Thursday, May 15, 2008

Supreme Court gets stricter of use of force by banks

India's legal system can work very slowly, what with the massive backlog of cases that it has. Due to this backlog and the time it could take to get a case heard, people resort to their own form of justice or get frustrated waiting for a resolution to the cases. In the case of a bank that has given a loan to a person and the person is delinquent about repaying the loan, the proper procedure is to institute a complaint and follows the proper legal procedure for recovering the loan. This would take a lot of time, and hence banks use the services of goons, loan recovery agents who use force, etc.
This is the position taken by banks when trying to do a half-hearted justification of their willingness to use illegal means to recover their loans, or to get their money back by seizing the asset for which the loan was taken. However, this approach has several problems.
- It is patently illegal. A bank works as part of society, and other members of society have to obey the same rules; a bank cannot claim that it is special.
- There are so many cases where a person lands in a bad financial situation, and is willing to come to an agreement, but the bank hands over the debt to a recovery agent who has a single point agenda about getting the money back
- There could be a dispute between the 2 sides, something that can happen very easily, and instead of trying to resolve the discussion, the bank could hand it over to a recovery agent
Once this debt is handed over to a loan recovery agent, these are in most cases people who use the method of either harassment or the threat of force to do the recovery of the asset. It leads to further complications when the bank may dispose of the asset. Now, from time to time, both consumer forums and the court system have rules against this, but the incidents do happen from time to time. Now, the Supreme Court has repeated this injunction:

The Supreme Court in a landmark judgment on Thursday reiterated its earlier stand that banks cannot deploy musclemen for recovery of loans from defaulters thus forcing them to end their lives.
The court while dismissing the ICICI Bank's plea refused to delete the Delhi High Court's remarks that held the bank and its musclemen responsible for abetting a youth to commit suicide by humiliating him and taking away his motorcycle financed by the largest private sector bank. The court also directed the concerned Deputy Commissioner of Police to submit the investigation report in the Delhi High Court.

This may seem like a tough call to banks, but this is the cost of doing business and banks cannot claim a special right to use force. The SC is actually now threatening banks with de-recognition if they do use force.

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posted by Ashish Agarwal @ 5:51 PM