RIGHTS & DUTIES OF DRA’s | DRA EXAM LATEST NOTES 2023
On this page, we will read the rights & duties of DRAs from Module B of the DRA Syllabus i.e. Role of DRAs for the 2023 Exams.
DRA EXAMS | IIBF NOTES 2023
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Let us begin with today’s topic: RIGHTS & DUTIES OF RECOVERY AGENTS
There are various obligations that the recovery agents have to abide by and there are some rights that are available to recovery agents. These rights and duties of agents have been provided under the Contract Act and other matters related to agents have been discussed.
Therefore, the rights and duties of recovery agents that we will be discussing on this page are essentially the same as that of an agent which is governed by the contract act provisions and the regulating guidelines of the Reserve Bank of India and IBA.
RIGHTS OF DEBT RECOVERY AGENTS
Firstly, discuss the rights that are available to the recovery agents (As per general provisions, but these can also be modified by a specific agreement between the principal and recovery agents to the extent the law permits):
Right to remuneration: The contract of the agency does not mandatorily provide the principal to remunerate the agent for the work that he or she does on behalf of the principal. So, although there is no mandatory right of an agent to receive remuneration the agency agreement can expressly or implicitly provide for the same. So, the bank and the agent can agree to the scale of fees for various kinds of debt recoveries.
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Right to retainer: It means that the agent has the right to retain the money that belongs to the principal to meet the expenses (mentioned underneath) and he or she can remit the balance amount to the principal:
- Expenses incurred during the course of agency (but not for the previous dues for services that have been rendered)
- Any some that are due as remuneration to the agent.
This right has been provided under section 217 of the Contract Act.
Right to compensation: The agent has the right to get compensated by the principal for any kind of injury that has been incurred either because of the neglect of the principal or because of want of skill (this rule is relevant in construction contracts where there is a chance for injury due to negligence or lack of skill of the principal).
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Right to indemnity: This right has been provided under section 222 of the Contract Act which states that the principal is bound to indemnify the agent against the consequences of all lawful acts which have been done by such agent due to the authority that has been conferred upon him or her. For the validity of this right the following two conditions need to be satisfied:
- Agent must have acted lawfully when the injury was sustained
- The act should have been done in the course of business of the agency
It has been provided that the agent will not be entitled to any indemnity for any criminal or wrongful act.
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DUTIES OF DEBT RECOVERY AGENTS
Duty to follow instructions: The first duty of a recovery agent is to follow the instructions to do tasks that have been stipulated by the principal provided that:
- The principles’ instructions have to be clear, lawful and unambiguous.
- The agent’s duty is to follow the lawful instructions only. No principle can compel an Agent to perform unlawful or void tasks.
- If the agent does not act according to the instructions or directions of the principal, the agent can be held liable to the principal for any loss that has been suffered due to the agent’s fault.
READ ALSO: DRA FREE NOTES PDF PART -1
Duty to follow customs of trade: The recovery agent is required to discharge his duties as per the terms of the agency agreement. If instructions are not given in detail then the agent has to follow the commercial customs and industry practice for guidance.
For example: In the case of debt collection for banks, they have been some guidelines for the recovery process which have been laid down by the Reserve Bank of India and IBA. So, if the agency agreement is silent on the behaviour that needs to be followed then the RBI code or guidelines will be applicable.
Duty to exercise care and skill: It will be the duty of a recovery agent to take all cure and diligence while discharging their duties as if they are themselves managing their own affairs. As per section 212 of the Contract Act, an agent is under obligation to conduct the agency business with as much skill as required by the person engaged in a similar business… Well… Unless the principal knows the skill level of the agent.
The agent has to act with reasonable diligence and use his skill and will be required to compensate the principal which is the direct result of his or her activity.
READ ALSO: DRA FREE NOTES PDF PART -2
Duty to communicate: The agent is also required to use all reasonable diligence in communicating if he or she faces any difficulty or is not able to understand the principal’s instructions. If there is some doubt or difficulty, the agent has to act as per the direction of the principal other than doing what he or she feels.
Therefore, in all cases, the recovery agent should seek instructions from the principal where ever the agency arrangement is silent.
Duty to render accounts: Agents are also required to provide proper accounts to their principles on demand, therefore, they are under obligation to keep the records up to date for the purpose. It is essential that the agent keeps his own money separate from the principal’s money.
Duty to remit money: As per section 218 of the Contract Act, agents are required to pay all the sums that they have received on behalf of the principal periodically as per the agency agreement.
Duty not to delegate: Agents are prohibited to delegate their authority unless they are permitted by the principal under the specific contract or established trade practice. This duty is established by the common law principle of ‘delegates non-protest delegate which means that what has been delegated cannot be for delegate. Generally, the agency agreement does provide for this clause.
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Duty of confidentiality: This duty has been established by the IBA code for debt recovery agents and the customary practice in the banking industry. Just like the banks are obligated to keep the confidentiality of the customer’s accounts, in the same way as their agents have to maintain confidentiality in the recovery process.
So, these are the rights and duties of the Agent that are governed by the Contract Act and we established that the recovery agents act as agents for and on the authority of the principal which is usually the bank or any other financial institution. And any of the above-mentioned rights and duties of the recovery agents can be modified by entering into a specific agreement because of one or another reason which will be valid and enforceable just the same.
And in case the agency contract does not provide for any other remuneration, the principal may be liable to pay the agent only as per the customary practices of the industry.
So, it is better for the recovery agents to enter into a formal agreement with the principal of the bank for which they are going to act as recovery agents to avoid any future disagreements.
You can find more such articles on our website to take other free DRA notes on the DRA Syllabus for DRA Exams 2023.
Thanks & Regards.