Banks using force to recover loan –Supreme Court verdicts on the issue

 

Reference Case; M/S Magma Fincorp Ltd. vs. Rajesh Kumar Tiwari

Case No Civil Appeal No. 5622 Of 2019

The issues under consideration were-

(1) Whether the Financier is the real owner of the vehicle which is the subject of a hire purchase agreement,

(2) Whether Financier is legally entitled to take repossession of the vehicle, when the hirer does not make payment of instalments in terms of the hire purchase agreement.

(3)  Whether service of proper notice on the hirer is necessary for repossession of a vehicle which is the subject of a hire purchase agreement 

 

Issue No -1 whether the Financier is the real owner of the vehicle which is the subject of a hire purchase agreement,

 

"The RBI has issued circulars for this very problem since 2003.”

Supreme Court has already delivered number of judgment on this issue. In the recent order in case of M/S Magma Fincorp Ltd. Versus Rajesh Kumar Tiwari civil appeal no. 5622 of 2019 delivered on 1^st October 2020 held that

 

“ Financier Continues To Be Owner Of Goods which Are Subject Of Hire Purchase Agreement Until Hirer Pays All Installments: Financier is not at fault by taking possession of the vehicle when the hirer does not make payment of instalments/hire charges in terms of the Hire Purchase Agreement. “said the Apex court

 

Supreme Court said while deciding the matter of Suryapal Singh V Siddha Vinayak Motors & others SLP [Civil] No.5302/2012 decided on 21.02.2012

 

 “Under the hire purchase agreement, it is the financer who is the owner of the vehicle and the person who takes the loan retains the vehicle only as a Bailee/trustee, therefore taking possession of the vehicle on the ground of non-payment of the instalments has always been upheld to be a legal right of the financer”

 

 In M/s Damodar Valley Corporation vs. State of Bihar SC, 21 November, 1960

 

 “Ordinarily, a contract of hire purchase confers no title on the hirer, but a mere option to purchase on fulfilment of certain conditions. But a contract of hire purchase may also provide for the agreement to purchase the thing hired by deferred payments subject to the condition that title to the thing shall not pass until all the instalments have been paid.”

 

In   Charanjit Singh Chadha And Ors. Vs Sudhir Mehra On 31 August, 2001  Supreme Court Of India Noted

 

It is further observed “the owner re-possessing the vehicle delivered to the hirer under the hire purchase agreement will not amount to theft as the vital element of 'dishonest intention' is lacking. The element of 'dishonest intention’ is an essential element to constitute the offence of theft. “Dishonestly"—is whoever does anything with the intention of causing wrongful gain to one person or wrongful loss to another person, is said to do that thing "dishonestly".

In the matter of  Sardar Trilok Singh & Ors. Vs. Satya Deo Tripathi AIR 1979SC 850 it was observed by the honorable court was of a clear view that it cannot be a case of criminal offence if vehicle is re-possessed by the financer. The dispute among the parties can purely be of a civil nature even assuming the fact of re-possession are substantially correct.

 

Similar view in the case of Instalment Supply (Pvt.) Ltd. & Anr. vs. Union of India & Ors. ; and reiterated in Sundaram Finance Ltd. vs. State of Kerala &Others AIR1966SC1178,Smt Lalmuni Devi V Stse Of Bihar &Others 1(2001)SLT 26

 

It is also to be noticed that learned author R.M. Goode, in his book Hire Purchase Law & Practice (Second Edn.) has observed as follows at page 846:-

 

" so long as the hirer is in possession of the goods they belong to him for the purpose of the Theft Act, 1968 even though his possession is unlawful, e.g. because the hire-purchase agreement has come to an end. If the owner has an enforceable right to possession then he will not be guilty of theft in seizing the goods”

 

Issue No-2 Whether Financier is legally entitled to take repossession of the vehicle, when the hirer does not make payment of instalments in terms of the hire purchase agreement

 Such repossession cannot be taken by recourse to physical violence, assault and/or criminal intimidation. Nor can such possession be taken by engaging gangsters, goons and muscle men as so called Recovery Agents", the court added.

 

.

Issue No 3.  Re-possessing vehicle without Notice/with Notice /By force

Question is whether the transaction between a Financier and a purchaser/hirer is a hire purchase transaction, or a loan transaction, might be determined from the terms of the agreement, considered in the light of surrounding circumstances. However, even a loan transaction, secured by right of seizure of a financed vehicle, it confers license to the Financier to seize the vehicle

·         If the hire purchase agreement provides for notice on the hirer before repossession, such notice would be mandatory. Notice may also be necessary, if a requirement to give notice is implicit in the agreement from the course of conduct of the parties.Non service of proper notice would tantamount to deficiency of service for breach of the hire purchase agreement giving rise to a claim in damages.

·         If the hirer commits breaches of the conditions of a hire purchase agreement which expressly provides for immediate repossession of a vehicle without further notice to the hirer, in case of default in payment of hire charges and/or hire instalments repossession would not be vitiated for want of notice.

Where there is no evidence of any loss to the hirer by reason of omission to give notice, nominal damages may be awarded.

 

Key Notes on Hire Purchase transactions

 

1.   Under a Hire Purchase Agreement Goods are let out on hire, with an option to purchase, in accordance with the terms and conditions of the Hire Purchase Agreement. The hirer simply pays for the use of the goods and for the option to purchase them.

2    Until the option to purchase is exercised by the hirer, upon payment of all amounts agreed upon between the hirer and the Financier, the financier continues to be owner of the goods

3   When the agreement between the Financier and the hirer permits the Financier to take possession of a vehicle financed by the Financier and possession of the vehicle is taken, the Financier cannot be said to have committed theft

 

 

Previous

Next