The Kerala High Court has taken strong exception to the practice of banks and financial institutions engaging agents to recover loans through strong arm tactics.
This is not only unlawful but also unethical, Justice PB Suresh Kumar observed, while recently dismissing an appeal by Smart Security and Secret Service Agency against State Bank of India.
‘Not enforceable’The practice is also opposed to public policy and against protection of public interest. Recovery of loans is enforced on the pretext that delivery of justice through court of law is a slow process.
“I have no hesitation to hold that agency created by the bank for realisation of loan dues….is an agreement opposed to the public policy and hence not enforceable,” the judge ruled.
The plaintiff is a firm engaged in detective investigation. The defendant bank had engaged it as its agent to recover the dues of the loan disbursed to one of the borrowers.
The plaintiff said it had pressurised the borrower to settle the loan dues. As per the agreement, the bank was supposed to pay five per cent of the amount recovered as commission.
Commission denied?But the bank refused to pay the commission of ₹72,050; being five per cent of ₹16,41,000 recovered from the borrower.
The bank contested the claim by saying that on the same day the plaintiff was engaged, the borrower approached the bank and offered to settle the dues by selling the property mortgaged as security. The bank stated that the borrower had gone on to liquidate the outstanding loan in two instalments. He had remitted the dues voluntarily and therefore the plaintiff was not entitled claim any commission.
The trial court had found that recovery of the dues was made possible only on account of efforts taken by the plaintiff.
The bank took up the matter in appeal. The appellate court dismissed the suit reversing the direction of the trial court, following which the plaintiff had approached the High Court of Kerala.
But the High court dismissed the appeal ‘on other grounds’ during the course of which it derided the practice of banks engaging agents to forcefully recover loan dues from borrowers.