Can banks use recovery agents?

Balwinder Singh took a loan from HDFC Bank to purchase a car. Due to a default in payment of some equated monthly instalments (EMIs), the bank engaged musclemen, who forcibly repossessed the vehicle and subsequently sold it. Singh filed a complaint before the district forum, which directed the bank to pay a compensation of Rs 4 lakh and costs of Rs 10,000.

The bank appealed to the Chandigarh State Commission. It argued the vehicle was not forcibly repossessed. Singh himself had admitted his inability to repay the loan and had requested the vehicle to be sold. For this purpose, he had made an endorsement on a document relinquishing his claim. The state commission found Singh's signature on the document had been obtained in advance at the time of applying for the loan. Indicting the bank of unfair trade practice, it held no reliance could be placed on such a document.

 

The bank had failed to issue a notice either before repossessing the vehicle or before its sale. Also, no quotation had been invited, which meant it was pre-decided by the bank to sell the vehicle to a particular individual. Holding the bank guilty of high-handedness, the state commission dismissed the appeal with further costs of Rs 5,000.

The bank approached the national commission through a revision petition. Relying on various earlier judgments and precedents, it observed, in a democratic country having an independent judiciary and various laws, it is not permissible for a money lender or financier or banker to take forcible possession of a vehicle. The legal or judicial process may be slow, but that cannot be an excuse for employing musclemen. Such sort of "instant justice" cannot be permitted in a civilised society, where there is rule of law. Such behaviour is to be curbed and repossession is to be streamlined. The rule of law, it observed, must prevail and not that of the jungle, where might is right.

The bank's revision petition was dismissed with exemplary costs of Rs 25,000. The bank was also directed to stop the illegal practice of engaging musclemen directly or through their recovery agents.

In another case, Vijayalaxmi had purchased a vehicle by taking a loan from Citicorp Maruti Finance, to be repaid in EMIs over a five-year period.

When her husband met with an accident, some EMIs could not be paid in time. Later, she requested for a one-time settlement. The bank's agent visited her on 19.05.2003 with a settlement letter, which required clearing the loan by paying Rs 60,000 by 16.5.2003. Since the date for settlement had expired, a request was made for 14 days time to make payment.

Yet, on 29.5.2003, before this period expired, two persons, deputed by the bank, came to collect the payment. Despite showing the bank's letter, they forcibly took custody of the vehicle. They asked Vijaylaxmi and her husband to accompany them to the bank. On the route, another vehicle with five more musclemen joined them. Vijaylaxmi was ordered to get off. She was told her husband would be allowed to leave only after the cash was deposited. The musclemen even gave their mobile numbers. The husband was forced to give a written undertaking that he would make the payment in cash and then released, but the vehicle was confiscated. Later, the couple tried to lodge a police complaint, but the police refused to co-operate.

When the couple went to the bank the following day to deposit Rs 60,000, the amount was not accepted. No proper response was given. On 6.6.2003, they were told their vehicle had been sold. Inquiries revealed the bank had sold the car much below the market rate to Chinchin Motors, who, in turn, had re-sold it to another person.

Vijaylaxmi filed a consumer complaint asking for a return of her vehicle or alternatively a compensation of Rs 1.5 lakhs, equivalent to the market value of the vehicle, along with costs. The bank lost at every stage and ultimately carried the matter to the national commission.

The bank contended that forceful seizure of the vehicle was permissible under the "Recovery of Debts Due to Banks and Financial Institutions Act 1993". The commission disagreed and observed this Act prescribed a legal procedure for repossession. There was no provision which empowered banks or financial institutions to take the law into their own hands for taking possession of the hypothecated goods by resorting to use of force.

The national commission upheld the order directing the payment of Rs 1.5 lakh and a compensation of Rs 5,000 and further granted costs of Rs 10,000.

The general direction restraining the bank from engaging musclemen will provide relief to other consumers being harassed by recovery agents.

The author is a consumer activist