Telangana High Court

Kota Priyanka vs The Union Of India on 19 June, 2024

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

                 WRIT PETITION No.15178 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 7 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 7 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 Nos. 4 to 7;

d) Direct the Respondent No.2 to take stringent action against the errant official of Respondent Nos.4 to 7 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 she availed personal loan

from respondent Nos.4 to 7, who are the private bankers and

financial institutions and utilised the amounts and she has been

prompt in repaying the same without fail. It is further case of the

petitioner that ever since she obtained loan, she has been

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regularly paying the instalments in terms of the agreement and

only from April, 2024 she could not pay the instalment. It is also

case of the petitioner that respondent Nos.4 to 7 without following

the guidelines of RBI, has been sending the loan recovery agents

to her 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 deprecated and needs to be discouraged. The Bank should resort

(2007) 2 SCC 711

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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 guidelines issued by the Reserve Bank of India time

(2008) 7 SCC 532

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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

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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. In view of the above circulars, this Court deems it

appropriate to direct the respondents to ensure that the agents

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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).