1. Writ petition against bank recovery agents' harassment for loan repayment default. (Para 3 , 4 )
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2024 Supreme(Online)(TEL) 14723
HIGH COURT OF TELANGANA
C. V. Bhaskar Reddy, J
Battula Ravindra – Appellant
Versus
The Union of India – Respondent
WRIT PETITION No.861 of 2024
Banks and financial institutions must recover loans through lawful procedures and strictly adhere to RBI guidelines; the use of recovery agents employing harassment or strong-arm tactics is illegal and violates Articles 14 and 21 of the Constitution of India.
Headnote:(A) Debt Recovery - Use of Recovery Agents - Banks and financial institutions are prohibited from using strong-arm tactics, musclemen, or harassment to recover loans. Recovery must be conducted through procedures recognized by law. (Para 5, 7)
(B) Regulatory Compliance - RBI Guidelines - Regulated entities are responsible for the actions of their outsourced recovery agents and must strictly adhere to RBI guidelines regarding fair conduct, avoiding intimidation, verbal or physical harassment, and respecting privacy. (Para 8)
(C) Constitutional Rights - Article 14 and 21 - Deployment of aggressive recovery tactics by banks violates the fundamental rights to equality and life/liberty guaranteed under the Constitution of India. (Para 9)
Issues: Whether the use of recovery agents by financial institutions in violation of RBI guidelines constitutes a violation of the petitioner's fundamental rights.
Legal Category Hierarchy
- constitutional law
- practice and procedure
- banking law
- contract law
Table of Contents
2. Petitioner claimed harassment by recovery agents without following RBI guidelines or due process. (Para 3 , 4 )
3. Court deprecated strong-arm recovery tactics, recalling Supreme Court condemnation of musclemen recovery agents. (Para 5 , 6 , 7 )
4. Banks must follow RBI guidelines; recovery agents cannot use intimidation, harassment, or strong-arm tactics. (Para 8 , 9 )
5. Writ disposed with direction to follow RBI guidelines and Supreme Court judgments on recovery. (Para 10 )
6. What are the permissible methods for loan recovery by banks and financial institutions?
Banks must follow procedures recognized by law and RBI guidelines, avoiding strong-arm tactics or musclemen. (Para 5 , 7 , 8 )
7. What conduct by recovery agents is prohibited under RBI guidelines?
Intimidation, harassment, public humiliation, privacy intrusion, threatening calls, and calls before 8 AM or after 7 PM are prohibited. (Para 8 )
8. What is the bank's responsibility for actions of outsourced recovery agents?
The ultimate responsibility for outsourced activities, including recovery agents' actions, vests with the regulated entity. (Para 1 , 8 )
9. Does recovery by harassment violate constitutional rights?
Yes, aggressive recovery tactics by agents violate rights guaranteed under Articles 14 and 21 of the Constitution. (Para 4 , 9 )
ORDER:
This Writ Petition, under Article 226 of the Constitution of India, is filed by the petitioner, seeking the following relief:
“...to issue Writ, Order or Direction more particularly one in the nature of Writ of Mandamus:
a) Declaring the action of the respondent Nos.4 to 6 in high handedly, arbitrarily and illegally trying to recover the amounts from the petitioner by not following Circular dated 12.08.2022 vide RBI/2022-23/108, DOR.ORG.REC.65/21.04.158/2022-23 issued by the Respondent No.2 or any due process of law and the inaction of the Respondent No.2 to legitimately protect the interest of the petitioner by duly enforcing Circular dated 12.08.2022 vide RBI/2022-23/108, DOR.ORG.REC.65/21.04.158/2022-23 as illegal, arbitrary and unconstitutional for violating Article 14, 19 and 21 of the Constitution of India, 1950;
b) Direct Respondent Nos.4 to 6 to follow Circular dated 12.08.2022 vide RBI/2022-23/108, DOR.ORG.REC.65/ 21.04.158/ 2022-23 issued by Respondent No.2 pending suit in O.S.No.857 of 2023 before the Hon'ble II A.C.J.C cum X Additional Metropolitan Magistrate, Ranga Reddy at Kukatpally,
c) Direct the Respondent No.2 to duly enforce the Circular dated 12.08.2022 vide RBI/2022-23/108, DOR.ORG.REC.65/ 21.04.158/ 2022-23 to protect the interests of the petitioner against respondent Nos. 4 to 6;
d) Direct the respondent No.2 to take stringent action against the errand official of Respondent Nos.4 to 6 in unlawfully, illegally and arbitrarily taking to recover the amounts from petitioner without following any due process of law;....”
2. Heard learned counsel for the petitioner; Sri Gadi Praveen Kumar, learned Deputy Solicitor General of India appearing for respondent No.1; Sri B.Nalin Kumar, learned Standing Counsel for respondent No.2; Sri V. Santosh, learned counsel appearing for respondent No.5 and Swathi Menon, learned counsel appearing for respondent No.6.
3. It is the case of petitioner that he availed personal loan from respondent Nos.4 to 6, who are the private bankers and financial institutions and utilised the amounts and he has been prompt in repaying the same without fail. It is further case of the petitioner that ever since he obtained loan, he has been regularly paying the instalments in terms of the agreement and only from September, 2024 he could not pay the instalment. It is also case of the petitioner that respondent Nos.4 to 6 without following the guidelines of RBI, has been sending the loan recovery agents to his house and harassing to pay the amounts due as per the calculation of respondents.
4. 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.
5. The issues raised in this writ petition are no longer res integra as the Hon'ble Supreme Court in ICICI Bank Ltd. vs. 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 recognised by law to take possession of vehicles in cases where the borrower may have committed default in payment of the instalments instead of taking resort to strong-arm tactics.”
6. Aggressive recovery tactics adopted by the agents of Banks/ Financial Institutions lead to the landmark judgment in ICICI Bank vs. 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.
7. In the above r
