Disposed

Dr.Penagamuri Chandra Sekhara Babu v. The Union of India

Telangana HC10 Sept 2024WP/22425/2024

Case brief

AI extract

What is this about?

This High Court disposed of a writ petition seeking mandamus against private bankers and the RBI for using aggressive recovery tactics. The court directed the banks to strictly follow RBI guidelines and Supreme Court precedents prohibiting harassment and non-compliant recovery methods.

What did the court decide?

Directing respondents to strictly follow RBI guidelines and Supreme Court judgments regarding recovery agent conduct; disposing of the Writ Petition without costs.

Dr.Penagamuri Chandra Sekhara Babu Vs The Union of India — Consumer Protection | Telangana HC (2024)

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HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction)

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TUESDAY, THE TENTH DAY OF SEPTEMBER TWO THOUSAND AND TWENTY FOUR

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PRESENT

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THE HONOURABLE SRI JUSTICE C.V. BHASKAR REDDY

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WRIT PETITION NO:22425 OF 2024

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Between:

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Dr.Pen^a_gamuri chandra Sekhara Babu, s/o. Late p.Venkateswara Rao. Aoed about 62 Years, Occ._Business, R/o.Flat No.303, p No.174 and 174lA, Bdlaji $ui$ep, .^{Kothapet,Saroornagar,lncomeTax Colony, n.f puram, 'Street} No.3, Hyderabad.

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...PETITIONER

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AND

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The Union of lndia, Rep.by its Secretary, Ministry of Finance New Dethi.

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The Reserve Bank of^lndia, Rep.by its Chief General Manager 6, Sansad Marg, New Delhi 110001.

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3, IDFC FIRST BANK Branqh, Nama Naman Chambers, C-32, G_Block, Bandra_ [rl,^{Complex, Bandra (East), Mumbai, Maharashtra, 4000b1 nepOi,} iti^- Authorized signatory

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lClCl Bank Ltd, ICICI Bank,Towers, Bandra Kurla Complex, Bandra (East), Mumbai, Maharashtra, 400051

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5 Qaigj Finance, Office at 1't Floor, Gumidelli Commercial Complex Old Patigaddaa, Prakashnagar, Begumpet, Hyderabad, 5OOO16 Rbp by its Authorized Signatory

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Cholamandalam lnvestment and Finance Companv Limited. (Chola) Corporate office at CRESE C54 and 55 Super b+ fgtRU Vt^'XR t#ustriat Estate, Guindy, Chennai 600032 Rep. by its Authorized Signatory

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Ponaw-allafincorp Limited, Regd.Office 201 and2O2,2nd Floor, AB8.t, Koregaon P^ark Annex Mundhawa, Pune 4l 1036 Maharastra Rep by itd Authorized Signatory

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SMFG lndia Credit Co:Ltd, Registered Office 3rd Floor, No. 165 Megh lowers,^{PH Road Maduravoyal, Chennai 600 095 Repby its Authoiized} Signatory.

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9- Axis_Finance Limited, Off.H.No.8-2-29f,21A172, PIot No.72, First Floor, Road No.9, Jubilee Hills, Hyderabad-s0O 033 Rep.by its Authorised Signatory

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10.Yes Bank^{Ltd, Represented by its Authorized Officer'} -Door^{No 1-8-387'} '- Oiouno rroor, Rgiavansni Pla2a, Huda Lane, Sardar Patel Road' Secunderabad^{- 500003}

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...RESPONDENTS

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Petition under^{Article 226 of lhe constitution of lndia praying that in the} circumstances^{stated in the affidavit filed therewith'the High Court may be} pleased to issue an appropriate^{Writ,Orderor direction more particularlyonein} the nature of^{writ of Mandamus declaringthe actionof the RespondentNos 3 to} l0inhighhandedly,arbitrarilyandillegallytryingtorecoverthearnountsfromthe Petitioner by^{not following Circular dated 12'08'2022 vide RBll2022-} 231108/DOR.ORG.REC.65/21^{.04.158t2022-23 issued by RespondentNo'2 or any} dueprocessoflawandtheinactionoftheRespondentNo.2tolegitimatelyprotect theinterestofthePetitionerbydulyenforcingCirculardatedl2.03'2022uide RBlt2o22.231108/DoR.oRG'REC.65/21.04.158t2022-23asillegal'arbitraryand unconstitutional^{for violatingthe Article 14, l9 and 21 of the constitutionof lndia} andconsequentlydirecttheRespondentNos.3tol0tofollowcirculardated 12.08.2022 vide^{RBlt2022-231108/DOR.ORG.REC.65/21.04.158t2022-23issued} by Respondent^{No.2 by directingthe Respondent No 2 to duly enforcethe} Circular dated 12-08 2022 vide RBll2022231108/DoR'oRGREC.65/21.04.158t2022-23toprotecttheinterestsofthe Petitioner against^{the Respondent Nos3 to 10 and direct the RespondentNo 2 to} take stringent^{action againstthe errant officialof the Respondent Nos.3 to 10 in} lawfully,illegallyandarbitrarilytakingtorecovertheamountsfromPetitioner without following^{anydue processof law'}

