SC rules against use of force by banks to recover loans | india | Hindustan Times
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SC rules against use of force by banks to recover loans

india Updated: Feb 07, 2007 02:57 IST
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Taking strong exception to banks hiring goons to recover loans and forcibly taking away vehicles of defaulters, the Supreme Court on Tuesday said banks can't use force against clients.

A Bench headed by Justice AR Lakshmanan said that the banks cannot use musclemen for recovery of loans. "You can't use goondas…You can use only legal means," it said.

The court made it clear that the practice of banks using goons for intimidating and humiliating the customers for recovery of loans must stop.

The court is hearing ICICI Bank's petition challenging an Allahabad High Court order to register an FIR against some of its senior officials for having used goons to threaten one Prakash Kaur, who had taken a loan of Rs right lakh for purchasing a truck in 2002.

The Bank alleged that Kaur failed to pay the very first installment in time and continued to default in payment of future installments also.

At the outset, the Bench sought to know what procedure banks followed for recovery of loans.

ICICI Bank's counsel Mukul Rohatagi said that first the defaulter is given a notice and then told that he/she should hand over the vehicle to the bank. He said it would be difficult for the banks to recover their loans from millions of defaulters by following the usual norms, which were quite cumbersome.

However, the court, which has already stayed the arrest of Allahabad branch manager of ICICI bank, said recovery of loans could be done only through legally permissible means.

When Rohatagi said banks had the right to appoint collection agents under the guidelines of RBI and Banks Association, the court asked him to furnish the said guidelines within four weeks.

The High Court had on December 7, 2006 ordered the registration of a case against several officials of the bank, including Allahabad branch manager. It had also ordered registration of cases against M/s Kartik Associates and Banaras Automobiles for employing goons to make recovery of loans.

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