Telangana High Court

Bodagala Vasu vs The Union Of India on 8 April, 2024

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

                  WRIT PETITION No.8923 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 Nos.4 to 8 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 8 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 Respondent Nos.4 to 8 in unlawfully, illegally and arbitrarily taking to recover the amounts from petitioner without following any due process of law;...."

2. It is the case of petitioner that he availed personal loan

from respondent Nos.4 to 8, 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

CVBR, J Wp_8923_2024

regularly paying the instalments in terms of the agreement and

only from March, 2024 he could not pay the instalment. It is

also case of the petitioner that respondent Nos.4 to 8 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.

3. 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.

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 1 , 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

(2007) 2 SCC 711

CVBR, J Wp_8923_2024

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

(2008) 7 SCC 532

CVBR, J Wp_8923_2024

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 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').

CVBR, J Wp_8923_2024

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

CVBR, J Wp_8923_2024

(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 Nos.4 to 8 for recovery of loan amount 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 them for recovery of the loan amounts,

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).