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IANO:, 1OF 2024

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PetitionunderSectionl5lcPCprayingthatinthecircumstancesstatedin the affidavit filed^{in support of the petition, the High Court may be pleasedto direct} the Respondent^{Nos. 3 to 10 not to take any coercive measures againstthe} Petitioner without^{followingdue process of law and mandatorilyf':llowing circular} dated 12.08.2022videRBll2o22-23t108/DOR.^{ORG. REC. 651 21 .04. 15812022-23} issued by Respondent^{No. 2 pendingdisposal of the Writ Petition'}

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Counsel for the Petitioner:^{SRIGEDDADA SRINIVAS}

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/ counsel for the Respondents: ANGoTHU NEHRU (sc FoR CENTRAL Govr) The Court made the foltowing: ORDER

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

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WRIT PETITION No.22425 of 2024

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ORDER:

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This Writ Petition, under Article 226 of the ConstLtution of India, is frled b1, the petitioner, seeking the following relief:

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"....to issue on appropiate Writ, Order or direction more particutarlg one tn the nature of Writ of Mandamus declaing the, actton of the Respondent^y'{os.3 lo 10 in high handedlg, arbitraily, and illegaLLg trytng to recouer the amounts from the Petitioner bg not fotlouttng Circular dated 12.O8.2O22 uide RBI/2C22. 23/ 108/ DOR.ORG.REC.65/ 21.04.158/ 2022-23 issued bg Respondent No.2 or ang due process of lau and the inaction of the Respondent No.2 to legitimatetg protect the interest of tle Petitioner bg duLg enforcing Circular dated 12-08.2022 vide RBI/ 2022-23/ 108/ DOR.ORG.REC.65/ 21.O4.158/ 2022-23 os illegal, arbitrary and unconstitutional for uiolating the Article 14, 19 and 21 of the Constitution of India and consequently direct the Respondent Aros.3 fo 10 to fotlow circular d.ated 12 08 2022 uide RBI/ 2o22-23/ 108/ DOR.oRG.REC.65/ 21.O4.158/ 2O22 23 issued bg Respondent No.2 bg dYecling the Respondent No.2 to dulg enforce the Circular dated 12.08.2022_ vide RBI/ 20223/ 1O8/ DOR.ORG.REC.65/ 21.O4.158/ 2022-23 to protect the interests of the Petttioner against the Respondent Nos-3 to 1O and dtrect the Respondent No.2 to take stingent action against the errant oflici.al of the Respondent Nos.3 to 1O tn laufullg, iltegally and arbitrarilg taking to recouer the amounts from Petitioner tutthout folloluing ang due process of laut..."

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Heard learned counsel for the petitioner and

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Mr. A.Nehru, learned Standing Counsel for Centra-l Government appea-ring for respondent No. 1. Despite service of notice, there

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CVBR, J wp_22425_2024

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is no representation for respondent Nos.2 to 1O nor any counter affidavit is filed on their behalf.

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It is the case of petitioner that he availed loans from respondent Nos.3 to 1O, who are the private bankers and utilised the amounts and he has been prompt in repaying the same without fail. It is further case of the petitioner that due to financial constraints, he could not pay the instalments regularly. It is also the case of the petitioner is that respondent Nos.3 to 1O without following the guidelines of RBI, have been sending the loan recovery agents to his house and harassing to pay the amount due as per the ca,lculation of respondents.

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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 loal amount by using force.

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The issues raised in this writ petition are no longer res integra as the Hon'ble Supreme Court in ICICI Bank Ltd. us.

