Publishing photos of loan defaulters, guarantors legally impermissible

By VT Gokhale

Non performing assets of banks and financial institutions are a matter of concern to all. Finance minister and senior finance ministry officials have been prompting banks to make special efforts for recovery of loans.

In view of this, banks have been taking various steps for recovery. One such is publishing photographs of defaulting borrowers and their guarantors along with notice for acquiring assets under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (Sarfaesi act). This has come to be known as “naming and shaming”.

This is impermissible as being unfair, unethical, against legislative intent, in view of stance of the RBI and Ministry of Finance and is also legally impermissible as held in April 2013 by the High Court of Calcutta which is a judgement delivered later in time than those of the courts of Madras and Madhya Pradesh delivered in 2006 having a contradictory view.

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Unfair, unethical and against legislative intent

It is well settled that recovery be made as per the law and not by acts of force, coercion, or verbal abuse and having regard to “strict customer confidentiality”. It is argued that using borrower’s photograph originally obtained for banking purpose for public humiliation is not an ethical practice. The documents executed by borrowers speak only of legal action and do not mention such practices.

This is a civil wrong and resorting to such practice can only be described as modern day version of the practice of public whipping of a thief prevalent in some parts of the world in eighteenth century. This is not in accordance with legislative intent of the Sarfaesi Act. The intent of the act as reflected in the preamble is securitisation and reconstruction of financial assets and enforcement of security interest which obviously is to be achieved as per the provisions of the act and never by means not expressly permitted by act. Naming and shaming is clearly not contemplated by the act.

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It may be worthwhile to note that a working group formed by Indian Banks’ Association (IBA) in October 2003 to review and suggest changes in the laws relating to creation, enforcement and registration of security interest had observed that while there is a need for a law to punish deliberate and wilful default arising out of diversion/ siphoning off funds, as an offence under criminal law, it is necessary to exclude loan defaults due to genuine reasons, so that the law encourages good borrowers and punishes only wilful defaulters.

Government stance

Finance Minister P Chidambaram had said during the Question Hour in the Rajya Sabha in December 2012 that irrespective of NPAs going up or down, the loan recovery should be made in a respectful manner. We must respect the borrower; we must respect the borrower’s circumstances.

Stand of RBI

A letter (adverted to by both Madras and Calcutta high courts) of the Deputy General Manager, Reserve Bank of India, dated July 12, 2007 addressed to the Chairman, State Bank of India, on the subject of “Wilful Defaulters - Publication of Photographs” makes clear the stand of RBI. It says that the Sarfaesi Act, 2002, has no mention of publishing photographs of defaulters. The possession notice under the act provides for description of the immovable property more as a caution to the public at large not to deal with the property and any such dealings with the property will be subject to the charge of the secured creditor.

Legally impermissible

The High Court of Calcutta in Ujjal Kumar Das & Anr. V/s State Bank of India & Ors. (W.P. 10315 (W) of 2013) while declaring that publishing photographs was legally impermissible which was a view contrary to that held by the high courts of Madras and Madhya Pradesh had observed that in its humble view, “the opinions recorded by these courts are neither backed by any reason nor can be supported with reference to any provision of the Sarfaesi Act or the rules framed thereunder. The principle, on the basis of which His Lordship reached the opinions as recorded, is conspicuous by its absence. I am of the considered view that publication of photograph of a borrower is neither allowed by express provision nor by necessary implication. The public may be notified in terms of the statutory rules by issuance of notices in newspapers/magazines etc. giving the details of the borrower, the loan account, the location of the secured asset, its measurement, the quantum of secured debt, etc. but there is no provision in the Sarfaesi Act or the rules framed thereunder authorizing the secured creditor to publish photographs of the defaulting borrowers”.

While a natural person has the liberty of indulging in any act of his choice unless such act is forbidden by law, for a public authority it is the other way round. It has no power to act in a particular manner unless it is authorized by law. It is also well settled principle of law that when a statute requires a thing to be done in a particular manner, it should be done in that manner alone or not at all. There is absolute lack of legislative sanction in relation to publication of photographs of defaulting borrower(s)/guarantor(s). The Sarfaesi Act and the rules framed thereunder not having conferred any power on the secured creditors to publish their photographs, they cannot resort to such action on the ground that publication of photograph is not prohibited. For the secured creditors, the test is not as to whether publication is prohibited by the statute but whether such publication is permitted by it. Prohibition has to be inferred in the absence of express authorization. As of now, publication of photograph(s) of defaulting borrower(s)/guarantor(s) by the secured creditor has to be viewed as taking recourse not to legal but to extra-legal means.

The court also observed that if it were accepted that the secured creditor enjoys the unfettered power of publishing the photograph of a defaulting borrower/guarantor and does so even before the Tribunal under Section 17 of the Sarfaesi Act could be approached, and quite some time thereafter the Tribunal holds that the secured creditor had acted contrary to the other provisions thereof while enforcing the security interest and ultimately directs restoration of possession, the damage that could be caused to the reputation and dignity of an honest borrower/guarantor by reason of publication of his photograph in the interregnum would be irretrievable. It may not be possible to compensate such damage by money, if a borrower/guarantor, whose photograph is published, is unable to bear the ignominy and takes a drastic step. Since publication of photograph of a defaulting borrower/guarantor has the potential of exposing him to irreparable loss, injury and prejudice, publication of photograph cannot be resorted to in the absence of an express power or an agreed term in this behalf.

The court restrained secured creditors by a prohibitory order from taking such recourse as it held that the threat to publish photographs borders on extra-legal means to recover the dues.

Hon. Kerala high court has also slammed this practice and has observed, only a couple of days, while delivering judgement on a writ petition before it “The practice of exhibiting a photograph of a person and shamming him in public for the sin of being in an impecunious condition cannot be encouraged in civilised societies like ours. The move was clearly an affront to the right to live with dignity and honour as well as the right to privacy of the loanees and such publication of photographs therefore, violates the rights guaranteed to the loanees under Article 21 of the Constitution of India, the court held.

It is high time that RBI issues guidelines which prevents banks from adopting selective approach, dissuades them from resorting to this means as a matter of routine and asks them to exercise utmost care.

The author is a lawyer and consumer protection activist and is also engaged in financial literacy and investor welfare initiatives.