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Supreme Court prohibts banks from using force for loan recovery




In a far-reaching judgment that threatens the nature of banks to give out loans to people with a high risk, and then when a high number of such loans fail, use force to recover the money, the Supreme Court came out and said that all banks need to use the process of law to recover non-paid loans and cannot use musclemen or other force to recover the loans.
In the case of a lady who was unable to pay some months of her EMI for a Tata Indica car and who was negotiating with the bank, ABN Amro, the bank sent over some people who took possession of the car by force and sold the car. The lady then applied to a consumer court which awarded her damages.

Holding that banks cannot employ force to recover loans, the Supreme Court today refused to stay an order of the consumer forum directing ABN AMRO Bank to pay Rs 71,223 to a woman whose vehicle was allegedly forcibly seized by the bank.
“But whatever, it is, you cannot employ force to recover the loan. You have to go by the law,” a Bench of Justices B N Aggrawal and P P Naolekar, observed, while refusing to stay or quash the order.

This is a good judgment. No doubt banks need to recover their loan amount, but they need to use the legal system of the country to do it, they cannot go ahead with using force or the threat of force to scare the person and get their money back. After all, disbursement of loans needs to be done as a business decision by banks, and they need to set their strategy that they distribute loans based on the ability of a person to pay bank.
And of course, neither the Government that controls the law and order situation, nor the Finance Ministry or the RBI, which are the nodal agencies for the handling of financial details in the country, have taken any steps to clear the laws, or to notify banks about what they can or cannot do.




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