In a landmark judgement on Wednesday, the Kerala High Court ruled that the practice of banks and financial institutions hiring musclemen to recover loans from borrowers “is illegal, unethical and against protection of public interest.”
According to news agency PTI the court pronounced its verdict following an appeal filed by a detective agency in Kozhikode, which complained of non-payment of commission by a public sector bank.
The bank had engaged the agency to recover loan from a borrower, but it declined to pay commission arguing that on the very date the agency was engaged to recover loan payments, the borrower approached the bank and settled the dues by selling his property.
Justice P B Suresh Kumar said “engaging private agencies to recover loans is certainly to harass and intimidate the borrower.”
The court said the practice of employing recovery agents who are musclemen need to be discouraged and bank should resort only to procedure recognised by law to recover dues from borrowers.
“In a democratic country having a well-established, independent judiciary and having various laws, if musclemen are engaged to recover dues to the bank, it will create lawlessness,” the court said.
The court further said taking resort to “strong-arm practice is unlawful, unethical and opposed to public policy and against protection of public interest.”
Justice Suresh Kumar directed the Registry to forward a copy of the judgment to the Governor of Reserve Bank of India for further action to ensure that the mode of recovery as permitted in the instant case is not resorted in future by banks and other financial institutions.