as a concept, is neutral towards success. By this, I mean that the right to
privacy would entail that we are allowed to keep both our victories and
failures private, should we choose to do so. However, the way privacy is playing
out in India appears to be quite different, at least in commercial matters.
Coercive public disclosure of a person’s commercial success, his income and
assets, is frowned upon where there is no suspicion that his wealth is
ill-gotten. The principal exception to this rule is the mandatory disclosure of
the income and assets of public officials, where the rationale is to check
corruption. But the widespread public disclosure of economic failure seems to
be fair game – banks publish, in widely read newspapers or public notice boards,
details of several identifying details and even photographs of defaulting
borrowers. This selective erosion of the privacy of failure is a worrying trend,
and should be nipped in the bud. In particular, it has implications for India’s
poor.
The primary law under which banks
and other financial institutions currently seek to recover money from secured
loan defaulters is the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002
(SARFAESI Act). Under the SARFAESI Act, when a borrower defaults on his
secured loan and the loan is classified as a non-performing asset, the banks
are given the right to enforce against the security without recourse to a
court. As one step in the enforcement process, the banks have to send a
“possession notice” to the borrower and also publish such notice in
two leading newspapers. The law specifies the contents and form of the notice –
principally, it is to include the name of the borrower and a description of the
security in question. The purpose is to intimate the public that a particular
property given as security is subject to a charge, and that people should be
wary about dealing with it. However, in practice, the banks also specify
various other details in the notice with a view to publicizing the identity of
the borrower (as opposed to details of the security) and in this vein, some
banks also publish a photograph of the borrower. It is this strategy of using
the possession notice to “name and shame” defaulters that is proving
to be extremely contentious.
High Court [Venu v. State Bank of India,
2013 (3) KLT 691] derided the practice of banks publishing photographs of loan
defaulters in newspapers and other forms of media. Earlier in June, the Kolkata
High Court [Ujjal Kumar Das v.SBI (2013) 2 CAL LT 639 (HC)], also ruled that the SARFAESI Act does not permit the banks to
publish photographs of defaulters.
Although both these judgments have been considered victories for the
right to privacy, it appears that this battle is far from over. Just two months
after the Kerala High Court’s ruling, Tata Capital Financial Services Ltd., a
Non-Banking Financial Company of the Tata group, was reported
to have published pictures of two persons in connection with a loan default of
a Jalandhar based private company. And one can see why they did this so boldly:
if the Kerala and Kolkata High Courts went the way of safeguarding privacy,
earlier decisions of the Madras and Madhya Pradesh High Courts [K.J. Doraisamy v. SBI [2007] 136 Comp Cas 568 (Mad) and Archana Chauhan v. SBI AIR 2007 MP 45], deciding the same issue, went in favour of the banks and gave
primacy to their interest in recovering the loan. The Supreme Court, which has
traditionally located the right to privacy as a facet of the right to life
under Article 21, is yet to rule on the issue.
Without doubt, the banks must do
everything they can to recover bad debts. But the limits of what banks can do
in terms of an intrusion into privacy should be no more than what the state
itself can do, and the state can infringe upon the privacy of its citizens only
when, in the words of the former Supreme Court Justice K.K. Matthew, “[a]n important countervailing interest is
shown to be superior.” [Gobind v. State of Madhya Pradesh AIR 1975 SC 1378] The banks contend that publishing the photographs of loan
defaulters reduces the likelihood of defaults and thus serves the public
interest of strengthening the banking system. However, there are a few dangers in
giving the banks a free hand.
in terms of whom they can blame for what goes wrong. They fail to acknowledge
the role of persons other than borrowers, who contribute to the rising
incidents of loan defaults and who may be a greater threat to banking stability.
For instance, higher rates of loan defaults, can be attributed partly, to careless,
corrupt, or incorrectly incentivized bank officers who are responsible for
sanction and sale of these loans. Banks often hard sell loans to customers who
don’t need them, can’t afford to repay them, but don’t know enough to not take
them. It would be unfair to stigmatize just the borrowers in such instances and
not the banks officers who sanctioned these loans in the first place.
Secondly, banks are in a position
of clear dominance with respect to poorer borrowers and would likely be able to
extract a waiver of their privacy rights as a rule. Although, a contractual
waiver of a fundamental right is legally suspect, most genuine defaulters will
rarely be able to go to court over a breach of their privacy. As the Kerala
High Court put it, “the practice of
exhibiting a photograph of a person and shaming him in public for the sin of
being in an impecunious condition cannot be encouraged in a civilized society
like ours.”
defaulter’s photograph may affect not just him, but also those who are
intimately close to him but are unconnected with the loan. In India, the threat
of an entire family being stigmatized on account the public shaming one of its
members is very real.
Fourthly, banks seem unwilling or
unable to differentiate between genuine defaulters (i.e., those who are not
trying to avoid repayment but are unable to pay) and willful or chronic defaulters
(i.e., those who are deliberately avoiding payment despite having necessary
funds or those who repeatedly default on loans and continue to borrow
notwithstanding such defaults). In a particularly insensitive and egregious
instance reported
in the Deccan Chronicle (3 August 2013), the State Bank of India branch in
Theni District, Tamil Nadu, published photographs of young students who had
defaulted on repayment of their educational loans.
live in, publicly available data endures and is almost impossible to destroy
completely – even if a defaulter whose name has already been published
subsequently cleans up his act, it may be impossible to remove all trace of his
previous default from the public domain. Interestingly, even when a person is
adjudged by a court to be an insolvent under the Presidency-Towns Insolvency
Act, 1909 and the adjudication of insolvency is subsequently annulled, there is
a requirement to give notice of the annulment order by publication in the
Official Gazette and in such other manner as may be prescribed [Section 23(3)].
