Court calls for RBI guidelines on foreign loans as Australian citizen challenges Bank of Baroda over Dubai transaction
In a significant judgment dated December 8, 2025, the Allahabad High Court, presided by Justices Atul Sreedharan and Anish Kumar Gupta, raised crucial jurisdictional questions concerning an international banking dispute involving the Bank of Baroda, an Australian citizen, and a foreign company. The case, titled "Mohammed Farouk v. Union of India," explores the limits of Indian legal jurisdiction over transactions and entities situated outside India.
The dispute centers around a substantial loan of Rs. 55 crores extended by the Bank of Baroda to M/s Farlin Timbers, a company based in the United Arab Emirates (U.A.E.). Mohammed Farouk, the petitioner and an Australian citizen, acted as a guarantor for this loan, providing a warehouse in Dubai as collateral. The warehouse was subsequently sold, but the sale did not cover the full loan amount, which, including interest, now exceeds Rs. 104 crores.
During the proceedings, the court highlighted the complex jurisdictional issues, noting that the transaction and collateral security are entirely outside Indian territory, and the involved parties, except the bank, are non-citizens of India. This raised doubts about the applicability of Indian laws in resolving the dispute, given that the related criminal proceedings regarding a bounced cheque are ongoing in U.A.E. courts.
The court directed the Union of India to present guidelines from the Reserve Bank of India (RBI) concerning the granting of loans by Indian banks to foreign companies on foreign soil, especially where collateral is provided by foreigners. These guidelines are crucial for understanding the regulatory framework governing such international transactions and ensuring compliance with Indian banking regulations.
The Bank of Baroda has been asked to furnish details about the warehouse's sale value and explain why the proceeds were insufficient to settle the loan. The case has been scheduled for further hearing in the first week of January 2026, where additional instructions and information are expected to be presented.
This judgment underscores the growing complexities in international finance and the need for clear legal frameworks to navigate cross-border transactions. It also highlights the importance of having robust guidelines from financial regulators like the RBI to ensure Indian banks can effectively manage international loans and associated risks.
Bottom Line:
Jurisdiction of Indian Courts in matters involving foreign entities and foreign guarantees - Prima facie, Indian courts may not have jurisdiction over disputes where transactions, parties, and collateral securities are entirely outside India.
Statutory provision(s): Reserve Bank of India guidelines
Mohammed Farouk v. Union of India, (Allahabad)(DB) : Law Finder Doc Id # 2823386
