Unless a bank or a financial institution is equipped with a court order to repossess a vehicle which it has given on loan, it has no authority to go to the residence of the borrower to take away the vehicle by force. This was observed by the state consumer commission in a recent order.
Taking strong exception to the method adopted by a finance firm to recover dues in the form of a few unpaid instalments from a consumer who took the money to purchase a vehicle, the commission headed by Justice J D Kapoor directed Citicorp Finance (I) Limited to pay Rs 50,000 to one Jan Mohammad, a resident of Mehrauli, for the mental agony, harassment and public humiliation he faced. It was observed by the commission that no financier or bank had the authority to forcibly take possession of the vehicle as the loan agreement or hire purchase agreement were civil contracts and therefore had to be enforced through civil remedy. In other words, through intervention of the court.

It may be argued that the judicial system in India is slow and cases take a long time to settle; however that cannot be an argument for using force or illegal means. A company needs to act in the constraint of the law, so they need to use greater discretion when deciding loans, or they need to go in for more out-of-court settlements in such cases.

The Supreme Court in a landmark judgment on Thursday reiterated its earlier stand that banks cannot deploy musclemen for recovery of loans from defaulters thus forcing them to end their lives.
The court while dismissing the ICICI Bank’s plea refused to delete the Delhi High Court’s remarks that held the bank and its musclemen responsible for abetting a youth to commit suicide by humiliating him and taking away his motorcycle financed by the largest private sector bank. The court also directed the concerned Deputy Commissioner of Police to submit the investigation report in the Delhi High Court.

This may seem like a tough call to banks, but this is the cost of doing business and banks cannot claim a special right to use force. The SC is actually now threatening banks with de-recognition if they do use force.

PUNE: A consumer disputes redressal forum here has ordered a private bank to pay a compensation of Rs one lakh to a woman whose car was seized by its recovery agents for an alleged default in repayment of Rs 4 lakh loan.
Passing its order on Bhandwalkar’s complaint, filed in September last year, the forum said the bank should pay the amount as a compensation for the “mental harassment” caused to the borrower who had claimed that ICICI bank did not follow her instructions regarding recovery of loan installments from her savings account even though she had given post-dated cheques and had substantial deposits in the bank.

Such cases seem to be coming to more media attention nowadays, which is very beneficial since customers who have suffered at the hands of recovery agents who use force or cause humiliation or mental distress are more aware of what their rights are. The bank is entitled to get its money back, but as has been pointed out frequently, such recoveries have to be made as per legal processes and not through force.

Banks are gearing up to meet the stringent norms on recovery agents that are likely to be laid down by RBI. However, a number of private and foreign banks are also critical of RBI’s decision on action against banks, whose recovery agents’ behaviour is not appropriate. RBI on Tuesday said the regulator would consider imposing a ban on recovery agents, if it is found that they are resorting to abusive practices to recover loan.
HDFC Bank chairman Deepak Parekh said RBI’s concern is justified as no society would allow recovery agents to take law in their hands for recovering money. A licensing system could be started to identify good agents and responsibility to recovery dues could be given only to licensed agents, he added. Parekh said banks could outsource the recovery job to only responsible agents. He, however, maintained that HDFC outsources only a small portion of its recovery business to private agency.

No matter whether banks like it or not, they cannot be allowed to use illegal means to recover their debts; else what is the difference between them and a strong arm loan shark ? The rule of law has to be applicable on banks; maybe this will make the banks look at using more credit histories to give loans, something that is the hallmark of a more advanced financial system. If such a system comes into place, then it would also mean that people who have good credit histories could eventually start getting beneficial treatment.

NEW DELHI: The Delhi Consumer Commission fined ICICI bank a whopping fine of Rs 50 lakh for employing “goons” to recover loan and deplored the practice of the banks intimidating consumers to pay the installments.
In the significant judgement, the Commission deprecated the “audacity and impunity” with which the banks have been effecting forcible possession of vehicles and ordered ICICI also to pay Rs 5 lakh to a consumer, who was mercilessly beaten by the recovery agents while they snatched a loaned car from him. While taking to task the leading bank, it vented its anger on ICICI for flouting the apex court’s direction that restrained all the financial institutions from employing musclemen to recover a loan amount or possession of a vehicle.

In such cases, it is also important to also have a police case as all such forcible snatches are illegal. Such police cases have in the past become embarrassing for the finance company in question, and have moved them to become more careful.
The finance companies and banks use the argument that doing the legal process is cumbersome, and encourages people to willingly default on their loans. The companies may be right in this regard, but they have themselves got into the business of providing loans where there is greater risk of default. They need to get away from the concept of free-for-all loans that they seemed to indulge in, and give loans after far more investigation to avoid default risk.
It is also a very puzzling reflection on the state of law in the country that a company can actually hire recovery agencies who they know use force to recover loans, including using actual violence where necessary; and that they have no worry about the police intervening to enforce the law.

