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Bench flays `extra constitutional' methods for bank loan recovery
June, 23rd 2007
Banks resorting to "extra constitutional" method, like engaging recovery agents, to recover dues from debtors could not be condoned, and the lender bank had ample power to seek recovery, the Madurai Bench of the Madras High Court has held.

Mr Justice K. Chandru, who heard the petition of Mr S. Ovuraj, a farmer, challenging seizure of his tractor and trailer by State Bank of India, Vilathikulam, Tuticorin district, quoted a Supreme Court order [2007(2) CTC 334] dealing with practice of multi-national banks in engaging recovery agents, and said the impugned action of the first respondent bank, "is shocking" inasmuch as owned by Central Government, the bank was also taking similar mode of recovery by engaging agents.

Stating that the allegation of petitioner was accepted, the judge observed that when petitioner had been deprived of his only property, which he obtained on a loan from bank, by "extra-constitutional method", could not be condoned.

The bank issued notice to petitioner for his default in payment of dues, and he expressed difficulty stating that he did not have money to pay back since there were no agricultural operations in the last two years. The bank had intimated him that it had appointed a recovery agent to take appropriate action including repossessing the vehicles as per terms of agreement signed by petitioner.

The petitioner alleged that vehicles were forcibly removed with help of police, despite his protest. On behalf of the bank, it was submitted that petitioner had voluntarily surrendered the vehicles. The bank said it had appointed a recovery agent as stipulated by the Reserve Bank of India. While allowing the petition, the judge directed the bank to return the tractor and trailer to petitioner within one week. This did not prevent bank from resorting to appropriate legal remedies to recover loan from petitioner, the judge ruled.

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