Disposed

Challa Ramesh, v. The Union of India

Telangana HC18 Sept 2024WP/23519/2024

Case brief

AI extract

What is this about?

A writ petition against private banks' use of recovery agents allegedly harassing a borrower in default was disposed of with a direction that all respondents ensure their recovery agents strictly follow the RBI guidelines of 12.08.2022 and the Supreme Court rulings on fair debt recovery practices.

What did the court decide?

Direction to respondents to ensure recovery agents strictly follow RBI guidelines dated 12.08.2022 and the cited Supreme Court judgments; no order as to costs.

Challa Ramesh, Vs The Union of India — Banking and Recovery | Telangana HC (2024)

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

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WEDNESDAY, THE EIGHTEENTH DAY OF SEPTEMBER rWO 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: 23519 OF 2024

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Between:

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Challa Ramesh, S/o. Brahmaiah, Aged 28 years, Occ. Pvt. Employee, Rlo.12-7-4512, Tulips Bar Backside, Goods Shed Road, Moosapet, Hyderabad- 0'18.

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..PETITIONER

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AND

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

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2 The Reserve Bank of lndia, Rep. by its Chief General Manager, 6, Sansad lvlarg, New Delhi -110001

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SBI BANK, Rep. by its Chief Manager, State Bank Bhavan, Madame, Cama Marg, Mumbai, Maharashtra 400021.

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lClCl BANK, Rep. by its Chief Manager, C-59, Bandra Kuria Complex, Bandra East, Mumbai, Maharashtra- 40005'1.

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HDFC BANK, Rep. by its Chief Manager, 1st Floor, C.S. No. 6/242, SenapatiBapatMarg, Lower Parel, Mumbai, Maharastra - 400013.

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6 RBL BANK LIMITED, Rep. by its Chief l\ilanager, Registered Office, 1st Lane, Shahupuri, Kolhapur, Maharashtra State-416 001.

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7 IDFC FIRST Bank, Rep. by its authorized officer, The Square, C-61, G Block, Ground Floor to 8th Floor, Bandra Kurla Complex, Bandra East, Mumbai - 400051

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...RESPONDENTS

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Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue Writ, Order or Direction more particularly one in the nature of Writ of Mandamus. - l,declaring the action of the respondent Nos.3 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 RBll2022- 231108, DOR.ORG REC.631 21 .04.15812022-23 issued by respondent no.2 or any due

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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|1OB,0R ORG REC.65121 04.1581 2022-23 as illegal, arbitrary and unconstitutiona I for violating Art 14, 19, and 21 of the Constitution of lndia, 2.direct the respondent nos. 3 to 7 to follow Circular dated 12.08.2022 vide RBll2022-231 108. DOR ORG. REC.65/21.04.15812022-23 issued by respondent no.2, 3.direct the respondent no.2 to duly enforce the Circular dated 12.08.2022 vide RBI/2022-231108, DOR ORG.REC.65 121 .04.15812022-2 to protect the interests of the petitioner against the respondent Nos.3 to 7 4.direct the respondent no.2 to take stringent action against the errant official of the respondent Nos 3 to 7 in unlawfully, illegally and arbitrarily taking to recover the amounts from petitioner without following any due process of law.

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lA NO: 1 OF 2024

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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 to direct the respondent nos. 3 to 7 to not take any coercive measures against the petitioner without following due process of law and mandatorily following Circular dated 12 08.2022 vide RBI12O22- 231108,DOR.ORG.REC 65/21 .04.15 Bl2O22-2 issued by respondent no.2 pending disposal of the writ petition.

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Counsel for the Petitioner : SRI NAGESHWAR RAO PUJARI

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c o u n s e I f o r th e Re s p o n d e n t N o. 1, ui :3, 3 X^{=Sfll=^TX} 8Xl o, * r *

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Counsel for the Respondent No.2 : SRI NALIN KUMAR, SC FOR RBI Counsel for the Respondent No.3to7 :

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The Court made the following: ORDER

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THE HON'BLE SRI JUSTICE^{C. V. BHASKAR REDDY}

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WRIT PETITION No.235L9^{of 2024}

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ORDER:

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This Writ^{Petition,under Article 226 of the Constitutionof} India, is^{Iiled by the petitioner,seekingthe following relief:}

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"....to issue^{Wit,Order or Dtrection more porttcularLy one tn tte nature of} Wit of Mandamus:-

