Loan defaulters’ vehicles cannot be forcibly seized,Upholds Punitive Damage On Financier -SC

New Delhi: The Supreme Court has warned financial institutions and banks against forcible taking away of vehicles under hire-purchase agreement when there is a default in payment of loans and said they could be saddled with punitive costs if they did so.

“Even in case of mortgaged goods subject to hire-purchase agreements, the recovery process has to be in accordance with law and the recovery process referred to in the agreements also contemplates such recovery to be effected in due process of law and not by use of force,” said a bench of Justices Altamas Kabir, Cyriac Joseph and S S Nijjar.

Writing the judgment for the bench, Justice Kabir agreed that till the time the loans were paid in its entirety and ownership had not been transferred to the purchaser, the financier normally continued to be the owner of the vehicle.

“But that does not entitle him (the financier) on the strength of the agreement to take back possession of the vehicle by use of force. The guidelines which had been laid down by Reserve Bank of India as well as the appellant bank (Citicorp Maruti Finance Ltd) itself, in fact, support and make a virtue of such conduct,” the bench said.

If any financier of a vehicle resorts to force to take back possession in violation of such guidelines or principles as laid down by the Supreme Court, “such an action cannot but be struck down”, the bench said in its judgment delivered on Monday.

The verdict came on a petition filed by Citicorp Maruti Finance Ltd challenging a July 2007 decision of the National Consumer Disputes Redressal Commission upholding a state commission’s verdict. The state commission had increased the punitive damage on Citicorp Maruti Finance Ltd from Rs 5,000, which was imposed by the district forum, to Rs 50,000.

The case related to a hire-purchase agreement between one S Vijaylaxmi and Citicorp Maruti Finance Ltd for purchase of a Maruti Omni van. When she defaulted repeatedly and failed to honour payment of even a mutually settled amount, the financier took away the van with prior information to the police. It later sold off the vehicle. Vijaylaxmi approached the district forum and complained of deficient service.