The judgments discussed in this article pertain to the judiciary’s take on the practice of deploying third party recovery agents by banks to seek recovery of loans from individuals. In India, it is common practice for banks and financial institutions to engage the services of recovery agencies that aid in recovery of dues from borrowers using illegitimate methods and coercion. Such recovery agents are known to deploy strong arm tactics and function like muscle men to harass and coerce individuals to repay their dues, creating a sense of lawlessness. The judgments pertain to the illicit use of such recovery agents and the unlawful methods they adopt which makes a mockery of the rule of law. By employing recovery agencies, banks and financial institutions circumvent the due process of law i.e., recovery through the judicial process which is against the public policy of India.
The Supreme Court was tasked with deciding upon the following issues in the judgments discusses in this article:
Legality of banks employing alternate methods of recovery other than by the due process of law
Due process guidelines to be followed by recovery agents
The Supreme Court in a judgment condemned the procedure adopted by the bank of employing recovery agents who act as muscle men in taking possession of vehicles in cases where the borrower commits default. The Supreme Court stated that banks must only resort to procedure recognised by law to take possession of vehicles in case of default instead of taking resort to strong arm tactics. The court further also made suggestions seeking to make banks vicariously liable for unlawful acts of their recovery agents, among others.
The Supreme Court in another judgment detailed the guidelines issued by the Reserve Bank of India time and again on the fair conduct by lenders, with reference to the use of recovery agents. The court stated that the banks should be reminded of the rule of law and strict action must be taken by the RBI in case of breach of such guidelines.
Icici Bank vs Shanti Devi Sharma & Ors on 15 May, 2008
Author: D Bhandari
Bench: Tarun Chatterjee, Dalveer Bhandari
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPEALLTE JURISDICTION
CRIMINAL APPEAL NO. OF 2008.
[Arising out of SLP (Crl.) No. 4935 of 2006]
ICICI Bank .. Appellant
Versus
Shanti Devi Sharma & Others .. Respondents
JUDGMENT
Dalveer Bhandari, J.
1. Leave granted.
2. This appeal is directed against the order dated 13th July, 2006 passed by the High Court of Delhi in Writ Petition (Criminal) No. 576 of 2006 and order dated 11th August, 2006 passed in Crl. M. A. Nos. 8093-94/2006 in W.P. (Crl.) No. 576 of 2006.
3. The question that arises in this case in narrow compass: Should part of the impugned judgment be expunged so that it may not adversely influence on an ongoing criminal investigation? The respondent filed a criminal writ petition number 576 of 2006 with the Delhi High Court. Vide this writ petition, the respondents sought a writ of mandamus that would direct the Commissioner of Police to take action against the appellant bank. Respondent no.1 alleged that her son committed suicide as a result of the manner in which the bank's recovery agents had repossessed her son's motorcycle. In the first information report (F.I.R.) dated 29.11.2005, the respondent alleged that on 16th October, 2005 at about 1.00 p.m., two recovery agents (referred to as "goons") forcibly entered her son's bedroom and started harassing and humiliating him for the loan payments that were overdue on his two wheeler and on his personal loan....
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The judgments referred to in this article discuss the law pertaining to the use of recovery agents by banks and financial institutions to ensure repayment of loans by borrowers. The judgments discuss the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) and the Security Interest (Enforcement) Rules, 2002 which lay down the lawfully recognised procedures by which security interest may be recovered. The judgments also discuss the more specific guidelines promulgated by the Reserve Bank of India which dictate the fair practices that can be employed by lenders. These guidelines titled, ‘Guidelines on Fair Practices Code for Lenders’ conclusively dictate the procedure to be adopted by recovery agents to collect security interest and condemn the use of coercive methods and muscle power to seek recovery and seizure of assets. These guidelines also provide the mechanisms available to persons to seek justice against unlawful behaviour by recovery agents.
With ever-growing customers for loans and credit cards, it has become imperative for every person to understand the ramifications of non-payment and the legality of the methods adopted by banks to seek recovery of loans. It is important to engage the services of a good lawyer to ensure that you are not being wronged by recovery agents employed by banks. With the high-handed attitude adopted by recovery agents while dealing with borrowers, it becomes all the more important to understand your rights and take appropriate actions in a court of law. Only a good trained lawyer can help you understand the technicalities of law and present your case properly before the court.
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