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CASE NO.: Appeal (crl.)  267 of 2007

PETITIONER: Manager, ICICI Bank Ltd

RESPONDENT: Prakash Kaur & Ors

DATE OF JUDGMENT: 26/02/2007

BENCH: Dr. AR. Lakshmanan & Altamas Kabir

JUDGMENT: J U D G M E N T (Arising Out of SLP (Crl.) No. 15 OF 2007)

Dr. AR. Lakshmanan, J.

I had the privilege of perusing the judgment proposed by  my learned Brother - Hon’ble Mr. Justice Altamas Kabir.   While respectfully concurring with the conclusion arrived by  the learned Judge, I would like to add the following few  paragraphs:- 1) Regarding the role of Recovery Agents \026 use of abusive  language \026 due process of law RBI guidelines. FACTORS: ?       The issue of Banks employing alternate means of  recovery other than by due process of law i.e., either  through Courts, Tribunals, Adalats or Commissions is an  issue that has to be viewed from two angles (1) from the  angle of the common man and (2) from the angle of the  bank. REASONS: ?       First of all, the entrance of the multi national banks into  the country has spread the culture of Credit Cards,  Loans on an unimaginable level where rather than the  rich, it is the middle class, the lower middle class and the  lower class who are at the receiving end of the bonanzas  promised by the Banks.  ?       Inadequate information on the Credit Card application,  Loan Applications, Advertisements or even while meeting  the bankers in person in respect of the lending rates and  hidden charges, leads to this class of people being lured  into the buying of the Credit Cards or taking of the home  loan or education loan without knowing the ramifications  of non-payment and default.  ?       The first mistake here is most definitely on the part of the  bank who does not believe in educating the masses  regarding the promises.  Once the credit card or loan is  taken and there appears a default, then the witch-hunt  begins.  ?       Now the bank is the aggressor and the public is the  victim.  The first step to recovery of the money due is  through the so called RECOVERY/COLLECTION  AGENTS.  A very dignified term used for paid recovery  agents who are individual and independent contractors  hired by the Banks to trace the defaulters and to both  physically, mentally and emotionally torture and force  them into submitting their dues.  ?       A man’s self respect, stature in society are all immaterial  to the agent who is only primed at recovery.  This is the  modernized version of Shylock’s pound of flesh.  No

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explanation is given regarding the interest charge and the  bank takes cover under the guise of the holder of the  card or loan having signed the agreement whose fine  print is never read or explained to the owner.  ?       When a harassed man approaches the Court or the police  station he is not armed with a recording phone and finds  it difficult to give evidence of the abuse he has suffered.   Here the bank gets away with everything.  Young and Old  members of the family threatened on streets, institutions  and also at home at godforsaken hours by these agents  who have the full support of their contractor bank.  The  stance taken by the bank in any suit alleging such  incidents is that no such agent has been appointed by  them or their agents do not misbehave in the manner  aforesaid and if found guilty the agents have to bear the  cross and the bank gets away scot free.  ?       Using of the abusive language for recovery is the norm of  the day for most nationalized or multi national bank or  non-nationalized bank.  Though some are smart enough  to record the abuse and proceed to establish the same  through Court of Law, most of them are unfortunate not  to have recourse to it.  Such people form the majority and  such litigations are pending in large volumes before the  Civil and Consumer Courts.  Again the banks escape  liability since these agents are not salaried employees of  the bank and hence not directly liable for anything.  ?       Taking it from the angle of the common man the inflow of  software money and high salaries has resulted in  uncontrolled expenditure.  Rather than utility it is a  fashion to carry a card for it makes a statement  depending on the type of card one carries.  ?       To maintain ones image one pays the price of utilizing the  card without realizing that even a single day’s delay in  payment results in more than 100 to 200 rupees being  charged as default and penalty charges, which if  accumulates over a month, results in the charges  exceeding the actual payment due.  ?       As for loans, when litigation is commenced by the  customer against the bank or an institution, then they  refuse to divulge the true statement of account stating  that it will be produced in court.  This gives ample scope  for manipulation.  SUGGESTIONS   ?       Chronic defaulters should mean a default of a maximum  of three months if intermittent payments have been  made.  ?       It is mandatory that the banks be held vicariously liable  for such acts of agents.  These agents have to be  identified as registered agents of the bank and should be  bought directly under the purview of the RBI.  ?       It may be useful that in view of the enormous amount of  litigation pending and being filed against the banks that  the recovery agents be made employees of the bank and  the bank be held liable directly for all actions of such  employees.  ?       Also every statement sent by the bank should disclose  clearly the rate of interest and the default interest and  penalty charges separately calculated and added to the  amount pending and due by the customer.  ?       At the very first month of default, the card should  automatically be terminated by the bank to prevent  further use/misuse.  ?       At the time of issuance of card itself, the issuance letter  should contain every single charge being made, explained  in simple terms and the penalty the customer will bear

