Madaka Veera Bhadra Swamy, Vs Union of India

MADAKA VEERA BHADRA SWAMY, S/O. VEERA BHADRA RAO, AGED ABOUT 49 YEARS, R/O. M.K. PRESIDENCY, FLAT NO.417, PM PALEM 1ST BUST STOP,POST OFFICE MADHURAVADA VISHAKAPATANAM, ANDHRA PRADESH - 530048

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...PETITIONER

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AND

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UNION OF INDIA, REP BY ITS SECRETARY. MINISTRY OF FINANCE, DEPARTMENT OF EXPENDITURE ROOM-NO.74B, NEW DELHI-110001 (INDIA).

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THE RESERVE BANK OF INDIA, REP BY ITS EXECUTIVE DIRECTOR 2ND FLOOR. CENTRAL OFFICE BUILDING, BHARAT SINGH MARG, MUMBAI - 400001.

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INCRED FINANCE, REP BY ITS AUTHORISED OFFICER. 48-2-5/3, BLOCK NO S2, KSR PLAZA, 2ND FLOOR, SRINAGAR, VISAKHAPATNAM - 530016

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FIBE EARLY SALARY SERVICE PRIVATE LTD, REP BY ITS AUTHORISED OFFICER UNIT NO. 404, THE CHAMBERS, VIMAN NAGAR, PUNE, MAHARASHTRA, INDIA-411014.

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POONAWAILA FINCROP LTD, REP BY ITS CORPORATE OFFICER UNIT NO 2401.24TH FLOOR, ALTIMURS, DR G. M BHOSALE MARG, MUMBAI MAHARASHTRA -400018.

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ADITYA BIRLA FINANCE LIMITED, REP BY ITS AUTHORISED OFFICER HAVING REGISTERED OFFICE AT INDIAN RAYON COMPOUND, VERAVAL, GUJARAT - 362266.

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BAJAJ FINSERV, REP BY ITS AUTHORISED OFFICER BAJAJ AUTO LIMITED COMPLEX, MUMBAI-PUNE ROAD, AKURDI, PUNE, MAHARASHTRA - 411035

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HDFC BANK LTD, REP BY ITS AUTHORISED OFFICER RETAIL LOAN SERVICE CENTER, D.NO. 50-96-5, PLOT NO. 175, 0PP. OLD SBH, NEAR NRI HOSPITAL SEETHANIMADHARA, VISHAKAPATNAM, ANDHRA PRADESH - 530013.

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HSBC INDIA, , REP BY ITS AUTHORISED OFFICER 52/60, MAHATMA GANDHI ROAD, FORT, MUMBAI - 400001.

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INDUSLAND BANK LTD, REP BY ITS AUTHORISED OFFICER, 2401, GENERAL THIMMAYYA ROAD, CANTONMENT, PUNE, MAHARASHTRA -411001,

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AXIS BANK LTD, REP BY ITS AUTHORISED OFFICER TRISHUL, 3RD FLOOR, 0PP. SAMARTHESHWAR TEMPLE, LAW GARDEN ELLISBRIDGE, AHMEDABAD - 380006

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ICIC BANK LTD, REP BY ITS AUTHORISED OFFICER ICICI BANK TOWER, NEARCHAKLI CIRCLE, OLD PADRA ROAD, VADODARA, GUJARAT - 390007

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YES BANK LTD, REP BY ITS AUTHORISED OFFICER YES BANK HOUSE, OFF WESTERN EXPRESS HIGHWAY SANTACRUZ EAST, MUMBAI, MAHARASHTRA - 400055

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RBL BANK LTD, REP BY ITS AUTHORISED OFFICER 1ST LANE, SHAHUPURI, KOLHAPUR, MAHARASHTRA - 416001.

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...RESPONDENT(S):

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Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue order or direction more particularly one in the nature of Writ of Mandamus declaring the action of Respondent Nos. 3 to 14, who are attempting to recover loan amounts from the petitioner by sending recovery agents (Muscle Men) to the petitioners residence without adhering to circular issued by Respondent No.8, vide RBI/2002-23/108 DOR.ORG.REC.65/21.04.158/2022-23, dated 12.08.2022 as

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arbitrary, illegal and violative of Articles 14, 19 and 21 of the Constitution of India and consequently direct Respondent Nos. 3 to 14 to immediately stop sending their recovery agents to petitioners residence and to strictly adhere to the circular issued by Respondent No. 2 vide RBI/200223/108 DOR.ORG.REC.65/21.04.158/2022-23, dated 12.08.2022, while recovering any outstanding loans and pass such

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IA NO: 1 OF 2026

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Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased may be pleased direct Respondent Nos. 3 to 14 not to take any coercive steps against the petitioner, including sending recovery agents to the petitioner’s residence for loan recovery, pending the disposal of the present writ petition; and pass such

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Counsel for the Petitioner:

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1.VARUN BYREDDY

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Counsel for the Respondent(S):

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The Court made the following:

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THE HONOURABLE SRI JUSTICE K SREENIVASA REDDY

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WRIT PETITION No.5932 OF 2026

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ORDER:-

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This Writ Petition is filed under Article 226 of the Constitution

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of India seeking the following relief:-

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<to issue an appropriate writ, order or direction more particularly one in the nature of writ of Mandamus declaring the action of the Respondent Nos.3 to 14 in trying to recover the loan amounts from the petitioner by sending recovery agents to the residence of the petitioner without following Circular issued by the respondent No.2 vide RBI/2022-23/ 108 DOR. ORG. REC. 65/21.04.158/2022-23, dated 12.08.2022, as illegal, arbitrary and violative of Articles 14, 19 and 21 of the Constitution of India and consequently direct the Respondents Nos.3 to 14 to immediately stop sending recovery agents to the Petitioner9s residence and to duly follow the Circular issued by the respondent No.2, while recovering loans that may be due to them and to pass such other order or orders...=

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Heard learned counsel for petitioner and learned counsel for

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the respondents.

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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 but they are not having any right to recover the loan amount by using force.

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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 others¹ , while dealing with the similar issues 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 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 led 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

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1 (2007) 2 SCC 711

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2 (2008) 7 SCC 532

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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 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 DOR.ORG.REC.65/21.0

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4.158/2022-23

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August 12, 2022 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 8agents9).

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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, persistently 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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3. The instructions contained in para 2 above shall supplement and be read in conjunction with the existing

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

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

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Applicability

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5. This circular shall apply to the following REs:

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(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); (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

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(e) All Asset Reconstruction Companies.

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6. This circular shall not apply to microfinance loans covered under 8Master Direction – Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 20229, dated March 14, 2022.

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Yours faithfully, (Sunil T. S. Nair) Chief General Manager=

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For the aforesaid reasons and as the procedure adopted by

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the respondents 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

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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).

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Accordingly, the respondents are directed to ensure that the agents engaged by them for recovery of the loan amounts shall strictly adhere to the guidelines and instructions issued by the 1^st respondent and the observations made by the Hon’ble Apex Court as stated supra.

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