Such a provision ensures that if a person is shamed for financial
impecuniosity, he is at least given an avenue to redeem his name in some form.
Currently, under the SARFAESI Act regime, there does not appear to be any
avenue of redemption for the defaulting borrower, i.e., there is no clear
obligation on the banks to remove the defaulter’s photographs from the public
domain once the debt is repaid, or inform the public that the defaulter has repaid
his debts.
Litigation on this issue presents
a brilliant opportunity for us to understand how Indian courts will adjudicate
future disputes on the right to privacy having class implications. For the
present, the High Courts have been evenly split and the legal position is
unclear. The Kerala High Court’s recent judgment makes a good beginning by recognizing
that privacy is intrinsic to human dignity and is as important to the poor as
it is to those who are better off. Equally, the Madras High Court has
identified the need for banks to invent novel methods for the recovery of their
dues where borrowers constantly find “newer
methods to avoid repayment”. It would be heartening to see a legal
framework emerge, which respects both the privacy of the poor and the interest
of banks in pursuing willful defaulters. At the very least, education and home
loan defaulters ought to be protected from newspaper publication of their loan
defaults. For commercial business loans, the law should impose an obligation on
banks to make an objective assessment of whether the default is “willful” or
“chronic” before they publish photographs and other personal details of the
defaulter. Above all, we must remember that to be poor in India means to suffer
a thousand indignities. We must tread carefully before adding one more
indignity to that list.
I haven't read the judgements you have cited, but presumably the right to privacy is only against state institutions?
What if banks include a waiver clause in their standard form contracts? Challenge such a contract on public policy grounds and an indirect enforcement of a fundamental right against non-state actors?
H
Harsh,
Thanks for your comment. I think it's quite an important point that you raise. My response is as follows:
(1) If you noticed, all of the cases I had cited had the State Bank of India as a Respondent (i.e. a State instution). It was this fact which allowed the writ petitions in those matters to be maintainable in the first place. So, at least against the nationalized banks, the problem of claiming fundamental rights against a private person will not arise.
(2) As regards existence of the privacy right against privately owned banks / NBFCs – in general, there has been a growing body of Indian and international judgments and authority which argue for the "horizontal application" of fundamental rights, i.e., that they should apply to both to both state and non-state actors. Article 21 itself does not distinguish between state and non-state actors. A recent SC decision which upheld the horizontal application of fundamental rights in the context of the rights of children to education is Society for Un-aided Private Schools of Rajasthan v. UOI at: http://www.indiankanoon.org/doc/154958944/
(3) Further, the Supreme Court has recognised that the right to privacy w.r.t. banks in particular carries with it a relationship of client confidentiality / client secrecy in District Registrar v. Canara Bank at – http://www.indiankanoon.org/doc/1068532/ – again I don't see a reason why this secrecy obligation as a facet of the fundamental right to privacy shouldn't extend against private banks as well.
(4) As regards the question of enforcement of the horizontal right, the position seems to be that the High Courts u/a. 226 can issue a writ of mandamus against "a private person or private body, in exercise of a public duty imposed either by Statute or contract or custom or in the performance of a public function." [See Karnataka Bank v. Rekha Rao MANU/KA/0849/2001]. It's possible to argue that the function of disbursal of loans by a private bank /NBFC and the taking of recovery steps against loan defaulters is a "public function" since it has a direct impact on the country's financial stability.
(5) A workaround could also be to implead the RBI as an additional Respondent, and ask for the issuance of a mandamus against the RBI to take action restraining the private bank concerned instead of a mandamus against the private bank directly.
(6) Finally, the route you suggest also works, i.e., challenge the contract as invalid on public policy grounds by way of a civil suit against the bank. This works for the purpose of interim orders of injunction, but tactically may be a bad move in terms of final disposal, since across most courts in India, civil suits are kept pending for much longer periods in comparison to writ petitions.
—
Goutham
Very interesting. Could you perhaps provide me with some comparative points on this aspect: what might be the practice be in other similarly situated countries?
Abhinav Sekhri
Interesting to see how this post pre-dates the EU Right to Be Forgotten judgement that was delivered on 13 May 2014. Even that case dealt with the forced sale of properties arising from social security debts.
Perhaps these cases could be the basis for a right to be forgotten law in India. It would be interesting to see how this plays out considering that right to privacy has hardly been eked out in the Indian context.
Like Abhinav, I'd also be interested in the comparative constitutional perspective of this phenomenon.
That being said, excellent article.
– Deepthi (NUJS)
“Firstly, banks have blind spots
in terms of whom they can blame for what goes wrong. They fail to acknowledge
the role of persons other than borrowers, who contribute to the rising
incidents of loan defaults and who may be a greater threat to banking stability.
For instance, higher rates of loan defaults, can be attributed partly, to careless,
corrupt, or incorrectly incentivized bank officers who are responsible for
sanction and sale of these loans. Banks often hard sell loans to customers who
don’t need them, can’t afford to repay them, but don’t know enough to not take
them. It would be unfair to stigmatize just the borrowers in such instances and
not the banks officers who sanctioned these loans in the first place”
This above argument sounds to be incorrectly premised. It is settled law that “negative equality” cannot be claimed by the aggrieved parties. Two wrongs would never make a right. If the central argument of this piece is against the “stigmatization” through publications, then this above mentioned argument goes against the central piece itself.
Roshan Santhalia