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CVBR, J w p _21'.425 _2024

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Prakclsh Kaur^q.nd otherst,^{while dealing with the similar} issues where the banks^{engagedthe services of recovery/} collection agents to^{recover the loans, observed as follows:}

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"16. Before u)e^part uith this^{matter, we u.tish to make it clear lhat} ue d.o not appreciate the^{procedureadopted bg the Banl^: in} remouing the uehicle from^{the possession of the uit petitioner- The} practice of hiing recouery agents, uho are^musclemen'is deprecoted and needs to be discouraged.^{The Bank shouldresort} to procedure recognised by tau to^{take possessionof uehiclesin} cases uLhere the borrouter^{mag haue committeddefoutl in} pagment of the instalments instead of taking^{resort to strong-1rln} tactics. "

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Aggressive recovery tactics adopted^{by the agentsof} Banks/ Financia,l Institutions^{led to the landmark judgment in} ICICI Bank us. Sho,nti Ded^{Sharrna.o,nd others2, wLrerethe} Hon'ble Supreme Court^directed the^{Banks/Financial} Institutions to strictly follow^{the guidelinesissued by the} Reserve Bank of India.

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7 . In the above referred^{judgments,the Hon'bleSupreme} Court condemned the^{procedureadopted by} the

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'120071^{2 scc 7r1 -..} -. '(zooa)^{z scc 5:z}

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CVBR, .' Wp_22425 _2024

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Barrks/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 oOf 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 Balk of India on I2.OS.2O22 with regard to outsourcing of Financial Services _Responsibilities of regulated entities employing Recovery Agents, which reads as -- I

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CVBR,.] W^p _) 242s _2024

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"RBr/ 2 02 2 -23/ 108

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DOR.ORG. REC. 6s/ 2 1. 04.¹ 58 /²⁰²² -2s August 12, 2022

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Madam/ Sir,

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Outsourcing oJ Financiat Seruices '^{ResponsibilitiesoJ} regulated. entitie s emploging Recouery^{Age nt-s}

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The Reserue Bank of India has from^{time to timeaddsed} regutated entities (REs) that the ultimate responsibilitg for^their outsourced actiuities uests uith them ond they^{are,therefore,} responsible for the actions of their serutce^{prouidersincluding} Recouery Agertts (hereafter referred to as 'ogents').

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It has been obserued that the ogents emploged by^REs 'laue been deuiating from the ertont instructions^gouemingthe outsourcing of Jinancial seruices. In uieu of^{concems ari.stng} .from the actiuities of these agents, it is aduised that the^{REs r;hall} strictlg en-sure that theA or their ogents do not^resoftto intimidation or Ltaro,ssment of any kind, either uerbol^{or phgs;ical,} against anA person in their debt collection efforts, including acts intended to LrumiLiote publicly or tntrude upon the^priuacy o,'^the debtors' family members, referees and fiends, sendtng inappropriote messages either on mobile or through social^media, making threatening and/ or anonymous^{calls,persistently} 1^co lling the borrouter and/ or calling the boffotuer before^8:OO o.m. and afier 7:00 p.nt. for recouery of ouerdue loans, moking false and misleading representatiorls, etc. 3. The instructions contained in para 2 aboue shall supplement and be read in conjunction tuith the ei:;ting guidelines/ directions issued bg the Reserue Bank of India, as ametded from. time to time, incLuding those tobuloted in Annet:. 4. Any uiotation in this regard bg REs u.till be uieued seiouslg. - '

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CVBR, J wp_22475_2074

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Applicabilitg

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Thi.s ctrcular shall applg to the fo otuing REs: (a) All Commerctal Banks (including Local Area Banks, Regional Rural Banks, and Small Finnnce Banks) exclud.ing pagments Banks;

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(b) All AII-India Financial Institutions (ui_2,. Exim Bank, NABARD, NHB, SIDBI, and NaBFID);

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(d) All Primary (IJrban) Co-operatiue Banks, State Co-operatiue Banks, and Distict Central Co-operatiue Banks: and

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(e) All Asset Reconstntction Companies_

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6- ThA circular shall not appLA to microf.nance loans couered under 'Master Direction - Reserue Bank of India (Requlatoru Frameu.tork for Micro finance Loans) Directions 2O22', doted March 14^cncc Yours faithfullg, (Sunil T. S. Nair)

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Chief General Manager"

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In view of the above circulars, this Court deems it appropriate to direct the respondents, to ensure that the agents engaged by them for recovery of the loan amounts, shalt strictly follow the guidelines and instructions issued by the Reserve Bank of India and also the judgments of the Hon,ble Supreme Court in Prakash Kaufs case (1 supra) and, Shanti Deui Shanna's case (2 supra).

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CVBR, J W^p _22t.25 _2024

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