Borrowing From an NBFC? The RBI Fair Practices Code That Bars Odd-Hour Calls and Muscle Power

When a non-banking financial company (NBFC) lends you money, the relationship is not a free-for-all: it is governed by a Reserve Bank of India instrument called the Fair Practices Code, first consolidated in the RBI Master Circular RBI/2015-16/16, DNBR (PD) CC.No.054/03.10.119/2015-16 dated 1 July 2015, and applicable to every NBFC and Residuary Non-Banking Company (RNBC) in the country. That circular does something most borrowers never realise: it converts basic decency into a regulatory obligation, so that an odd-hour call at 11 pm or a "recovery visit" by three men who will not leave your gate is not merely rude, it is a breach RBI can act on.

This playbook explains exactly what the Fair Practices Code requires, the step-by-step recovery procedure an NBFC must follow, the defences a harassed borrower can deploy, and the position the courts have taken since the Supreme Court first deprecated musclemen recovery in Manager, ICICI Bank Ltd v. Prakash Kaur (2007) 2 SCC 711. Every claim below is tied to a specific circular, section, or judgement so you can verify it yourself.

The Statutory Position

The Fair Practices Code is not soft-law advice; it is a binding direction. RBI derives the power to issue it from Section 45JA of the Reserve Bank of India Act, 1934, which lets the central bank determine policy and give directions to any NBFC on income recognition, accounting standards, and, crucially, conduct of business. Because the 1 July 2015 Master Circular is issued under that statutory head, a violation is a regulatory contravention, not a matter of etiquette.

Two obligations sit at the front of the Code and both are disclosure duties owed to you before a single rupee is recovered. First, the NBFC must convey in writing to the borrower the loan amount sanctioned together with the terms and conditions, including the annualised rate of interest and the method of application. Second, it must furnish a copy of the loan agreement along with a copy of each enclosure quoted in the agreement, at the time the loan is sanctioned or disbursed. If your NBFC never gave you the sanction letter with the annualised rate stated, or never handed over the signed agreement with its schedules, it has already breached the Code dated 1 July 2015 before recovery even begins.

The recovery obligations are equally concrete. Under the Master Circular, NBFCs must not resort to undue harassment, for example, persistently bothering borrowers at odd hours or using muscle power for the recovery of loans. They must ensure that staff are adequately trained to deal with customers in an appropriate manner. And critically, recovery is to be made ordinarily at a designated or central location, with field staff visiting the borrower's residence or place of work only in exceptional circumstances and after the borrower has repeatedly failed to appear at the designated place. These are not aspirations; they are the operative words of the RBI/2015-16/16 circular.

It is worth distinguishing this code-of-conduct regime from the separate enforcement regime under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Not every NBFC can invoke SARFAESI; only those NBFCs notified by the Central Government as "financial institutions" may enforce a secured loan without a court decree, and the current threshold notified in February 2021 restricts this to secured debts of Rs 20 lakh and above. For everyone else, and for any unsecured personal loan, the NBFC must sue in a civil court or before the appropriate tribunal, and the Fair Practices Code governs its conduct throughout. You can read the SARFAESI text on indiacode.nic.in to confirm which security interests it even reaches.

Procedure Step by Step

A compliant NBFC recovery follows a recognisable sequence. Deviations from it are precisely where your defences arise. The steps below track the disclosure-to-recovery arc mandated by the 1 July 2015 Master Circular.

1. Sanction and documentation. At sanction, the NBFC issues a written communication stating the loan amount, the annualised rate of interest, and all terms, and hands over the loan agreement with enclosures. Missing paperwork at this stage taints everything that follows.
2. Default and reminder. On non-payment, the NBFC issues reminders. The Code requires that any notice of recall or acceleration be given only in consonance with the terms and conditions already disclosed to you in the agreement.
3. Designated-location recovery. The NBFC attempts recovery at a designated or central location. Telephonic or written follow-up must avoid odd hours; persistently calling before 8 am or after 7 pm is the textbook "odd-hour" breach the Code prohibits.
4. Field visit, only after repeated non-appearance. A physical visit to your home or workplace is permitted only where you have repeatedly failed to appear at the designated place. Even then, the field agent must carry authorisation and behave without threat or force.
5. Recovery agents, if outsourced. If the NBFC uses a recovery agency, it remains responsible for the agent's conduct; the agent must identify himself and cannot seize any hypothecated asset by force. Forcible seizure of a vehicle or goods is not "recovery", it is trespass.
6. Legal enforcement. For a notified NBFC over the Rs 20 lakh threshold, enforcement runs through SARFAESI possession; for all others, through a civil suit or tribunal proceeding. Only a court or a lawful SARFAESI process, never a "muscle" visit, can dispossess you of an asset.

If your loan is secured against property or a vehicle, model the true cost of clearing it early using our loan foreclosure calculator before you agree to any lump-sum demand made under pressure during a field visit.

Borrower Defences Available

The Fair Practices Code is only useful if you can convert its language into leverage. There are four practical defences, and each is anchored to a document or a timeline.

Defence 1: Document the breach and escalate internally first. The Master Circular of 1 July 2015 requires every NBFC to have a board-approved grievance-redressal mechanism and to display, at every branch, the name and contact details of the Grievance Redressal Officer and the concerned RBI Regional Office. Your first step is a written complaint to that officer, attaching a log of every odd-hour call with dates and times. Because the Code mandates disposal of complaints within a defined turnaround, a dated complaint starts the clock and creates a paper trail RBI can later inspect.

