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

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

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

Case No Civil Appeal No. 5622 Of 2019

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

 

1)“ 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

 

2) However, 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.

 

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

 

3) “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 ”

 

 

 

Summarized the principles regarding 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.

4        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 licence to the Financier to seize the vehicle.

5. Regarding Notice ;Re-possessing vehicle without Notice

·         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.

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