Soora Ramesh, vs The Union Of India,
2024 Latest Caselaw 1420 Tel

Telangana High Court

Soora Ramesh, vs The Union Of India, on 4 April, 2024

        THE HON'BLE SRI JUSTICE C. V. BHASKAR REDDY

                    WRIT PETITION No.8886 of 2024
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 No.4 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 the Respondent No. 4 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,

c) Direct the Respondent No.2 to duly enforce the Circular dated 12.08.2022 vide RB1/2022-23/108, DOR.ORG.REC.65/ 21.04.158/ 2022-23 to protect the interests of the petitioner against the Respondent No. 4;

d) Direct the Respondent No.2 to take stringent action against the errant official of the Respondent No. 4 in unlawfully, illegally and arbitrarily taking to recover the amounts from petitioner without following any due process of law;...."

2. The case of the petitioner is that he was granted overdraft

credit limit by the Respondent No.4 and he was regularly repaying it.

However, due to COVID-19 pandemic, he sustained huge loss in the

business and in view of financial constraints, he could not clear the

amounts taken from the respondent No.4. It is further case of the

petitioner that despite repeated requests, the respondent No.4 has

not considered his case for clearing the overdue amount in EMIs. It

is also case of the petitioner that the respondent No.4-bank without

following the procedure, declared his account as Non-Performing

Asset (NPA), demanding immediate repayment. It is further case of

the petitioner that even though he made partial payment and

requested to settle his overdue amount on one-time settlement

scheme (OTS), the respondent No.4 instead of taking decision to

extend OTS, initiated recovery proceedings by engaging the services

of recovery agents and harassing him and the guarantor-

Smt.Ponuganti Lavanya, to pay the amounts due immediately.

3. The grievance of the petitioner is that the respondents are

entitled to recover the overdue amount in terms of the agreement

with the bank by following the procedure established under law and

they are not having any right to recover the overdue amount by using

force.

4. The issues raised in this writ petition are no longer res integra.

The Hon'ble Supreme Court in ICICI Bank Ltd. vs. Prakash Kaur

and others 1, while dealing with the similar issue where the banks

engaged the services of recovery/collection agents to recover the

loans, observed as follows:

(2007) 2 SCC 711

"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 2, 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

(2008) 7 SCC 532

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/ Sir, Outsourcing of Financial Services - Responsibilities of regulated entities employing Recovery Agents

The Reserve Bank of India has from time to time advised regulated entities (REs) that the ultimate responsibility for their outsourced activities vests with them and they are, therefore, responsible for the actions of their service providers including Recovery Agents (hereafter referred to as 'agents').

2. It has been observed that the agents employed by REs have been deviating from the extant instructions governing the outsourcing of financial services. In view of concerns arising from the activities of these agents, it is advised that the REs shall strictly ensure that they or their agents do not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude upon the privacy of the debtors' family members, referees and friends, sending inappropriate messages either on mobile or through social media, making threatening and/or anonymous calls, persistently1 calling the borrower and/or calling the borrower before 8:00 a.m. and after 7:00 p.m. for recovery of overdue loans, making false and misleading representations, etc.

3. The instructions contained in para 2 above shall supplement and be read in conjunction with the existing guidelines/directions issued

by the Reserve Bank of India, as amended from time to time, including those tabulated in Annex.

4. Any violation in this regard by REs will be viewed seriously.

Applicability

5. This circular shall apply to the following REs:

(a) All Commercial Banks (including Local Area Banks, Regional Rural Banks, and Small Finance Banks) excluding Payments Banks;

(b) All All-India Financial Institutions (viz. Exim Bank, NABARD, NHB, SIDBI, and NaBFID);

(c) All Non-Banking Financial Companies including Housing Finance Companies;

(d) All Primary (Urban) Co-operative Banks, State Co-operative Banks, and District Central Co-operative Banks; and

(e) All Asset Reconstruction Companies.

6. This circular shall not apply to microfinance loans covered under 'Master Direction - Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022', dated March 14, 2022.

Yours faithfully,

(Sunil T. S. Nair) Chief General Manager"

8. For the aforesaid reasons and as the procedure adopted by the

respondent No.4 for recovery of amount due from the petitioner,

amounts to violation of the rights guaranteed under Articles 14 and

21 of the Constitution of India, this Court deems it appropriate to

direct the respondents, to ensure that the agents engaged by the

Banks/Financial Institutions for recovery of the overdue amount,

shall strictly follow the guidelines and instructions issued by the

Reserve Bank of India and also the judgments of the Hon'ble

Supreme Court in ICICI Bank Ltd. vs. Prakash Kaur's case (1

supra) and ICICI Bank vs. Shanti Devi Sharma's case (2 supra).

9. With the above direction, this Writ Petition is disposed of.

As a sequel thereto, miscellaneous petitions, if any, pending

shall stand closed. No order as to costs.

___________________________ C.V. BHASKAR REDDY, J Date: 04.04.2024 KSM/SCS