Kochi: The Kerala High Court declared on Wednesday that the practice of banks engaging recovery agents to collect loan dues was unethical. It asked the governor of Reserve Bank of India to ensure that such practice was not resorted to in future by banks and other financial institutions.
“If musclemen are engaged to recover dues to the bank, there is no doubt that it will create lawlessness,” the court observed.
“True, all these attempts are made on the pretext that the justice delivery system prevalent is a slow process. But, lawlessness cannot be encouraged on that ground. In a country governed by the rule of law, the recovery of loans by banks and other financial institutions could not be done otherwise than by due process of law,” Justice P.B. Suresh Kumar said.
He also asked the high court registry to forward the copy of the judgment to the RBI Governor.
The court dismissed an appeal filed by Mr K.V. Balan, former assistant commissioner of police and managing director of the Smart Securities and Security Guard Service Agency, Kozhikode, against the Kozhikode Subordinate Judicial Court reversing an order of the munsif court directing the bank to pay the commission due to the agency.
Mr Balan had approached the court against the bank for not disbursing five per cent of the loan amount recovered by the bank pursuant to the efforts taken by the agency.
According to the agency, they had pressurised the borrower and the borrower had settled the dues.
The agency submitted that as per the agreement, they are authorised to pressurise the borrower. Considering the contention, the court observed: “It is clear that the engagement of this nature is certainly to harass and intimidate the borrower, especially in a case of this nature where the bank had chosen a retired police officer to do the follow-up work.”
The bank had authorised the agent to do everything so as to compel the borrower to pay the loan dues. The court observed that it was evident that the bank was conscious of the fact that the acts authorised to be performed by the agent were likely to create adverse publicity to the bank. The court also cited the Supreme Court order which made it clear that the practice of hiring recovery agents who are muscle men needs to be discouraged.
