Madras High Court
G.Palanisamy vs The Branch Manager on 23 April, 2012
Author: Vinod K.Sharma
Bench: Vinod K.Sharma
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 23.04.2012 CORAM THE HONOURABLE MR. JUSTICE VINOD K.SHARMA W.P. No.23670 of 2011 G.Palanisamy ... Petitioner Vs. The Branch Manager State Bank of India B.P.Agraharam branch, Erode 5. ... Respondent PRAYER: The writ petition has been filed under Article 226 of the Constitution of India for issuance of a writ in the nature of mandamus, directing the respondent, to hand over possession of the seized tractor in favour of the petitioner forthwith. For Petitioner : Mr.R.S.Anandan for Mr.D.Balachandran For Respondent : Mr.P.D.Audikesavalu ***** O R D E R
The petitioner has invoked the extraordinary jurisdiction of this Court under Article 226 of the Constitution of India, for issuance of a writ in the nature of mandamus, directing the respondent to hand over the possession of the seized tractor to the petitioner.
2 The petitioner is an agriculturist who availed agricultural loan of Rs.7,74,000/- (Rupees seven lakhs seventy four thousand only) for purchase of Tractor in November 2005. The loan was to carry interest @ 9% per annum and was to be repaid in 9 years. The petitioner was to pay a sum of Rs.15,000/- (Rupees fifteen thousand only) quarterly. To secure the loan, the petitioner mortgaged land measuring 7 acres and 15 cents valued at Rs.20,00,000/- (Rupees twenty lakhs only). The petitioner paid the instalments regularly till the year 2010.
3 In view of the loss suffered by the petitioner due to heavy rain and other natural calamities, the petitioner could not repay the loan amount regularly after 2010. The petitioner against the total payable amount of Rs.2,40,000/- (Rupees two lakhs forty thousand only) paid a sum of Rs.1,50,000/- (Rupees one lakh fifty thousand only).
4 The State Government was considering waiver of agricultural loan of the farmers due to the loss suffered on account of heavy rain. The respondent Bank did not waive the loan, and directed the petitioner to pay the outstanding loan amount. Instead of proceeding to recover the loan amount in accordance with law, the respondent Bank seized the tractor of the petitioner bearing registration No.TN 33, AE 8834 n 21.07.2011 through agents.
5 The submission of the petitioner is that this act of the respondent amounts to a criminal offence punishable under the Indian Penal code. It is also the case of the petitioner that the respondent is taking steps to sell the Tractor by creating false documents.
6 The petitioner issued legal notice on 22.07.2011 to hand back the possession of the Tractor. In response to the legal notice, a reply was sent to the petitioner stating that the tractor was seized with the help of police in exercise of right vested under the agreement.
7 The submission of the petitioner is that the respondent could have invoked the arbitration proceedings or to take steps to recover the amount, but, it was not open to the respondent to seize the vehicle forcibly without following due process of law.
8 The stand of the petitioner is also that he is willing to repay the dues in instalments.
9 The writ petition is opposed by the respondent by raising preliminary objection, with regard to the maintainability of the writ petition as the petitioner is alleged to be guilty of suppressing material and vital facts.
10 The stand of the respondent in the counter is that the petitioner was advanced a term loan of Rs.7,74,000/- (Rupees seven lakhs seventy four thousand only) on 29.11.2005, and the petitioner agreed to repay the loan amount along with interest in 9 yearly instalment of Rs.86,000/- (Rupees eighty six thousand only).
11 The petitioner had executed a hypothecation agreement dated 29.11.2005 creating first charge on the Tractor along with mortgage of land. In the terms of the agreement, the respondent has the right to take over the possession of the security in the event of default, and sell the vehicle to recover its dues.