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declaing the^{action of tle respondentNos 3 to 7 i1 higll handedly'} arbitraritg^{"and itlegatlytrying to recouer theamountsfrom the pet{ttoner} bu not iollotuinq^{-ciiulardated 12.08.2022uideRBI/ 2022-23/108'} ion.op'o.nac.ast 21.04.158/^{2022-23 issued bg RespondentNo'2 or} ang due^process of^{lantt and the inaction of the RespondentNo'2 to} pritimateiu oroteci the tnterest of the petitioner bg duly^enforcing circutar iatid 12.08.2022^{uideRBI/ 2o22'23/ 1o8,DoR'oRGREC'65/} il. Os.l Sa/^{ZOZZ-23 as iltegal,arbitrary and. unconstitutionatforuiotating} An 14, 19^{and 21 of the ConstitutionoJ India;}

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direct the^{Respondent Nos.3 to 7 to} follow^{Ctrculardated 12'08'2022} ia" nsyzozz-2s/^{108,DzR.zRG.REC.65/ 21.04.158/ 2o22'23issued} bg Respondent^No.2'

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direct the^{Respondent No.2 to dulg enforcetteCirantar dated} 12.08.2022 uide^RBl /^{2022'23/ 108,DORORGREC'65/ 21'04158/} 2022-23 to^{protect the interests of the petitioner against the respondent} Nos.3 to 7.

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direct tte^{respondentNo.2 to take stingentactionagainst the errant} o1tr"tot o7 n""pondent^{Nos.3to 7 in unlaufutlg,illegallA and arbitrailg} ttnnq ti recoier the^amowts from^{petitioner without following ang due} process of laut....'

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Heard Mr. Nageshwara^{Rao Pujari, learned counselfor the} petitioner, Mr.^{G. Venkateshvarlu, learned Central Government} Counsel^{appearingfor respondentNo'1 and Mr' Nalin Kumar'} learned Standing^{Counsel appearing for respondentNo'2'} Despite service of^{notice, there is no representationfor}

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CVBR, J Wp_23519_2024

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respondent Nos.3 to 7 nor any counter a_ffidavit is filed on their behalf.

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It is the case of the petitioner that he availed the credit card facility ald personal loan from respondent Nos.3 to 7, wlno 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 last instalment for the month of June, 2023. It is also the case of the petitioner that respondent Nos.3 to 7 without following the guidelines of RBI, have been sending the loan recovery agents to his house arrd harassing to pay the amount due as per the calculation of respondents.

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The grievance of the petitioner is that ttre respondents are entitled to recover loan amount in terms of the loan agreements by lollowing the procedure established under law and 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 as the Honble Supreme Court in ICICI Bank Ltd. us.

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CVBR, I Wp 23519_2024

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Prakash Kolar and^{otherst, while dealing with the similar} issues where the^{banks engagedthe services of recovery/} collection agents^{to recover the loans,observedas follows:}

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" 16. Before we^{part uiththis matter, u)e uish to makeit clear that} ue do not appreciate^{the procedureadopted bg the Bank in} remoung the^uehicle fromthe^{possession of the urit petitioner'The} practice oJ hiring recouery^{agents, who are musclemen' is} deprecated^{and. need.s to be dbcouraged'The Bank shouldresort} to procedure recognised^{by tant to take possessionof uehiclesin} cases tah.ere the^{borrouLer mog haue committed defaultin} paAment of the instalments^{insteadof taking resortto strong-arm} tactics."

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Aggressive recovery^{tactics adopted by the agents of} Banks/ Financial^{Institutionsled to the landmarkjudgment in} ICICI Bank rs.^{Shanti Dett Shanna and othere'wherethe} Hon'ble Supreme^{Court directed theBanks/Financial} Institutions to^{strictly follow the guidelines issued by the} Re serve Bank^{of India.}

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In the^{above referredjudgments, the Hon'ble Supreme} Court condemned^{theprocedureadopted by} the

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'^{(zooz)z scc zrr} .J {zoos) 7 scc s3z

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CVBR, J W p _23519 _2024

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Banks/Financial Institutions in employing recovery agents who are acting as rniddlemen for securing possession of vehicles/ secured assets in cases where the borrower commits default. It was observed that Balks/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 shourd be reminded of the rule of law arld 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 12.0a.2O22 with regard to outsourcing of Financial Services_Responsibilities of regulated entities employing Recovery Agents, which reads as follows:

