RBI Fair Practices Code: The Recovery-Agent Conduct Limits a Defaulting Borrower Can Enforce

A borrower who has missed three or four instalments is not without rights, and the single most misunderstood fact in Indian retail lending is that a defaulting borrower retains legally enforceable protections against how a lender collects. Those protections are codified, not aspirational. The Reserve Bank of India's Master Circular on the Fair Practices Code, RBI/2015-16/16 DNBR (PD) CC.No.054/03.10.119/2015-16 dated 1 July 2015, binds every bank and non-banking financial company (NBFC) and directs that, in the matter of recovery of loans, lenders "should not resort to undue harassment", such as persistently bothering borrowers at odd hours or using muscle power for recovery. This article explains exactly which conduct limits a defaulting borrower can enforce, the statutory ladder that sits above them under the SARFAESI Act 2002, and the tribunal and Supreme Court authority that has repeatedly struck down coercive collection.

The reason this matters in 2026 is scale. Recovery-agent complaints, digital-lending call-centre abuse, and repossession disputes now form a large share of grievances escalated to the RBI Ombudsman since the integrated scheme began on 12 November 2021. Understanding the Fair Practices Code converts a frightened borrower into an informed one who can put the lender on the back foot the moment a collection call crosses the line drawn on 1 July 2015.

The Statutory Position

The binding source is not general consumer law but a specific regulatory direction issued under the Reserve Bank of India Act 1934 and the enabling NBFC directions. The Master Circular on the Fair Practices Code, RBI/2015-16/16 dated 1 July 2015, lays down four operative recovery limits. First, lenders must not resort to undue harassment, including persistently bothering borrowers at odd hours or using muscle power for recovery. Second, recovery is to be made at the borrower's place of business or residence, and the borrower's residence should be visited for recovery only where the borrower is not available at the place of business. Third, staff, including recovery personnel and agents, must be adequately trained to deal with customers appropriately and must not adopt abusive or coercive practices. Fourth, the lender must provide a grievance-redressal mechanism so the borrower can escalate a violation.

These are directions with the force of law, not a voluntary charter. A breach of the 1 July 2015 Code is not merely bad manners; it is a regulatory contravention that the borrower can invoke against the lender and before the RBI. The Code sits alongside the harder recovery machinery of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002, commonly called the SARFAESI Act, which is the statute a secured lender uses once an account is classified a non-performing asset (NPA) after 90 days of overdue payment.

The two frameworks operate on different planes and it is vital not to confuse them. SARFAESI, enacted in 2002, lets a secured creditor enforce security without a court decree, but only through the notice-and-tribunal procedure in Sections 13 and 17. The Fair Practices Code, dated 1 July 2015, governs conduct during any recovery, secured or unsecured, and applies even where SARFAESI does not, for instance to a personal loan under Rs 1 lakh that is expressly excluded from SARFAESI by Section 31 of the 2002 Act. A borrower can therefore be simultaneously subject to a lawful Section 13(2) demand notice and protected by the Fair Practices Code against the manner of collection.

Procedure Step by Step

The following sequence sets out how a lawful recovery must unfold and where the Fair Practices Code and SARFAESI 2002 intersect. Departure from any step is a ground of challenge.

1. NPA classification (Day 0). A loan is tagged an NPA after the instalment or interest remains overdue for more than 90 days, per the RBI's income-recognition norms. Only after this classification can a secured lender invoke SARFAESI.
2. Section 13(2) demand notice (60 days). The secured creditor issues a written notice under Section 13(2) of the SARFAESI Act 2002 calling on the borrower to discharge the full dues within 60 days. The notice must quantify the amount and describe the secured asset.
3. Section 13(3A) representation (15 days to reply). The borrower may submit a written objection or representation. Under Section 13(3A), the creditor must consider it and communicate reasons for non-acceptance within 15 days. Silence by the creditor is itself a defect.
4. Section 13(4) possession (after 60 days). If dues remain unpaid after the 60-day notice period, the creditor may take symbolic or physical possession of the secured asset, or take over its management, under Section 13(4).
5. Section 14 magistrate assistance. To take physical possession, the creditor applies to the Chief Metropolitan Magistrate or District Magistrate under Section 14; only a public authority, not a private goon squad, may break open and seize.
6. Conduct overlay throughout. At every stage above, the Fair Practices Code of 1 July 2015 applies: no calls at odd hours, no muscle power, and visits to the residence only if the borrower is unavailable at the place of business.
7. Section 17 appeal to the DRT (45 days). The borrower may challenge any measure taken under Section 13(4) by applying to the Debts Recovery Tribunal under Section 17 within 45 days of the measure. Use the foreclosure calculator to model the exact payoff you may need to tender.

For unsecured collection and for coercion complaints, the parallel track is the grievance-redressal mechanism the lender is obliged to maintain under the Code, escalating to the RBI Ombudsman if unresolved within 30 days.

Borrower Defences Available

A defaulting borrower has three distinct categories of defence: conduct defences under the Fair Practices Code, procedural defences under SARFAESI 2002, and a negotiated exit through one-time settlement. Each carries its own timeline and, in the tribunal track, its own deposit.

The conduct defences flow directly from the 1 July 2015 Code. If a recovery agent contacts the borrower before 8:00 a.m. or after 7:00 p.m., that breaches the timing restriction the RBI reinforced through its recovery-agent directions dated 12 August 2022, which prohibit regulated entities from contacting borrowers outside 0800 to 1900 hours. Threats, obscene language, contacting the borrower's relatives or employer to shame them, and physical seizure by musclemen are each independent violations of the 1 July 2015 Code. The borrower should record every call, note the date and time, and file a written complaint with the lender's nodal grievance officer, who under the Code must respond through a defined mechanism.

