28 May 2010

No recovery agents for Banks: High Court

In a recently reported decision [AIR 2010 NOC 398 (Mad)], the Madras High Court has declared that use of recovery agents by the banks for recovery the loan amounts is against the provisions of law. Even though the High Court declared that such instances cannot be challenged in a writ petition under Article 226 of the Constitution where private banks were involved, nonetheless it stated in no unclear terms "that recovery through musclemen giving them the title 'Recovery Agents' is not permitted by law".

The High Court was hearing a case wherein the petitioner challenged the 

6. The question as to whether ICICI bank would come within the meaning of "other authorities" as defined under Article 12 of the Constitution of India was considered by the Division Bench of our High Court in ICICI Bank Ltd. Vs. Lakshminarayanan [2008 (3) LLN 320] and after considering the matter in extenso, the Division Bench held that the writ petition is not maintainable against ICICI bank. The said judgment was followed by another Division Bench in W.A.No.480 of 2007 (S.Sundaram and others v. ICICI Bank Ltd and another, judgment dated 09.02.2009), wherein it was clearly held that ICICI bank would not come within the purview of  Article 12 of the Constitution of India.  
7. Even though this Court cannot interfere in the realm of contract entered into between the petitioner and the respondent bank, still the bank cannot be heard to say that they are entitled to proceed against the petitioner without resorting to the procedure recognized by law. The respondent bank is bound to act as per the directions and guidelines issued by the Reserve Bank of India from time to time. The practice adopted by the respondent bank in hiring recovery agents and deputing musclemen to seize the vehicles were deprecated by the Hon'ble Supreme Court in ICICI Bank Ltd. v. Prakash Kaur reported in 2007(2) SCC 711. While supplementing the judgment delivered by His Lordship Mr. Justice ALTAMAS KABIR, His Lordship Mr. Justice AR.LAKSHMANAN was pleased to indicate certain factors, which were prevailing in the banking industry in the matter of recovery. The factors so indicated would run thus:-
"* Now the bank is the aggressor and the public is the victim. The first step to recovery of the money due is through the so-called recovery/collection agents. A very dignified term used for paid recovery agents who are individual and independent contractors hired by the banks both to trace the defaulters and to physically, mentally and emotionally torture and force them into submitting their dues.
* A man's self-respect, stature in society are all immaterial to the agent who is only primed at recovery. This is the modernised version of Shylock's pound of flesh. No explanation is given regarding the interest charge and the bank takes cover under the guise of the holder of the card or loan having signed the agreement whose fine print is never read or explained to the owner.
* When a harassed man approaches the court or the police station he is not armed with a recording phone and finds it difficult to give evidence of the abuse he has suffered. Here the bank gets away with everything. Young and old members of the family are threatened on streets, institutions and also at home at godforsaken hours by these agents who have the full support of their contractor bank. The stance taken by the bank in any suit alleging such incidents is that no such agent has been appointed by them or their agents do not misbehave in the manner aforesaid and if found guilty the agents have to bear the cross and the bank gets away scot-free.
* Using of the abusive language for recovery is the norm of the day for most nationalised or multinational banks or non-nationalised banks.  Though some are smart enough to record the abuse and proceed to establish the same through the court of law, most of them are unfortunate not to have recourse to it. Such people form the majority and such litigations are pending in large volumes before the civil and consumer courts. Again the banks escape liability since these agents are not salaried employees of the bank and hence not directly liable for anything."
8. The Hon'ble Supreme Court in Prakash Kaur's case strongly deprecated the practice of the respondent bank in removing the vehicle from the possession of the debtor by hiring recovery agents in the following words:-  
"16. Before we part with this matter, we wish to make it clear that we do not appreciate the procedure adopted by the Bank in removing the vehicle form the possession of the writ petitioner. The practice of hiring recovery agents, who are musclemen, is deprecated and needs to be discouraged. The Bank should resort to procedure recognized by law to take possession of vehicles in cases where the borrower may have committed default in payment of the installments instead of taking resort to strong-arm tactics."
9. The respondent bank being the appellant in the Prakash Kaur's case cited supra, must take note of the strong observation made by the Hon'ble Supreme Court in the matter of recovery, while taking steps to proceed against the hypothecated vehicle involved in the present writ petition and their action should be in accordance with the contract entered into between the parties and it should also be in accordance with the procedure recognized by law. 
10. It is needless to mention that recovery through musclemen giving them the title "Recovery Agents" is not permitted by law.


arka said...

I have a question that how kotak Mahindra bank send warant from local police station without serving any 138 notice or soman ?

Tarun Jain said...

Notice under Section 138 is only for bouncing of cheques. It does not apply to loans which have not been repaid.