New Delhi, Sept. 16 -- The Supreme Court on Wednesday said banks and finance companies cannot use strong-arm tactics to recover loans or treat a default as "a licence" to forcibly seize a borrower's assets, even if the loan agreement permits repossession.

The court directed the Reserve Bank of India (RBI) to ensure "genuine compliance" with its guidelines, master circulars and clarifications by non-banking financial companies (NBFCs) and scheduled commercial banks so that borrowers are not dispossessed of their livelihoods "in the dead of night, without notice and without recourse".

"Where a financier steps outside that framework, breaks open a lock in the dead of night, takes possession without notice and without a signed memorandum, a...