayagraj: The Allahabad High Court has raised serious questions over the legality and regulatory basis of a ₹55-crore loan sanctioned by Bank of Baroda to a foreign company, where both the borrower and the guarantor are non-Indian entities and the mortgaged property is located outside India. The court has sought detailed responses from the bank as well as the Union government, asking them to clarify how Indian banking laws apply to a transaction executed entirely overseas.
The observations were made by a division bench comprising Justice Atul Sridharan and Justice Anish Kumar Gupta while hearing a petition filed by Mohammad Farooq, an Australian national.
Transaction Entirely Overseas, Court Flags Jurisdictional Concerns
The case relates to a loan extended to MS Farlin Timbers, a UAE-based company, for which Bank of Baroda sanctioned approximately ₹55 crore. The loan was backed by a guarantee from Mohammad Farooq, who offered a warehouse located in Dubai as collateral.
The High Court noted that, prima facie, the transaction appears to be entirely foreign in nature. The borrowing company is not registered in India, the guarantor is not an Indian citizen or resident, and the mortgaged property is situated outside Indian territory. In such circumstances, the court observed, the applicability of Indian laws and the responsibility of an Indian public sector bank require close examination.
“Where the entire transaction has taken place abroad, the role of Indian law and the extent of the bank’s accountability must be clearly explained,” the bench remarked during the hearing.
Outstanding Dues Cross ₹104 Crore
Counsel appearing for the petitioner informed the court that the Dubai warehouse offered as collateral has already been sold. However, the sale proceeds were insufficient to clear the entire loan liability. On the other hand, Bank of Baroda submitted that a blank cheque issued at the time of furnishing the guarantee was dishonoured in Dubai, leading to criminal proceedings that are currently pending in the UAE.
According to the bank, the outstanding amount — including principal and accumulated interest — has now crossed ₹104 crore. This prompted the court to question why the loan could not be fully recovered despite the liquidation of the mortgaged asset.
Centre Asked to Place RBI Guidelines on Record
Taking note of the larger regulatory implications, the High Court directed the Central government to place on record the relevant Reserve Bank of India (RBI) guidelines governing overseas lending to foreign companies and acceptance of collateral from foreign nationals.
The bench emphasised that clarity is required on whether Indian banks are permitted to extend such loans abroad, under what conditions, and what safeguards are mandated to protect public funds.
The court observed that transactions of this nature raise important questions not only about banking prudence but also about cross-border legal enforcement, regulatory oversight and jurisdiction.
Bank Directed to Submit Detailed Documentation
During the hearing, Bank of Baroda sought additional time to respond. The court allowed the request but directed the bank to submit comprehensive details at the next hearing, including:
- The valuation of the Dubai warehouse at the time it was accepted as collateral
- The sale price at which the property was eventually disposed of
- Reasons why the loan could not be fully recovered even after the sale
- The identity of the buyer and details of the sale process
The bench made it clear that without these disclosures, it would be difficult to assess the bank’s conduct and compliance with due diligence norms.
Next Hearing in January 2026
The matter has been listed for further hearing in the first week of January 2026, at 2 pm. Legal experts believe the case could have wider implications for Indian banks’ overseas operations, particularly in relation to foreign lending, collateral valuation and risk assessment.
Observers note that if regulatory lapses are established, the case could prompt stricter scrutiny of international credit exposure by public sector banks and reinforce the need for tighter oversight mechanisms in cross-border financial transactions.