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CVBR, J W^p _23519-2024

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"RBI/^{2O22-23/ 108}

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DOR.ORG.^{REC. 6s/2 1. 04.1 58/ 2022-23} August 72, 2022

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Madam/ Sir,

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Outsourcing o;f^{FinancialSeruicesResponsibilltleso;f} regulated.^{entlties emplogittg Recoaery Ageftts}

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The Reserue Bank^{of India hos} from^{time to time adubed} reguloted- entities^{(RBs) that the ultimate responsibilitgfor their} outsourced. actiuities^{uests uith themand theg ore'therefore'} responsible for the^{actionsof their seruice prouiders including} Recouery^{Agents(hereafier refenedto os 'agents')'}

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It has been^{obseruedthat the agents employedbg REs htue} been deuiating from^{tteertant instructions gouerningthe} outsourcing^of ftnancial^{seruices ln uieu.t of concerns ari'sing from} the actiuities of^{these agents, it b aduisedthat the REs shall} sticttg ensure^{that theA or tLrciragentsdo not resort to} intimidation^{or harassment of ang kind, eitlLer uerbal or physical'} against ang^{person in theird'ebtcollectionefforts' includingacts} intend-ed to^{humiliatepubliclg or intrude upon the piuacg of the} debtors' famitg^{members,rekrees and fiends'sending} inappropiate^{messageseitler on mobile or throughsocial media'} making threatening^{and/ or anongmouscalls, persistentlg1 calling} the borroruer and/^{or calling the borrower before 8:OO a'm' and} afier 7:O0^p.m for^{recouery of ouerdueloans'making false and} misteading representations,^etc.

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The instructions^{contoined in para 2} aboue shall supplement ond^{be read inconjunctionrtLith} the eisting guidelines/ directions^{issuedbg tLe Reserue Bank of Indio'a's} omended from^{time to time,includingthosetabulated in Annex'} 4. Ang uiolation in this^{regard bg REs ruill be uiewed} seriouslg.

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CVBR, I Wp_23519-2024

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Applicabilttg 5. Ihis circuLar shall applA^{to the} follou.ting^REs: (o) AIt Commercial Banks^{(including Local Area Banks, Regionol} Rural Banks, and Small^{Finance Banks) excluding Payments} Banks; (b) All All-India Finoncial Institutions^{(uiz. Exim Bank,NABARD'} NHB, SDBI, and^NaBFID); (c) All Non-Banking Financiol Companies^{includingHousing} Finonce Companies; (d) AII Primary fiJrban) Co operatiue^{Banks,StateCo-operatiue} Banks, and Drstict Central^{Co-operatiueBanks; and} (e) All Asset Reconstruction^Companies. 6. This circular shall^{not apptg to microfinanceloans muered} under'Master Directton -^{ReserueBank of India} /R t1l Frameutork for Microfinance^Loans Direction-s,2022', dated March 14 2022. Yours faithfullg, (Sunit T. S. Nair) Chief Generol Manager"

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g. In view of the above circutars, this Court deems it appropriate to direct the^{respondents,to ensure that the agents} engaged by them^{for recovery of the loan arnounts,shall strictly} follow the guidelines and^{instructionsissuedby the Reserve} Bank of India and also^{the judgmentsof the Hon'bleSupreme} Court in Praka,sh Kaufs^{case (1 supra) and Shcati Og"t} Sho:nnrz's case⁽² suPra).

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CVBR,.I Wp_235L9 _2024

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With the above direction,^{this Writ Petitionis disposed of'}

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As a sequel thereto,^{miscellaleous petitions, ifany,}

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pending shall stand closed.^{There shall be no order as to costs'}

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SD/- N.CHANDRA^SEKHAR ASSISTANT //TRUE COPY// \ sEcION FICER I To, 1. The Secretary,^{Ministry of Finance,Union of lndia' New Delhi} 2. The Chief^{General Manager, Reserve Bank of lndia' 6' Sansad Marg' New} Delhi^-1'10001 3. One CC^{to SRI NAGESHWARRAOPUJARI' Advocate lOPUCl} SC FOR^CENTRALGOW 4. One CC^{to SRI G.VENKATESHVARLU'} couNSEL. [OPUC]

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