Bank Authorising Agent to Recover Loan Not Enforceable; Kerala HC

The Kerala High Court on Wednesday, 30 March 2016 in the case of Smart Security and Secret Service Agency Vs. State Bank of India has held that the agency created by the Bank for realisation of the loan dues of the borrower of the Bank is an agreement opposed to the public policy and hence not enforceable.

Justice P.B. Suresh Kumar observed that taking resort to strong arm tactics is not only unlawful, but also unethical and opposed to public policy as also against protection of public interest.

Since one of the parties to the agreement which is found to be opposed to public policy, is a public sectorbank, the registry is directed to forward a copy of this judgment to the Governor of the ReserveBank of India to ensure that the mode of recovery as permitted in the instant case is not resorted to in future by banks and other financial institutions.

the Court said.

While dismissing the Appeal the Court further held that in a democratic country having a well established independent judiciary and having various laws, if muscle men are engaged to recover dues to the Bank, there is no doubt that it will create lawlessness.

True, all these attempts are made on the pretext that the justice delivery system prevalent is a slow process. But, lawlessness cannot be encouraged on that ground.

In a country governed by rule of law, the recovery of loans by banks and other financial institutions cannot be done otherwise than by due process of law.

The plaintiff is a firm engaged in detective investigation. The Managing Partner of the plaintiff firm is an Assistant Commissioner of Police retired from the service of the State Government.

The defendant Bank has engaged the plaintiff as their agent to recover the dues of the loan disbursed to one of its borrowers.