A woman's death in Jharkhand brings loan recovery agents to notoriety again

A 22-year-old pregnant woman died in Jharkhand’s Hazaribagh last week when she tried to block loan recovery agents from taking away her father’s tractor and was crushed under the vehicle, reports said.

The woman’s father, farmer Mithilesh Kumar Mehta, took a loan from Mahindra & Mahindra (M&M) Financial Services, a rural non-banking financial company (NBFC), in 2018 and had to repay it in 44 installments of Rs 14,300 each. Mehta paid the installments until nationwide lockdowns to contain Covid-19 started in March 2020 and he was unable to work.

According to the 'Indian Express', Mehta managed to arrange money for the final installment but the finance company demanded Rs 10,000 more. Despite an agreement that Mehta could pay the money by September 22, recovery agents came to his house to seize the tractor on September 15.

Mehta’s tragedy is not isolated: debt recovery agents employed by banks or private finance companies have often been accused of harassment.

Reading the law

"We are deeply saddened and disturbed by the Hazaribagh incident. We will investigate this incident from all aspects and will also undertake an examination of the practice of using third-party collection agencies that have been in existence," said Anish Shah, managing director and chief executive officer of Mahindra Group, the parent organisation of M&M Financial Service.

"We will extend all possible support to the authorities during the investigation into this tragic incident and, above all, we stand with the family in this moment of grief," Shah said in a public statement.

Abha Singh, a senior lawyer and human rights activist, said loan recovery agents must follow the law. "What happened in Hazaribagh was pure murder under section 302 IPC. The company should have sought recourse to civil remedy and obtained a court order for attaching the vehicle. Even the company officials are accessories to the murder and liable to face prosecution. A dignified recourse to the civil suit, attachment and execution proceedings would have done the job,” she told 'Business Standard'.

In a 2008 hearing, the Supreme Court said banks can't send "musclemen" to recover loans. The court, while rejecting ICICI Bank's plea against a petitioner, refused to delete the Delhi High Court's comments that held the private bank and its loan recovery agents liable for abetting a suicide. Himanshu Dev Sharma, 34, died of suicide after loan agents allegedly threatened him over a motorcycle loan.

“We deem it appropriate to remind the banks and other financial institutions that we live in a civilized country and are governed by the rule of law,” the court said.

Recovering loans

Banks hire external agencies to recover debts. These agencies offer two kinds of services: supporting and recovering.

'Business Standard' spoke to Shiv Bahadur Singh, a lawyer who runs Durion Debt Recovery Services. “A supporting agency like ours deals in secured loans in which a mortgage is involved. In this, we don’t talk to the customers,” he said.

Speaking about supporting agencies, Singh explained: “Under section 13(2), when a secured property turns into a non-performing asset (NPA), the bank sends a notice to the defaulter, urging them to deposit the pending amount within five days. If the debt is not repaid, the bank takes possession of the property under section 13(4) and publishes this information in the newspaper, following which the debtor cannot sell the property. After this, the bank handovers the account to us and then we assist the court in attaching the property."

"Harassment and fights are usually reported in recovering unsecured loans. We have an agreement with the bank that we will get them possession of the property within a stipulated time. We send a 15-day advance notice to the borrower to vacate the property. If the borrower gets a stay order from the court, then we don't touch the property. If the borrower is not ready to vacate and in case a fight breaks out, we are always accompanied by police including lady police," Singh said.

On asking why such methods are employed despite established procedures and guidelines he explains “NBFCs or private lenders are under pressure for fast recoveries due to internal constraints. So, they also offer huge commissions to these agents."

RBI guidelines

The RBI on August 12 issued a circular to all commercial banks, NBFCs, and asset reconstruction companies (ARC). The circular noted that recovery agents are not following guidelines for debt recovery. It barred recovery agents from resorting to intimidation of borrowers as well as calling the borrowers before 8 am and after 7 pm.

The RBI also warned them against sending inappropriate messages to borrowers in any form, making threatening or anonymous calls for the recovery of overdue loans, or making false and misleading representations.

The RBI issued similar guidelines in 2008 and from time-to-time, it reminds lenders of its Fair Practice Code.