Bhumireddy Rama Krishna Reddy Vs the Union of India

"....to issue a Writ or order or orders or direction more particularly one in the nature of Writ of Mandamus declaring the action of respondent Nos.3 to 7 in resorting to illegal methods for recovery

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of amounts from the petitioner without following due process of law, as illegal, arbitrary, unjust and also in violation of Articles 19, 21 and 300-A of the Constitution of India and consequently direct respondent Nos.1 and 2 to take appropriate action against respondent Nos.3 to 7 from resorting to any illegal methods for recovery of amounts from the petitioner without following due process of law in the interest of justice.”

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Heard learned counsel for the petitioner and learned counsel for the respondents.

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Grievance of the petitioner is that respondent Nos.3 to 7 are entitled to recover loan amount due by the petitioner, 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 or other methods which are unknown to law.

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The issue raised in this Writ Petition is no longer res integra .

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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:

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"RBI/2022-23/108

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DOR.ORG.REC.65/21.04.158/2022-23 August 12, 2022

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Madam/ Sir,

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Outsourcing of Financial Services - Responsibilities of regulated entities employing Recovery Agents .

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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').

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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.

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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.

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

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Applicability

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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;

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

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

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

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(e) All Asset Reconstruction Companies.

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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.

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Yours faithfully,

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

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The Hon'ble Supreme Court in ICICI Bank Ltd. vs. Prakash Kaur and others¹ , while dealing with the similar issue where the banks engaged the services of recovery/collection agents to recover the loans, observed as follows:

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"16. Before we part with this matter, we wish to make it clear that we do not appreciate the

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1 (2007) 2 SCC 711

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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 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."

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Aggressive recovery tactics adopted by the agents of Banks/Financial Institutions lead to the landmark judgment in ICICI Bank vs. Shanti Devi Sharma and others² , wherein the Hon'ble Supreme Court directed the Banks/Financial Institutions to strictly follow the guidelines issued by the Reserve Bank of India.

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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

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2 (2008) 7 SCC 532

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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 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.

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In view of the aforesaid discussion, this Court directs the respondents, to ensure that the agents engaged by them for recovery of the overdue amount, shall strictly follow the guidelines and instructions issued by the Reserve Bank of India and also the observations in 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).

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