12 It is admitted in the counter that the security by way of equitable mortgage was also given to the bank. The petitioner was irregular in repayment right from the beginning and failed to pay six instalments. The respondent/Bank issued legal notice on 11.08.2010 recalling the total loan, and directing the petitioner to pay a sum of Rs.13,18,428.72 (Rupees thirteen lakhs eighteen thousand four hundred and twenty eight and paise seventy two only). The amount was directed to be paid on or before 19.08.2010. It was stated in the notice that the failure to repay the loan would result in seizure and sale of hypothecated tractor for realisation of the dues. The petitioner inspite of receipt of notice, failed to repay the loan and therefore, the respondent seized the hypothecated tractor with police help from his premises on 21.07.2011.
13 The stand of the respondent is that case of the petitioner does not fall within the ambit of agricultural debt relief and Debt waiver Scheme, 2008, therefore, the petitioner cannot claim relief under the said scheme.
14 It is also the stand of the respondent that necessary entries are recorded in the register maintained by the transport authorities regarding hypothecation of the tractor in favour of the Bank.
15 The stand of the respondent therefore is that the respondent is fully justified in seizing the tractor.
16 The facts narrated above leaves no manner of doubt that the loan amount is due from the petitioner, and that the Bank has right to recover the loan.
17 The only question which needs consideration in this writ petition is whether the respondent was bound to follow due process of law for recovery and seizure, or could it seize the tractor on its own, as done in this case.
18 The learned counsel for the petitioner in support of his stand, that the action of the respondent is totally illegal and not sustainable in law, has placed reliance on the judgment of the Hon'ble Supreme Court in ICICI Bank Ltd. vs. Prakash Kaur and others [(2007) 2 SCC 711] wherein the Hon'ble Supreme Court was pleased to lay down as under:
"16. Before we part with this matter, we wish to make it clear that we do not appreciate the procedure adopted by the Bank in removing the vehicle from the possession of the writ petitioner. The practice of hiring recovery agents, who are musclemen, is deprecated and needs to be discouraged. The Bank should resort to procedure recognised by law to take possession of vehicles in cases where the borrower may have committed default in payment of the instalments instead of taking resort to strong-arm tactics.
28. In conclusion, we say that we are governed by the rule of law in the country. The recovery of loans or seizure of vehicles could be done only through legal means. The banks cannot employ goondas to take possession by force."
19 The reliance is also placed on the judgment of the Hon'ble Supreme Court in Citicorp Maruti Finance Ltd. vs. S.Vijayalaxmi [(2012)1 SCC 1] wherein the Hon'ble Supreme Court was pleased to lay down as under:
"27. Till such time as the ownership is not transferred to the purchaser, the hirer normally continues to be the owner of the goods, but that does not entitle him on the strength of the agreement to take back possession of the vehicle by use of force. The guidelines which had been laid down by Reserve Bank of India as well as the appellant Bank itself, in fact, support and make a virtue of such conduct. If any action is taken for recovery in violation of such guidelines or the principles as laid down by this Court, such an action cannot but be struck down."
20 The learned counsel for the respondent on the other hand placed reliance on the "Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks". The guidelines itself provides that the Recovery Agent if appointed by the bank should adhere to extent instructions on Fair Practices Code of lending (Circular DBOD leg.No.BC 104/09.07.007/2002-03 dated 05.05.2003) as also their own code for collection of dues. If the banks do not have their own code they should at the minimum, adopt the Indian Banks Association's code for collection of dues and repossession of security. It is essential that the Recovery Agents refrain from action that could damage the integrity and reputation of the bank and that they observe strict customer confidentiality. It also provides that the bank and their agents should not resort to intimidation or harassment of any kind either verbal or physical against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude the privacy of the debtors' family members, referees and friends making threatening and anonymous calls or making false and misleading representations.
21 The guidelines do not support the action of the respondent, but rather goes against it. In any case, the guidelines are of no relevance in the present case, the bank has not accepted the stand of the petitioner that the tractor was seized through recovery agent.
22 The plea of the respondent that police help was taken cannot be accepted, as there is no order placed on record of, any Court or competent authority granting police help to the petitioner for seizing the tractor.