MUMBAI: Concerned over growing litigations against banks and high-handedness of recovery agents, Reserve Bank on Tuesday issued strong warning to banks to check such practices or be barred from engaging such services.
An urgent need has risen to review the “policy, practice procedure” involved in the engagement of recovery agents by banks in India, he said, adding that banks are urged to follow prescribed specific considerations while engaging them. The directive to banks follow a series of complaints received by the apex bank regarding abusive practices followed by the recovery agents. “This invites serious supervisory disapproval, which includes imposing temporary or permanent ban if such practices persisted,” he said.

Even this measure seems inadequate. Why the delay till November 15 ? And banks are not instructed to follow the law of the land, but to ensure that banks review their recovery procedures; this seems strange. It would have been simple to instruct banks to ensure that their procedures do not flout the law of the country; even the penalty seems to be limited to just preventing banks from employing recovery agents – nothing more stringent than that. No review of their licenses for a patently illegal act, no threat of de-recognition, it seems like almost a slap on the wrist is all that is threatened.

Dilip Senapati, a 40-year-old transporter, was forced into a car and taken to a garage in Serampore, where he was beaten up mercilessly. His unconscious body was later dumped on the highway near Dhulagarh. Local people took him to hospital.
In August, nine months after purchasing the vehicle, when Senapati did not get his insurance papers from the dealer, he informed them that he would not pay until he got his papers. But Senapati never heard from the dealer since. On Thursday morning, Senapati was called out of his home by four men. He was then shoved into an Ambassador and driven off to Serampore. All the while, he was punched and kicked. “They kept asking me where I had parked my vehicle. When I told them that it was parked near the Amta petrol pump, one of them got down to seize my three-wheeler,” said Senapati.

No matter what the circumstances, a bank or financial institution is not allowed to use strong-arm tactics or force to recover a loan. The courts have consistently held that such recovery has to be through the legal process, and are slowly starting to move to a position where they are starting to hold officials of the financial institution liable. This is a good step, since it is only when people start to feel personally liable do they become more legal aware.

In a significant order, the Lucknow bench of Allahabad High Court on Thursday ruled that a bank, private or nationalised, cannot use force, hire hooligans or gangsters on contract to recover the loan amount.
Taking note of these facts and the practice of realising the default amount forcibly through musclemen, the Bench observed that the law of the land cannot be given a go-bye and life and movement of property of an individual cannot be put to ransom nor his movement can be restricted against the provisions of law.

Of course, such a judgment will cause a problem problem for banks due to the fact that our legal system is very slow, and banks may be tempted to be much more strict about giving out loans if it is not allowed to take such measures to get back NPA (Non Performing Assets). But maybe this will push banks to be more strict about setting up a customer credit history board, that will give customers benefit if they have a positive credit history.
One hopes that one will see less media news about people having died due to forcible action by credit recovery agents, or about a person’s car being picked up a bank’s recovery agents by force anywhere on the street. I once remember a case where i had a long-standing dispute with a bank over a yearly fee over a credit card, and eventually I got a softly menacing call from a recovery agent. For people who actually owned money, I can just visualize what they would have to face.

Despite the Supreme Court ordering banks not to use strong-arm tactics to recover money from defaulters, a leading bank in the city did just that on Friday and sent its ‘recovery agents’ to a state government employee’s house to reclaim its dues. And within hours of the visit, the 42-year-old loanee breathed his last at a hospital in Ameerpet. The family alleged that he was beaten to death by the bank’s agents.
The apex court in its February order had said that banks had a right to recover dues, but they cannot use force. “You can’t send goondas to their (defaulters) house, there are ladies alone at home,” the judge remarked, disposing of an appeal filed by ICICI Bank against an order passed by the Allahabad High Court rejecting its plea to quash the criminal cases registered by the UP government against the managing director and top officials for using criminal force against a loan defaulter. The Supreme Court asked banks to stop the illegal practice forthwith. It asked them to deal with defaulters as per the procedure laid down in the law and the Reserve Bank of India guidelines.

These are large banks, well regarded in financial circles. Their leading executives win industry awards and are seen as standards of how to conduct businessmen. And at the grass-roots level, this is what normally happens.
Where are our governing bodies ? The RBI and the Ministry of Finance are the two bodies who are supposed to control such behaviour, and I don’t remember the last time they castigated a bank for such violation of rules and of the law. We normally like to start comparing ourselves to developed countries in terms of rules and regulations; if such a thing happened in a developed country, there would have been an outcry and legislators would be discussing this heatedly. The police system would have been out in force to stop such things.