Anand Gupta, 35, a Lucknow resident, went into a tizzy after he got a notice from his bank that his picture, name and address would be published in prominent Lucknow newspapers if he didn’t pay up the equated monthly instalments (EMIs) on his home loan amount that he had defaulted on. “I missed my EMIs for six months after I lost my job. I was in constant touch with the bank and told them that I was trying to sell the house and repay my loan. So this came as a shock,” says Gupta, adding that he thought of “ending” his life if his photograph came out in newspapers like that of a wanted man.

Gupta, who doesn’t want to name the public sector bank in question as he is in the final stages of settlement, somehow persuaded them not to make good their threat. “Banks should not indulge in such name and shame activities against honest people who have fallen on bad times. While rapists are allowed to cover their faces, banks seem to be hell-bent on destroying the reputations of people,” he says.

Gupta is not alone. In recent years, banks and financial institutions have resorted to publishing pictures of defaulters and guarantors in an effort to “name and shame” them and pressure them into paying back the money. But, legal experts and even courts are divided on the issue.

“We keep receiving complaints about banks harassing borrowers with such threats. We advise people to approach a court immediately. Our laws do not allow the publishing of pictures of defaulters,” says I. Arokiasamy, president, Chennai Credit Card Association, which seeks to protect and safeguard the interests of credit card users.

A few months ago, the Calcutta High Court too ruled on similar lines. Hearing a petition filed by defaulters, the court said that while banks could indeed serve notices to borrowers and the public at large in newspapers and magazines with the details of the borrower, the loan account and the details of the secured asset, the law of the land did not permit them to publish photographs of the defaulters.

This came as a shot in the arm for thousands of borrowers, especially since a few other courts, such as the Madras High Court and Madhya Pradesh High Court, had ruled in favour of the banks in such cases.

For example, in the K.J. Doraisamy vs the Assistant General Manager, State Bank of India, Erode Branch case in 2007, the Madras High Court held that the defaulter’s “right to privacy is not absolute and from the point of view of the bank, the duty to maintain secrecy is superseded by a larger public interest as well as by the banks own interest under certain circumstances.”

The Madras High Court also noted: “If borrowers can find newer and newer methods to avoid repayment of the loans, the banks are also entitled to invent novel methods to recover their dues.”

Dharmendra Tiwari, an advocate of the Calcutta High Court who fought on behalf of one of the petitioners, Messrs Allianz Convergence Private Limited, says that it’s time India had a uniform policy on this. “I think the Calcutta High Court has taken the right step, but at the same time I also believe that we need some uniformity in the whole country. I hope the Supreme Court will uphold the latest judgment and ask the banks and other lenders to desist from defaming borrowers,” he says.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002, empowers banks and financial institutions to recover the money that defaulting borrowers owe them. Under the law, this can be done without the intervention of courts. Banks and financial institutions often invoke this law to recover their dues.

Needless to say, banking professionals believe they are within their rights to try and recover their money. Gautam Roy Choudhury, former deputy general manager, credit, United Bank of India, Calcutta, says, “The borrowers are aware of the consequences of defaulting on loans. Most public sector banks list the ways in which the bank could go about recovering their loans in the loan agreement. The publishing of photographs and addresses of defaulters is one of the ways. These points are there in the agreement,” Choudhury says.

There’s a reason why courts have been somewhat sympathetic towards banks in this matter. “In the past, there have been many instances of wilful defaults. So our courts have framed a notion that whoever defaults is defaulting because he wants to. They are yet to come to grips with the reality that in this age of consumer banking, the loan may have been sold to the consumer either by an aggressive banker, or he took the loan in the hope that he will be able to pay.” says Vinod Kothari, director, Vinod Kothari Consultants, Calcutta.

Even a letter from the Reserve Bank of India to banks in 2007 advised caution on publishing photographs of defaulters. It also noted that “the Sarfaesi Act, 2002, also does not mention the publication of photographs of defaulters. The Possession Notice provides for the 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.”

Experts say that since under the civil law, a wrongdoer is not an offender, default on a loan shouldn’t be seen as an offence. “Defaults may be wilful, but one cannot presume that it is so,” Kothari says.

A borrower can approach a debt recovery tribunal (DRT) under the law, but that can be done only after the creditor initiates action and attaches property. DRT could go into the merits of the case and could also rule in favour of the borrower. But it could be too late as DRTs often take months and years to dispose of cases. Kothari also believes that there is a prejudice against smaller borrowers. “Larger borrowers have the muscle to get stays from courts or DRTs. Small borrowers cannot afford that luxury, particularly when one is defaulting anyway,” Kothari stresses.

But the Calcutta High Court’s ruling could pave the way for better terms for borrowers. It didn’t agree with the view that banks had to adopt innovative ways to get back the money. “The observation that secured creditors are entitled to invent novel methods to recover their dues, because the borrowers are finding newer and newer methods to defraud the secured creditors, can never be countenanced. Should the court allow the secured creditors to subvert the rule of law?” the court asked.

Clearly, for the moment, it’s advantage borrowers.