23 In absence of an order from the competent Court/authority to provide police help to the respondent Bank for possession of the vehicle, the stand of the respondent cannot be accepted, as the bank on its own cannot seek police help without order by competent Court/Tribunal.
24 The learned counsel for the respondent thereafter placed reliance on the judgment of the Hon'ble Supreme Court in Citicorp. Maruti Finance Ltd. vs. S.Vijayalakshmi (2011 STPL (Web) 980 SC). This judgment also do not support the case of the respondent, rather goes against it, as the Hon'ble Supreme Court in this case was pleased to lay down as under:
"21. Since during the pendency of the special leave petitions before this Court, the appellant had complied with the orders of the District Forum and the National Commission had already set aside the punitive damages imposed by the State Commission, the reliefs prayed for on behalf of the appellant had been rendered ineffective and the submissions were, therefore, channelled towards the question of whether the fora below were right in holding that the vehicles had been illegally and/or wrongfully recovered by use of force from the loanees. The aforesaid question has since been settled by several decisions of this Court and in particular in the decision rendered in ICICI Bank Ltd. v. Prakash Kaur4. It is not, therefore, necessary for us to go into the said question all over again and we reiterate the earlier view taken that even in case of mortgaged goods subject to hire-purchase agreements, the recovery process has to be in accordance with law and the recovery process referred to in the agreements also contemplates such recovery to be effected by due process of law and not by use of force. Till such time as the ownership is not transferred to the purchaser, the hirer normally continues to be the owner of the goods, but that does not entitle him on the strength of the agreement to take back possession of the vehicle by use of force. The guidelines which had been laid down by Reserve Bank of India as well as the appellant Bank itself, in fact, support and make a virtue of such conduct. If any action is taken for recovery in violation of such guidelines or the principles as laid down by this Court, such an action cannot but be struck down."
25 The learned counsel for the respondent thereafter placed reliance on the judgment of this Court in W.P.(MD) No.10005 of 2009 decided on 03.11.2009 (M.Mahendran vs The Branch Manager, Citicorp Finance India Ltd.).
26 This judgment again cannot come to help of the petitioner as the writ petition in this case was dismissed on the ground of maintainability of writ against the respondent which was a private party carrying on banking finance business. Furthermore, the Court observed that there was nothing on record to show that the respondent had used unlawful means by using musclemen and 'Goondoss' as agents.
27 Whereas in the present case, the stand of the respondent Bank itself was that the possession was taken with the help of the police, without any order from the competent Court/authority permitting the use of police for recovery of the vehicle.
28 The stand of the respondent itself shows that force was used to seize the vehicle.
29 The learned counsel for the petitioner thereafter placed reliance on the judgment of the Hon'ble Supreme Court in W.P. (MD) No.10983 of 2009 decided on 07.01.2010 (R.Ismath Batcha vs. The Superintending Engineer, Thanjavur District and 3 others) wherein this Court while rejecting the plea for return of vehicle was pleased to held as under:
"17. Admittedly, in this case, the Bank in terms of the hypothecation agreement entered into by the petitioner with the Bank appears to have taken action for recovery and seizure of vehicle. According to the bank, there was no deployment of any rowdy element or illegal force while seizing the vehicle used. Further, it is stated by Bank that the petitioner herein came forward to surrender the vehicle by himself on the notice issued for clearing the arrears. The two unreported judgments of this Court, cited supra, are inline with the dictum laid down by the Hon'ble Supreme Court in 2007(2) CTC 345 (Thirivedhi Channaiah Vs. Gudipudi Venkata Subba Rao (D) by Lrs. and others). Therefore, in my considered view, the judgments referred to by the learned counsel appearing for the petitioner are not applicable to the facts of the present case and they are clearly distinguishable on facts and law."
30 This judgment again do not help the case of the petitioner, as in the case in hand, it is not disputed that the bank has taken possession of the vehicle by force though it is claimed to be with the help of police.