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for such non-payment.  ?       These agents should be held responsible for every  background check done on the person to whom the card  is issued and the defaulter should be made liable along  with the agent.  This would ensure that the agent does  not source illegal or fraudulent customer.  ?       This is dealt with elaborately in the RBI guidelines issued  on 21.11.2005 but which still remains only on paper and  is not being followed.  2) HIRE PURCHASE:  FACTORS: Very many banks and more importantly banks like ICICI have  extended liberal credit facilities for purchase of vehicles  whether two wheelers or four wheelers, more the number the  targets are achieved.  This results in a certain amount of  default cases.  The default can be two-fold \026 (1) genuine and  (2) fraudulent.  Both, in the case of genuine and fraudulent  the method usually adopted by these institutions is to engage  thug/hooligan/gangster for recovery or the two wheelers or  four wheelers.  Many times even notice is not given to them.   They seize the vehicles even in public places deliberately to  cause embarrassment.  There is no codification till date.  This  requires immediate attention.  In all the cases of hire  purchase, advance cheques for a period of 36 months or 48  months or 60 months are obtained and since there is no  proper collection process, they not only seize the vehicles but  also continue to present the cheques merely to harass the  customers.  A recent incident has taken place when the  Recovery Agent had gone and threatened a school going child  for the money due by the father.   Unless we have an effective supervisory system the abuse  will continue.  SUGGESTION Most of the non-banking financial institutions adopt the  arbitration route for the purpose of getting a commissioner of  the Court appointed for seizing the vehicles.   The most important aspect would be a broad guideline for  fixing the targets, whether they be for lending or for recovery.   This would result in a proper balance between the extreme  differences of working conditions between the Multinational  Commercial Banks and Nationalized and Non-nationalized  Banks who are doing the very same credit business with   dignity.  3) Agency systems to be abolished  FACTORS Though there are voices raised stating that the agency system  should be abolished, this has to be examined from the view of  the bank for whom this system has proved to be extremely  productive in view of chronic and regular defaulters and  customers who have a premeditated intention of cheating the  bank.  Such people are identified easily by the agents and  produced physically before the bank who resort to all means  including the local police help to force such customers to  repay their dues.  REASON   The delay in the Courts and the in-effective and corrupt police  structure enables the bank to seek the help of such agencies  which proves to be cost effective and less cumbersome.  

SUGGESTION  ?       Abolition of the system is not the answer but effective  control over the agency by the respective banks is  essential.

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?       Even though, the Reserve Bank of India Guidelines  permit the use of an Independent Agency, no prescribed  qualification or licence is granted.  ?       If there could be a guideline only licensed recovery agents  would be employed and misuse of the agents as against  the borrowers can be eradicated.  ?       License also should be granted after the respective agents  get through in a course conducted by the banks.  ?       In accordance with the RBI Guidelines, in any proven  cases the license of the agent should be cancelled with  penal consequences on them.  ?       This could be the best alternative if the banks do not  come forward to employ their own personnel and depute  them for recovery of outstandings.

