The Supreme Court has directed the Reserve Bank of India (RBI) to take effective measures to ensure that banks and Non-Banking Financial Companies (NBFCs) strictly comply with regulatory guidelines governing loan recovery and repossession of vehicles.
A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe held that although financiers have a contractual right to recover dues and repossess hypothecated vehicles in cases of default, such rights cannot be exercised through force, intimidation, deceit or extra-legal means.
The Court was hearing an appeal filed by Hari Dutta Sharma, whose commercial vehicle was allegedly repossessed by a financier following a loan default. According to the judgment, the vehicle was taken away around 1 am after its steering lock was broken and without prior notice.
The Bench observed that where a vehicle is a person’s principal source of livelihood, its arbitrary deprivation can attract constitutional protections under Articles 14 and 21 of the Constitution.
The Court noted that the RBI has, over the years, issued Master Circulars, guidelines and clarifications regulating recovery practices by banks and NBFCs. However, it observed that these safeguards appeared to have remained largely on paper and directed the RBI to ensure their effective implementation.
The Court also relied on its earlier judgment in ICICI Bank Ltd. v. Prakash Kaur, in which it had deprecated the use of recovery agents or musclemen for forcibly taking possession of vehicles and emphasised that recovery proceedings must be carried out through lawful means.
Holding that the manner in which the appellant’s vehicle was repossessed resulted in arbitrary deprivation of his means of livelihood, the Court directed the company to close both loan accounts and refund Rs 4.5 lakh, representing the amount for which the vehicle had been sold. The amount is to carry interest at 6% per annum from the date of sale until payment.
The Court further awarded Rs 10 lakh as compensation for the mental agony suffered by the appellant and the loss of livelihood over a considerable period. It also imposed costs of Rs 50,000.
The judgment does not bar financiers from repossessing vehicles following loan defaults. Rather, it reiterates that such repossession must be carried out in accordance with law, due process, contractual terms and RBI regulations.
The Court’s directions also place responsibility on the RBI to ensure that borrower-protection safeguards are effectively implemented by regulated entities and are not merely treated as guidelines existing on paper.
The Supreme Court has directed the Reserve Bank of India (RBI) to take effective measures to ensure that banks and Non-Banking Financial Companies (NBFCs) strictly comply with regulatory guidelines governing loan recovery and repossession of vehicles.
The Bench held that although financiers have a contractual right to recover dues and repossess hypothecated vehicles in cases of default, such rights cannot be exercised through force, intimidation, deceit or extra-legal means.
The Court was hearing an appeal filed by Hari Dutta Sharma, whose commercial vehicle was allegedly repossessed by a financier following a loan default. According to the judgment, the vehicle was taken away around 1 am after its steering lock was broken and without prior notice.
The Bench observed that where a vehicle is a person’s principal source of livelihood, its arbitrary deprivation can attract constitutional protections under Articles 14 and 21 of the Constitution.
The Court noted that the RBI has, over the years, issued Master Circulars, guidelines and clarifications regulating recovery practices by banks and NBFCs. However, it observed that these safeguards appeared to have remained largely on paper and directed the RBI to ensure their effective implementation.
The Court also relied on its earlier judgment in ICICI Bank Ltd. v. Prakash Kaur, in which it had deprecated the use of recovery agents or musclemen for forcibly taking possession of vehicles and emphasised that recovery proceedings must be carried out through lawful means.
Holding that the manner in which the appellant’s vehicle was repossessed resulted in arbitrary deprivation of his means of livelihood, the Court directed the company to close both loan accounts and refund ₹4.5 lakh, representing the amount for which the vehicle had been sold. The amount is to carry interest at 6% per annum from the date of sale until payment.
The Court further awarded Rs 10 lakh as compensation for the mental agony suffered by the appellant and the loss of livelihood over a considerable period. It also imposed costs of Rs 50,000.
The judgment does not bar financiers from repossessing vehicles following loan defaults. Rather, it reiterates that such repossession must be carried out in accordance with law, due process, contractual terms and RBI regulations.
The Court’s directions also place responsibility on the RBI to ensure that borrower-protection safeguards are effectively implemented by regulated entities and are not merely treated as guidelines existing on paper.
The post Forcible vehicle repossession can violate Articles 14, 21: Supreme Court directs RBI to ensure banks, NBFCs follow recovery rules appeared first on India Legal.