31 As already observed above, no order from the competent Court/authority was placed on record to show that the bank was permitted to use the police force to recover the vehicle. This judgment therefore, do not support the action of the respondent Bank.
32 The learned counsel for the respondent Bank thereafter placed reliance on the judgment of the Hon'ble Supreme Court in ICICI Bank vs. Shanti Devi Sharma & others (Crl.A.No.of 2008 [arising out of SLP (Crl.) No.4935 of 2006] decided on 15.05.2008).
33 This judgment again do not help the respondent Bank rather goes against it, as the Hon'ble Supreme Court in this case was pleased to lay down as under:
"13. RBI has expressed its concern about the number of litigations filed against the banks in the recent past for engaging recovery agents who have purportedly violated the law. In the letter accompanying its April 24th, 2008 Guidelines on Engagement of Recovery Agents, RBI stated: "In view of the rise in the number of disputes and litigations against banks for engaging recovery agents in the recent past, it is felt that the adverse publicity would result in serious reputational risk for the banking sector as a whole." RBI has taken this issue seriously, as evidenced by the penalty that banks could face if they fail to comply with the Guidelines. The relevant portion of the Guidelines formulated by RBI is set out as under: "3. Banks, as principals, are responsible for the actions of their agents. Hence, they should ensure that their agents engaged for recovery of their dues should strictly adhere to the above guidelines and instructions, including the BCSBI Code, while engaged in the process of recovery of dues.
4. Complaints received by Reserve Bank 10 regarding violation of the above guidelines and adoption of abusive practices followed by banks' recovery agents would be viewed seriously. Reserve Bank may consider imposing a ban on a bank from engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period. In case of persistent breach of above guidelines, Reserve Bank may consider extending the period of ban or the area of ban. Similar supervisory action could be attracted when the High Courts or the Supreme Court pass strictures or impose penalties against any bank or its Directors/ Officers/ agents with regard to policy, practice and procedure related to the recovery process.
5. It is expected that banks would, in the normal course ensure that their employees or agents also adhere to the above guidelines during the loan recovery process."
14. We deem it appropriate to remind the banks and other financial institutions that we live in a civilized country and are governed by the rule of law.
15. Looking to the gravity of the above allegations, we expect that the matter will be investigated as expeditiously as possible and, in any event, it must be concluded within a period of three months and, thereafter, the concerned Deputy Commissioner of Police is directed to submit the report of the investigation in the 11 High Court
16. In the facts and circumstances of this case, we direct the appellant to pay costs of this litigation on the respondent which is quantified as Rs.25,000/-. The costs be paid within three weeks. We direct that the matter be listed before the High Court after the report of the Deputy Commissioner of Police is filed."
34 The reading of the judgment of this Court as well as the Hon'ble Supreme Court on which reliance was placed by the learned counsel for the parties shows, that the settled law is that the possession of the vehicle though hypothecated cannot be taken illegally by use of force.
35 In the case in hand, it is admitted that the vehicle was taken forcibly from the petitioner without following due process of law. Thus, the action of the respondent cannot be sustained in law specially when the loan amount of the bank is further secured by mortgage of land.
36 Consequently, this writ petition is allowed. A writ of mandamus is issued directing the respondent Bank to return the tractor bearing registration No.TN 33, AE 8834 to the petitioner, in any case not later than one week of receipt of certified copy of this order.
37 However, this order shall not bar the respondent Bank to take steps to recover the outstanding amount from the petitioner in accordance with law by enforcing the securities.
38 The petitioner shall also be entitled to cost of this writ petition which is assessed at Rs.20,000/-.
23.04.2012 Index: Yes/No Internet:Yes/No vaan To The Branch Manager State Bank of India B.P.Agraharam branch, Erode 5.
VINOD K.SHARMA, J.
vaan Pre-Delivery Order in W.P. No.23670 of 2011 Dated: 23.04.2012