4)      RBI Guidelines ?       The widely published and circulated guidelines dated  21.11.2005 has constituted a working group on  regulatory mechanisms and for fair trade practices.  ?       It came into effect as of 30th November, 2005 and covers  a wide area pertaining to the rights of the customers and  right to privacy, confidentiality, practice of debt  collections, Redressal of grievances and monitoring  systems to be implemented by the banks.  ?       Pursuant to this certain knowledgeable  persons/executives aggrieved by the agencies behaviour  took recourse through the Ombudsman.  ?       Not many are aware of this forum and the banks  continue to be safe.  5)      Banking Regulations Act  ?       Banking Regulations Act does not, in any way, provide  the details of the conduct of the bank business. ?       It only contemplates the registration of a bank,  incorporation of a bank and thereafter puts the bank  under the control of RBI.  ?       While there are guidelines both for lending and recovery  which contemplates that no use of force or abuse is used  in recovery proceedings, in the absence of an effective  overseeing body, these abuses continues.  ?       Since every bank should hold a license issued to carry on  the banking business in India by the RBI in accordance  with the conditions imposed by the RBI, if and when both  nationalized and MNB’s violate any of the rules and  regulations consistently over a period of time, then  strictures ought to be imposed on such digressing banks  to curb their high handed activities and to make them  answerable to the general public.  ?       Only this would reinstate the confidence of the masses in  the banking system who are already burdened with the  population of over 60 years of age having lost  tremendously on the lowering of the interest rates. ?       The banking procedures should be people friendly at the  same time, strict in its enforcement and educative  enough to guide the public on the benefits of prudent  banking and savings and at the same time, enlighten  them on the pitfalls of borrowing or taking credit from  institutions for various purposes, way beyond their  means.  CONCLUSION: On an overall assessment of the system presently existing in  India, the Multi National Banks score over the nationalized  banks in terms of connectivity and ease in functioning, since  they are highly automated and efficient.  The staff too is well  trained and well paid also.  The disadvantage here is that the

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more the pay, the greater the pressure.  Every facility is  provided but work is extracted to the maximum irrespective of  the age or personal circumstances.  In a nationalized bank,  since there is no fear of immediate removal, the attitude of the  staff is tolerant.  No effort is made to go a little more to help  the masses.  Burden is shifted easily at the lower level.  The  middle management and higher management are under  tremendous pressure, since they are to achieve targets on par  with the Multi National Banks.  Though there is job security  and comfort in pension, there is no answerability.  This leads  to a recalcitrant attitude and apathy.  As a conclusion, one can state that though efficiency is  necessary, it should not be attained under pressure and this  situation would only improve if answerability is made the  prime criteria in both the sectors.  ADDITIONAL INPUTS

Considering the difficulties of the customers as well as  banks, the concept to be developed is to create distinct and  separate department for recovery. This should be manned by  persons who will not resort to violence or force when they are  in the process of recovery of the dues.

While the fraudulent defaulters can be dealt with by  taking the Police help for such action, it is only when law is  taken into the hands of the so called recovery agents,  who are  appointed on contract basis, the issue gets aggravated. A  separate wing, wherein appropriate training is given in  accordance with RBI guidelines would facilitate the bank in its  recovery process and also would provide more responsibilities  to the persons so engaged.  

Yet another suggestion would be that of loans whether  they are Personal Loans or Credit Cards or Housing Loan with  less than Rs.10 lakhs exposure, can be referred to Lok Adalat  which can be specially created for resolving the issues between  the banks and the borrowers. In fact, the Lok Adalat should be  used as an effective machinery to resolve the issues and  concentrate with reference to keeping the fine balance between  the Banks and Borrowers.

If the Agency System is inescapable, then the Agency  must be coupled with a license issued after conducting  examination. Appropriate training should be given to the  agents who should have requisite qualification and maturity to  handle delicate and sensitive situation. Merely because the  Agency System is convenient to the banks, and has been  approved by RBI, it should not lead to lawlessness and  conduct resulting in challenge to rule of law.  

While performance of the banks are always co-related  with reference to its growth, its assets utilization and finally  profit in the balance sheet, that and that alone cannot be  relied upon, with reference to a country like India, where there  is enormous disparity in respect of various sections of the  society.  These are all positive steps that would bring in the  over all balance in the working of all these institutions.

Whether it is a bank, which concentrate on higher  segment of banking or it is a bank which concentrate upon  middle class, lower middle class and such other segment of  the Indian Public who look to and requires the banking  comfort, it is not mere question of lending the money  that  matters, but also the consequences thereafter.  The social  responsibility is larger than the banks profit and growth ratio

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alone.         Keeping in mind the social responsibility, it is absolutely  necessary to appoint a Special Committee who will look into  the disparity in working conditions, at least upto the  managerial level and make such recommendations to the RBI  and Union of India for all remedial actions.               In conclusion, we say that we are governed by a rule of  law in the country.  The recovery of loans or seizure of vehicles  could be done only through legal means.  The Banks cannot  employ goondas to take possession by force.