Ramavath Lakshmi Bai, Vs The Reserve Bank of India

The Writ Petition is filed questioning the action of the respondents in interfering with the personal life and liberty of the petitioners and harassing them to repay the loan amount of Rs.5,31,854/-, without following the due process of law, as contemplated under the RBI Guidelines.

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Case of the petitioners, in brief, is that 1^st petitioner herein borrowed a sum of Rs.5,31,854/- as a housing loan from 2^nd

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respondent Finance Company on 30.09.2023, which is payable in 84 equal monthly instalments @ Rs.13,124/- per month. Petitioners state that 1^st petitioner repaid 24 instalments and later due to some financial crisis, they requested 2^nd respondent Finance Company to grant some time to repay the remaining instalments, but 2^nd respondent paid deaf ear and rejected the same. While so, 2^nd respondent Finance Company and their recovery agents are frequently visiting the house of the petitioners and threatening them with dire consequences, if the loan is left unpaid. Questioning the action of 2^nd respondent and its recovery agents in interfering with the personal life and liberty of the petitioners, without following the guidelines issued by the Reserve Bank of India, the present Writ Petition has been filed.

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Heard the learned counsel for the petitioners.

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Grievance of the petitioners is that 2^nd respondent, without following the procedure established under law, is using force to recover the overdue amount by sending recovery agents to their house and threatening with dire consequences.

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The issue raised in this Writ Petition is no longer res integra . 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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1 (2007) 2 SCC 711

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"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 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

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2 (2008) 7 SCC 532

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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 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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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

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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

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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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For the aforesaid reasons and as the procedure adopted by the respondents for recovery of amount due from the petitioners, amounts to violation of the rights guaranteed under Articles 14 and 21 of the Constitution of India, this Court directs 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 follow 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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