Defence 2: Escalate to the RBI Ombudsman after 30 days. If the NBFC does not resolve the grievance within 30 days, you may approach the RBI Integrated Ombudsman under the scheme launched on 12 November 2021, which covers NBFCs and charges the borrower no fee. Harassment, non-observance of the Fair Practices Code, and use of abusive recovery practices are all listed grounds of complaint.

Defence 3: Contest the enforcement, not just the conduct. Where a notified NBFC proceeds under SARFAESI, you are not without remedy. Section 17 of the SARFAESI Act, 2002 lets an aggrieved borrower apply to the Debt Recovery Tribunal against measures taken under Section 13(4), within a limitation of 45 days. A pre-deposit is not mandatory at the Section 17 stage, though the tribunal may direct one; this makes the DRT a genuine forum and not a paywalled one.

Defence 4: Negotiate a lawful settlement. RBI's framework on compromise settlements requires banks and NBFCs to act under a board-approved policy, which means a one-time settlement (OTS) is a documented, rule-bound process, not a favour. Approach it in writing, ask for the settlement terms and the waiver in a signed letter, and never hand cash to a field agent. If you are juggling several loans, consolidating them first may cut the monthly outflow; our debt consolidation calculator and personal loan EMI calculator let you test the numbers before you commit.

A useful reference point: the RBI Fair Practices Code has coexisted since 1 July 2015 with the collateral-enforcement machinery of SARFAESI, so a borrower can simultaneously fight harassment through the Ombudsman and challenge possession before the DRT. The two tracks are not mutually exclusive.

Recent Tribunal/HC Position

The judicial anchor for all of this predates the 2015 circular and remains the most-cited authority on coercive recovery. In Manager, ICICI Bank Ltd v. Prakash Kaur & Ors (2007) 2 SCC 711, the Supreme Court of India deprecated in unambiguous terms the practice of hiring musclemen or recovery agents to seize a borrower's asset by force. The Court held that a bank or financier cannot take the law into its own hands and use "goondas" to recover dues; recovery must follow due process, whether through a civil court or the mechanisms the statute provides. You can read the reported judgement via indiankanoon.org.

That 2007 ruling is the reason RBI's later Fair Practices Code speaks the language of "no muscle power" and "no odd hours". The regulatory Code operationalises the judicial principle: what the Supreme Court forbade in 2007, the 1 July 2015 Master Circular turned into a supervisable direction under Section 45JA of the RBI Act, 1934, so that a borrower no longer needs to prove a tort in court to obtain relief; a complaint to the Ombudsman suffices. High Courts have since consistently read the Code as a mandatory standard, treating persistent odd-hour calling and forcible repossession as actionable, and the Section 17 SARFAESI remedy with its 45-day window remains the front-line forum for challenging any possession that skips due process.

The practical takeaway from the case law is simple and has not changed since 2007: force is never a lawful recovery tool. If an agent threatens you, the correct response is a written complaint plus, where the threat is physical, a police report, because the conduct crosses from a Fair Practices Code breach into a potential criminal act. Keep every SMS, note every call time, and treat the Rs 20 lakh SARFAESI threshold and the 45-day DRT limitation as your two most important numbers.

FAQ

Can an NBFC call me at 11 pm to demand payment?

No. The RBI Fair Practices Code in Master Circular RBI/2015-16/16 dated 1 July 2015 expressly bars NBFCs from persistently bothering borrowers at odd hours. A single late call is poor practice; a pattern of calls before 8 am or after 7 pm is a documentable breach you can report to the Grievance Redressal Officer and, after 30 days, to the RBI Ombudsman.

Can a recovery agent take my car or bike by force?

No. Forcible seizure of a hypothecated asset is "muscle power", which the 1 July 2015 Code prohibits, and it was deprecated by the Supreme Court in ICICI Bank Ltd v. Prakash Kaur (2007) 2 SCC 711. Repossession must follow the loan agreement and lawful process; if it does not, file a written complaint and, for a physical threat, a police report.

Does every NBFC have the power to use SARFAESI against me?

No. Only NBFCs notified by the Central Government as financial institutions can enforce security under the SARFAESI Act, 2002, and since the February 2021 notification the power reaches secured debts of Rs 20 lakh and above. For unsecured loans and smaller exposures, the NBFC must go to court, and the Fair Practices Code governs its conduct throughout.

How do I complain about NBFC recovery harassment?

Complain in writing to the NBFC's Grievance Redressal Officer, whose details the Fair Practices Code requires to be displayed, and attach a dated log of calls and visits. If it is not resolved within 30 days, escalate free of charge to the RBI Integrated Ombudsman under the scheme launched on 12 November 2021, citing non-observance of the Fair Practices Code.

Can I go to the DRT if the NBFC takes possession of my property?

Yes, where the NBFC is a notified SARFAESI creditor. Section 17 of the SARFAESI Act, 2002 lets you apply to the Debt Recovery Tribunal against measures under Section 13(4) within 45 days. A pre-deposit is not mandatory at this stage, though the tribunal may direct one.

Is a one-time settlement a right or a favour?

It is a rule-bound process. RBI's framework on compromise settlements requires NBFCs to operate a board-approved OTS policy, so you should request the settlement and any waiver in a signed letter rather than paying cash to a field agent. Model the economics of clearing a secured loan early with our foreclosure calculator before you accept any figure.

What is the single most important protection I have?

The written record. Because the Fair Practices Code dated 1 July 2015 makes conduct supervisable, a dated complaint, a call log with timestamps, and copies of your sanction letter and loan agreement convert vague harassment into a provable breach, giving you standing before both the RBI Ombudsman and, under Section 17, the DRT within its 45-day window.