Banks can’t shame defaulters with pictures: Legal experts

Swati Deshpande, TNN Oct 27, 2013, 02.48AM IST

MUMBAI: In a rapidly rising trend that experts term disquieting, unauthorized, even defamatory, many public sector banks publish photographs of defaulters and guarantors of loans in the media as public notices. Defaulters of commercial loans and even personal and educational loans increasingly run the risk of finding their pictures in print. The name and shame operation that so far the public sector banks, consider necessary to recover their money, lacks the backing of any specific legal provision say lawyers, citing a recent judgment of the Kolkata high court.

The Kolkata HC had this May prohibited the State Bank of India in two cases from publishing pictures of loan defaulter or their guarantors. It had differed with the ''unfounded'' view taken in 2006 by two other high courts—in Mardras and Madhya Pradesh—and said the banks by publishing photographs without any legal sanction damaged the reputation of guarantors.

The practice of the banks however remains unabated. It had led to an outcry and protests a few months ago in South India, and has now led to experts to question the regulatory mechanism governing bank loans. Avocate Ashok Paranjpe of MDP & Partners said despite the Kolkata HC order and the fact that there is no provision in any law or guideline to allow banks to print by way of public notice the photographs of defaulters or guarantors, the SBI had a few months ago sent his client a seven-day notice that it would do just that if it failed to repay its long outstanding loan. He wrote to the bank to desist from taking such ''inappropriate, unlawful and arbitrary steps'' or to issue such ''misconceived threats'' and the bank desisted. It was not a willful default he said.

But others who do not respond to notices which the banks send, are not as lucky. The photographs of the defaulters where no other information apart from names, pictures and amount pending is displayed in print are "completely wrong'' said lawyers. Amit Desai, senior counsel in Mumbai said, "even where notices speak of 'symbolic possession' of properties taken by a bank, there is no need for photographs of defaulters since names and particulars of properties are given.''

"These types of advertisements do not seem to be in keeping with any type of circulars,'' said Desai. "What if there is a valid disputed claim? If there is a final decree from a tribunal or court too the photographs are not essential to be printed.'' He said, "This kind of a unilateral pre determination of defaulters' status appears to be wholly unjustified because it gives an impression that the person is not credit worthy and could amount to defamation, especially since the counter point of the person alleged to be defaulting has not been put across.''

The public sector banks which appear to have started and continue the trend however don't see anything wrong, illegal or arbitrary about what they do. One senior officer of a government bank, not willing to be quoted, said, "We take due precaution by sending the defaulter a prior notice before printing the names and pictures.'' He said, "We also included it in loan agreements now.'' He admitted that there '' is no specific legal provision that stipulates such publication of photographs with names'' but added, ''there is no provision that prohibits the banks either.'' While loan agreements which contain such clause of displaying defaulter's picture may put a defaulter in a bind, the question is about earlier loans which had no such clause.

In such a scenario, where thousands of crores are due to banks in outstanding loans, solicitor M V Kini who represents more than 50 banks said, "Banks have the discretion to act for the public good to ensure swift recovery of loans.'' He said main objective of the two enactments The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) Act of 2002 and the Debt Recovery Tribunal law was to secure and recover bad debts quickly.

Kini said, "Summary proceedings by DRT and quasi judicial proceedings by the Authorized Officer under the SARFAESI Act, are intended to recover the bad debts with certain amount of coercion and that is the intention of the legislature.'' He said, "Public notice with defaulter's picture thus cannot be faulted with,'' and said the Kolkata HC had erred in its findngs.

But the Kolkata judgment, which is said to be in appeal, has clearly held against publishing a photograph in public good. "Since publication of photograph of adefaulting borrower or guarantor has the potential of exposing him to irreparable loss, injury and prejudice, such publication cannot be resorted to in the absence of an express power or an agreed term in this behalf.