Friday, April 25, 2014

Picture Perfect – Privacy for the Indian Poor

Guest Submission by Goutham Shivshankar, Advocate, Madras High Court
One would imagine that privacy, 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.

In August last year, the Kerala 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.

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.
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."

Thirdly, publication of a 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.

Finally, in the digital age we 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.
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