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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 a

defaulting 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.

The Kolkata HC verdict by Justice Dipankar Datta said Madras HC view that a bank cannot be prohibited in its performance of a public duty does not appear to be legally sound. He said, "It is not the public duty of a secured creditor to publish photograph of a defaulting borrower.’’

Important points
 The Indian Banks Association had, in October 2003 said genuine borrowers need to be separated from those who willingly and purposely take loans and do not repay them on time

Reserve Bank of India in 2007 informed the State Bank officials that there is no provision in the SARFAESI Act which was enacted to help recovery of bank loans without court orders that permits publication of photographs of the borrowers in the newspapers or magazines.

Only details and particulars of names and addresses of borrowers and properties can be put on public notice to alert interested parties dealing in the secured property that any such transaction would be subject to the secured creditors right in the property in case of non- payment of dues by the borrowers.

Expert speak:

Advocate Ashok Paranjpe , MDP: Banks publish photographs of defaulters even before an appeal is decided under the law. What if the borrower wins the appeal, the publication would have already defamed and caused him irreparable loss. The practice has is misconceived the RBI needs to come out with fresh guidelines on defaulting borrowers.

What the high courts held:

Against the banks

May 2013: In Ujjal Kumar Das Vs. State Bank of India and Messrs Allianz Convergence Private Limited vs State Bank of India the Calcutta High Court differed from the decisions given by the Madras and Madhya Pradesh High Court.

It held that the Publication of photographs in newspapers, magazines is not permissible under the SARFAESI Act, 2002, and its rules or any other rules or guidelines

The threat to publish photographs borders on extra-legal means, not legal means, to recover the dues.

It prohibited the bank from publishing photographs of defaulters.

There is no legal provision that authorized banks to publish photographs although the defaulters’ name and address and loan and asset details could be notified to the public.

* The publication of photograph of a defaulting borrower or guarantor has the potential of exposing him to irreparable loss, injury to reputation and

prejudice, hence publication of photograph cannot be resorted to in the absence of an express power or an agreed term in this behalf.

The views taken earlier by other HCs is ’’not legally sound’’

In favour of banks:

March 2006: In the case of Archana Chauhan vs State Bank of India the Madhya Pradesh High Court held in favour of the publication of photographs.

The Bank said that the publication of photographs of borrowers, in newspapers or magazines, cannot be said to be impermissible.

It dismissed a petition challenging such publication of photographs and held it was neither arbitrary nor illegal.

November 2006: In Doraisamy vs Doraisamy the Madras High Court held, ’’if the borrowers could find newer and newer methods to avoid repayment of the loans, the Banks are also entitled to invent novel methods to recover their dues.’’

It dismissed a petition against a bank after holding that there was "no violation of any right or legal provision in the threat held out by the Bank to publish the photographs of the borrower and the surety for the non repayment of the loan’’