The Kerala High Court today held that the practice of banks and financial institutions authorising musclemen to recover loans from borrowers "is illegal, unethical and against protection of public interest."

Considering an appeal filed by a detective agency in Kozhikode complaining non-payment of commission by a public sector bank which engaged it to recover loan from a borrower, Justice P B Suresh Kumar said "engaging private agencies to recover loans is certainly to harass and intimidate the borrower."

Declining to pay the commission, the bank argued 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.

The court said the practice of hiring 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.

In a country governed by rule of law, recovery of loans by banks and other financial institutions should be done through due process of law, it 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.

source- http://www.ptinews.com/news/7277497_Hiring-musclemen-to-recover-loans-unethical--HC-.html

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