Financial institutions must comply with legal protocols and RBI guidelines for loan recovery, condemning any unlawful coercive actions by recovery agents.

JUDGMENT :

1. This writ petition is filed under Article 226 of the Constitution of the India seeking the following reliefs :

"to issue appropriate writ, order or direction more particularly one in nature of writ of mandamus declaring the action of the respondents 3 to 11 for resorting to illegal methods for recovery of amounts from the petitioner without following due process of law as arbitrary, without jurisdiction, ex facie illegal against Articles 19, 21 & 300-A of the Constitution of India and to direct the respondent Nos.1 and 2 to take appropriate action against the respondent Nos.3 to 11 for violating the procedure of law for recovery of amounts due from petitioner by consequently restraining the respondent Nos.3 to 11 from resorting to any illegal methods for recovery of amounts from the petitioner without following due process of law for recovery of the amounts due from the petitioner and to pass such other order..."

2. Heard learned Counsel for petitioner and learned Counsel for the respondents.

3. The grievance of the petitioner is that the respondents are entitled to recover loan amount in terms of the loan agreements by following the procedure established under law and they are not having any right to recover the loan amount by using force or other methods which are unknown to Law.

4. The issues raised in this writ petition are no longer res integra as the Hon'ble Supreme Court in ICICI Bank Ltd. v. Prakash Kaur and others , (2007) 2 SCC 711, while dealing with the similar issues where the banks engaged the services of recovery/ collection agents to recover the loans, observed as follows :

"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 from 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."

5. Aggressive recovery tactics adopted by the agents of Banks/Financial Institutions lead to the landmark judgment in ICICI Bank v. Shanti Devi Sharma and others , (2008) 7 SCC 532 , where the Hon'ble Supreme Court directed the Banks/Financial Institutions to strictly follow the guidelines issued by the Reserve Bank of India.

6. In the above referred judgments, the Hon'ble Supreme Court condemned the procedure adopted by the Banks/Financial Institutions in employing recovery agents who are acting as middlemen for securing possession of vehicles/secured assets in cases where the borrower commits default. It was observed that Banks/Financial Institutions, instead of taking recourse to follow the procedure recognized by law for securing the possession of vehicles/secured assets in cases where the borrower commits default in repayment of loan/loan account is declared as NPA, are resorting to strong-arm tactics. The Hon'ble Supreme Court delineated the guidelines issued by the Reserve Bank of India time and again on the fair conduct by lenders, with reference to usage of services of recovery agents. It also 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.

7. It is apt and appropriate to extract latest guidelines issued by the Reserve Bank of India on 12.08.2022 with regard to outsourcing of Financial Services - Responsibilities of regulated entities employing Recovery Agents, which reads as follows :

"RBI/2022-23/108 DOR.ORG.REC.65/21.04.158/2022-23

August 12, 2022 Madam/Si