The Hindu : National : Don’t run goonda raj, court tells banks

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Don’t run goonda raj, court tells banks

J. Venkatesan

It draws attention to RBI guidelines on loan recovery
Court slaps costs on ICICI Bank

New Delhi: The Supreme Court has come down on commercial banks and financial institutions using goondas or muscle power to recover loans from defaulters.

“We remind the banks and other financial institutions that we live in a civilised country and we are governed by the rule of law,” a Bench said while disposing of an appeal by ICICI Bank against a Delhi High Court verdict.

Writing the judgment, Justice Dalveer Bhandari said: “The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Security Interest (Enforcement) Rules framed thereunder provide some of the procedures by which security interests may be recovered. “

The Bench, which included Justice Tarun Chatterjee, noted that the Reserve Bank of India framed guidelines and a fair practices code for lenders which say: “In the matter of recovery of loans, the lenders should not resort to undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc.” A more comprehensive version of these guidelines was released on April 24, 2008, viz. Code of Bank’s Commitment to Customers pertaining to collection of dues. The code provides for resolving disputes or differences over dues in a mutually acceptable and orderly manner.

The Bench pointed that the RBI’s letter accompanying the advice to banks said: “In view of the rise in the number of disputes and litigation against banks for engaging recovery agents in the recent past, it is felt that the adverse publicity would result in serious reputation risk for the banking sector as a whole.”

The Bench said, “The RBI has taken this issue seriously, as evidenced by the penalty that banks could face if they fail to comply with the guidelines,” and reiterated that the banks must adhere to these guidelines.

In the instant case, Shanti Devi Sharma filed a writ petition in the Delhi High Court, alleging that her son committed suicide as a result of harassment by ICICI Bank’s recovery agents who had re-possessed his motorcycle. The High Court directed the police to take action against those who were found guilty of abetting in the suicide. It indicted the bank for employing musclemen and goons to recover the dues. Disposing of the bank’s appeal, the apex court directed it to pay Rs. 25,000 as costs to the respondent within three weeks.

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