Friday, June 06, 2008

Citicorp fined for using force in loan recovery

It seems to be a story that keeps on repeating itself over and over; you hear of people being harassed by loan recovery agents for repayment of loans, or of somebody's vehicle being taken away from them anywhere where the vehicle can be found, and so on. In extreme cases, the pressure or violence of the recovery agents can lead to injury or death of the person having taken the loan. The financing company or bank having advanced the loan would take recourse to goons or musclemen and they would use or threaten force in this regard.
For the last 2-3 years, this practise has been challenged in court, and there have been a number of decisions in this regard. Here's another substantiating the same point that a loan recovery company cannot use force for loan recovery. Since a loan agreement is a civil contract, recovery of loan amount or the assets bought against the loan also can happen only when there is a court order:

Unless a bank or a financial institution is equipped with a court order to repossess a vehicle which it has given on loan, it has no authority to go to the residence of the borrower to take away the vehicle by force. This was observed by the state consumer commission in a recent order.
Taking strong exception to the method adopted by a finance firm to recover dues in the form of a few unpaid instalments from a consumer who took the money to purchase a vehicle, the commission headed by Justice J D Kapoor directed Citicorp Finance (I) Limited to pay Rs 50,000 to one Jan Mohammad, a resident of Mehrauli, for the mental agony, harassment and public humiliation he faced. It was observed by the commission that no financier or bank had the authority to forcibly take possession of the vehicle as the loan agreement or hire purchase agreement were civil contracts and therefore had to be enforced through civil remedy. In other words, through intervention of the court.

It may be argued that the judicial system in India is slow and cases take a long time to settle; however that cannot be an argument for using force or illegal means. A company needs to act in the constraint of the law, so they need to use greater discretion when deciding loans, or they need to go in for more out-of-court settlements in such cases.

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posted by Ashish Agarwal @ 11:27 PM