The table below maps each prohibited act to the exact source a borrower can quote in a complaint.

The procedural defences under SARFAESI 2002 are separate and go to the validity of enforcement rather than the manner of collection. A borrower can challenge a Section 13(4) measure before the DRT under Section 17 within 45 days on grounds such as a defective Section 13(2) notice, failure to reply to the Section 13(3A) representation within 15 days, wrong quantification of dues, or that the asset is exempt. If the DRT rules against the borrower, a further appeal lies to the Debts Recovery Appellate Tribunal under Section 18, but the borrower must deposit 50 per cent of the debt claimed, which the DRAT may reduce to not less than 25 per cent for reasons recorded. This deposit is the single biggest strategic hurdle in a secured loan dispute, so borrowers should size it early.

The third defence is a one-time settlement (OTS). Under the RBI's Framework for Compromise Settlements and Technical Write-offs, RBI/2023-24/40 dated 8 June 2023, lenders may settle even classified accounts under a board-approved policy. A borrower who has settled through a compromise is subject to a cooling period of at least 12 months before the same lender takes fresh exposure. A foreclosure or lump-sum settlement can end the recovery pressure entirely, and modelling the interim cost first through the moratorium calculator helps a borrower decide whether to fight or settle.

Recent Tribunal/HC Position

Indian courts have been consistent and unusually firm that no lender may recover through force, and that consistency stretches back nearly two decades. In ICICI Bank Ltd. v. Prakash Kaur, (2007) 2 SCC 711, the Supreme Court deprecated in strong terms the practice of banks engaging musclemen and recovery agents to seize vehicles and property, holding that recovery of loans or seizure of assets must be carried out only through legal means and not by hiring goondas. The judgement of 2007 remains the foundational authority any harassed borrower should cite.

The principle was reinforced in Citicorp Maruti Finance Ltd. v. S. Vijayalaxmi, (2012) 1 SCC 1, where the Supreme Court held that even under a hire-purchase agreement that permits repossession on default, a financier cannot use force to seize the asset and must follow due process; recovery by muscle power was expressly condemned. Together, these two decisions of 2007 and 2012 establish that the conduct limits in the Fair Practices Code of 1 July 2015 are not merely regulatory but judicially entrenched.

On the enforcement machinery itself, Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311, upheld the constitutional validity of the SARFAESI Act 2002 while striking down the then Section 17(2) requirement that a borrower deposit 75 per cent of the dues before the DRT would hear an appeal, holding that condition oppressive and unreasonable. That 2004 decision is why the current pre-deposit sits at the appellate Section 18 stage, not at the first Section 17 challenge.

The table below summarises the three anchor authorities and what each fixes.

For fact-specific tenant and fraud-classification defences that sit alongside these conduct rules, borrowers should read the related analysis of Vishal Kalsaria v. Bank of India on protected tenants and SBI v. Rajesh Agarwal on the right to a hearing before a fraud tag, both decided on the same due-process logic that governs SARFAESI enforcement.

FAQ

Can a bank send recovery agents to my home if I default?

Yes, but only within limits set by the Fair Practices Code dated 1 July 2015. Recovery is to be made at the borrower's place of business or residence, and the residence should be visited only where the borrower is not available at the place of business. Agents cannot use muscle power, cannot call at odd hours, and following the RBI directions of 12 August 2022 must not contact the borrower before 8:00 a.m. or after 7:00 p.m.

What can I do if a recovery agent threatens or abuses me?

Document the incident with dates and times, then file a written complaint with the lender's nodal grievance officer under the Fair Practices Code of 1 July 2015. If the lender does not resolve it within 30 days, escalate to the RBI Ombudsman. Where there is criminal force or threat, the borrower may also lodge a police complaint, a right underscored by the Supreme Court in ICICI Bank Ltd. v. Prakash Kaur, (2007) 2 SCC 711.

How long do I have to challenge a SARFAESI possession notice?

A borrower may apply to the Debts Recovery Tribunal under Section 17 of the SARFAESI Act 2002 within 45 days of the measure taken under Section 13(4). Before that, the borrower has 60 days from the Section 13(2) demand notice to pay, and a right under Section 13(3A) to have any representation answered by the creditor within 15 days.

Does SARFAESI apply to every loan?

No. Under Section 31 of the SARFAESI Act 2002, the Act does not apply to unsecured debt, to any security interest where the amount due is less than Rs 1 lakh, or to agricultural land. It is a secured-creditor remedy invoked only after an account becomes an NPA at 90 days overdue. Unsecured collection is still fully governed by the Fair Practices Code of 1 July 2015.

What is the deposit needed to appeal to the DRAT?

Under Section 18 of the SARFAESI Act 2002, a borrower appealing a DRT order to the Debts Recovery Appellate Tribunal must deposit 50 per cent of the debt claimed, which the DRAT may reduce to not less than 25 per cent for reasons recorded in writing. The 75 per cent pre-deposit that once applied at an earlier stage was struck down in Mardia Chemicals v. Union of India, (2004) 4 SCC 311.

Can I still negotiate a one-time settlement after recovery has begun?

Yes. Under the RBI Framework for Compromise Settlements and Technical Write-offs, RBI/2023-24/40 dated 8 June 2023, lenders may settle classified accounts under a board-approved policy even after enforcement has started. A borrower who settles is subject to a cooling period of at least 12 months before the same lender extends fresh credit.

Where do I complain if the lender ignores my grievance?

The Fair Practices Code of 1 July 2015 obliges every lender to maintain a grievance-redressal mechanism. If the complaint is unresolved within 30 days, the borrower can approach the RBI Ombudsman under the Reserve Bank Integrated Ombudsman Scheme, launched on 12 November 2021, which covers coercive and unfair recovery practices by banks and NBFCs.