SanjayVarun
(n/a)
25 October 2007
Dr.Amitabh Varma v The Commissioner of Police 2003 I AD (Del) 329
(I) The finance companies must inform the hirers regarding the details of installments due and payable by a written communication.
(II) Even before repossession another written notice must be sent to the hirers and only thereafter the vehicles be repossessed.
(III) Finance companies are restrained from stopping the running vehicles on the roads and forcible pulling out the driver and take possession of the vehicle against all provisions of law.
The above guidelines were reiterated by the Delhi High Court in Muthoot Leasing And Finance Ltd. v Vasudeva Publicity Service 105 (2003) DLT 690 (DB).
The problem of forcible possession presented itself before the Supreme Court in Manager, ICICI Bank Ltd. v Prakash Kaur & Ors. JT 2007 (4) SC 39. The Court unequivocally expressed as under:
ΓÇ£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.ΓÇ¥
Justice Dr. AR. Lakshmanan in a separate concurring judgment, taking into account of human frailties and methods adopted by banks/financial institutions to by-pass legal recourse, observed as under (which are re-grouped for the sake of convenience):
Why the use of force?
Examining the matter from the viewpoint of the common man and from the angle of the bank, Justice Dr. AR. Lakshmanan supplied the following reasons:
1 Inadequate information on the Credit card application, Loan applications, Advertisements or even while meeting the bankers in person in respect of the lending rates and hidden charges, leads to this class of people being lured into the buying of the credit cards or taking of the home loan or education loan without knowing the ramifications of non-payment and default.
2 The first mistake here is most definitely on the part of the bank who does not believe in educating the masses regarding the promises. Once the credit card or loan is taken and there appears a default, then the witch hunt begins.
3 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 to trace the defaulters and to both physically, mentally and emotionally torture and force them into submitting their dues.
4 A manΓÇÖs self respect, stature in society are all immaterial to the agent who is only primed at recovery. This is the modernized version of ShylockΓÇÖs 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.
5 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 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.
6 Using abusive language for recovery is the norm of the day for most nationalized or multi national bank or non-nationalized bank. Though some are smart enough to record the abuse and proceed to establish the same through 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.
7 The delay in the Courts and the ineffective and corrupt police structure enables the bank to seek the help of such agencies which proves to be cost effective and less cumbersome.
Suggestions Regarding Recovery Agents
While clearly frowning upon the practice of employing the so-called recovery agents, Justice Dr. AR. Lakshmanan suggested the following ΓÇ£way-outsΓÇÖ:
1 Chronic defaulters should mean a default of a maximum of three months if intermittent payments have been made.
2 It is mandatory that the banks be held vicariously liable for such acts of agents. These agents have to be identified as registered agents of the bank and should be bought directly under the purview of the RBI.
3 It may be useful that in view of the enormous amount of litigation pending and being filed against the banks that the recovery agents be made employees of the bank and the bank be held liable directly for all actions of such employees.
4 Also every statement sent by the bank should disclose clearly the rate of interest and the default interest and penalty charges separately calculated and added to the amount pending and due by the customer.
5 At the very first month of default, the credit card should automatically be terminated by the bank to prevent use/misuse.
6 At the time of issuance of card itself, the issuance letter should contain every single charge being made, explained in simple terms and the penalty the customer will bear for such non-payment.
7 Theses agents should be held responsible for every background check done on the person to whom the card is issued and the defaulter should be made liable along with the agent. This would ensure that the agent does not source illegal or fraudulent customer.
8 Abolition of the system is not the answer but effective control over the agency by the respective banks is essential
9 Even though, the Reserve Bank of India Guidelines permit the use of an Independent Agency, no prescribed qualification or license is granted.
10 If there could be a guideline only licensed recovery agents would be employed and misuse of the agents as against the borrowers can be eradicated.
11 License also should be granted after the respective agents get through in a course conducted by the banks.
12 In accordance with the RBI Guidelines, in any proven cases the license of the agent should be cancelled with penal consequences on them.
13 This could be the best alternative if the banks do not come forward to employ their own personnel and depute them for recovery of outstandings.
14 Considering the difficulties of the customers as well as banks, the concept to be developed is to create distinct and separate department for recovery. This should be manned by persons who will not resort to violence or force when they are in the process of recovery of the dues.
15 While the fraudulent defaulters can be dealt with by taking the Police help for such action, it is only when law is taken into the hands of the so called recovery agents, who are appointed on contract basis, the issue gets aggravated. A separate wing, wherein appropriate training is given in accordance with RBI guidelines would facilitate the bank in its recovery process and also would provide more responsibilities to the persons so engaged.
16 Yet another suggestion would be that of loans whether they are Personal Loans or Credit Cards or Housing Loan with less than Rs. 10 lakhs exposure, can be referred to Lok Adalat which can be specially created for resolving the issues between the banks and the borrowers. In fact, the Lok Adalat should be used as an effective machinery to resolve the issues and concentrate with reference to keeping the fine balance between the banks and borrowers.
17 If the agency system is inescapable, then the agency must be coupled with a license issued after conducting examination. Appropriate training should be given to the agents who should have requisite qualification and maturity to handle delicate and sensitive situation. Merely because the agency system is convenient to the banks and has been approved by RBI, it should not lead to lawlessness and conduct resulting in challenge to rule of law.
18 Since every bank should hold a license issued to carry on the banking business in India by the RBI in accordance with the conditions imposed by the RBI, if and when both nationalized and MNBΓÇÖs violate any of the rules and regulations consistently over a period of time, them strictures ought to be imposed on such digressing banks to curb their high handed activities and to make them answerable to the general public.
19 The banking procedures should be people friendly at the same time, strict in its enforcement and educative enough to guide the public on the benefits of prudent banking and savings and at the same time, enlighten them on the pitfalls of borrowing or taking credit from institutions for various purposes, way beyond their means.
RBI GUIDELINES
The Reserve Bank of India issued guidelines on Fair Practices Code for Lenders on May 5[suP]th[/suP], 2003, on the basis of the recommendations of the Working Group on the LenderΓÇÖs Liability Laws constituted by the Government of India and advised banks/all financial institutions to adopt the guidelines and frame Fair Practices Code duly approved by their Board of Directors. In the guidelines was provided:
ΓÇ£c. In the matter of recovery of loans, the lenders should not resort to undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc.ΓÇ¥
