Financial institutions must adhere to RBI guidelines and avoid coercive recovery tactics against borrowers.

ORDER:

Aggrieved by the action of respondent Nos.4 to 7 in harassing the petitioner contrary to norm of RBI Circular vide No.RBI/2019- 20/186/DOR.No.BP.BC.4721.04.048/2019-20, dated 27.03.2020, guidelines of RBI Rules, dated 01.07.2015 and Resolution dated

07.06.2019, the present writ petition is filed.

2. It is the case of petitioner that he availed personal loans from respondent Nos.4 to 7, who are the private bankers and financial institutions, and have been paying the EMIs regularly. It is further submitted that due to ill health and sudden demise of his family members, he could not make out his business and was unable to pay the EMI, which was not intentional. It is also case of the petitioner that respondent Nos.4 to 7 without following the guidelines of RBI, the representatives of respondent Nos.4 to 7 have been continuously calling him, visiting his house and abusing him in filthy language.

3. The grievance of the petitioner is that the respondents are entitled to recover the dues in terms of the credit facilities by following the procedure established under law and they are not having any right to recover the dues amount by using force.

4. 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 dues of credit cards, 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.”

5. 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.

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 the circular issued by the Reserve Bank of India on 27.03.2020 with regard to rescheduling of payments – Term loans and working capital facilities, Classification as Special Mention Account (SMA) and Non-Performing Asset (NPA), which reads as follows:

RBI/2019-20/244 DOR.No.BP.BC.71/21.04.048/2019-20 May 23, 2020 All Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks) All Prim