TIMES OF INDIA
The National Commission and the Supreme Court have repeatedly held that the rule of law must prevail and it is illegal to use musclemen to forcibly take repossession of a vehicle when the borrower or the hire purchaser fails to pay the installments. Yet banks and finance companies continue to adopt strong-arm tactics to forcibly seize vehicles from borrowers who default in making payment. In order to try and circumvent the law, they have introduced a clause in the agreement that the vehicle can be repossessed for default in repayment of the loan amount. What is the validity of this clause? This interesting issue was decided on February 11 by the bench of Justice Batta and Vinay Kumar of the National Commission in the case of IndusInd Bank v/s Birendra Kumar Sinha.
Case Study: Sinha had taken a loan from IndusInd Bank for purchase of a Tata truck. The loan was required to be repaid in 48 installments of Rs 27,500 each. In July 2007 the vehicle was forcibly repossessed by the bank. When Sinha asked for its release, he was asked to pay the entire outstanding loan.
Sinha filed a complaint before the Dhanbad district forum. During the pendency of the proceedings under the Consumer Protection Act, the bank initiated arbitration proceedings without the permission of the consumer forum, despite Sinha protesting against it. The bank also sold the vehicle in auction.
The district forum upheld the complaint, observing that repossession of the vehicle was illegal as Sinha had already paid Rs 1,23,000 and a balance of merely Rs 43,495 was outstanding. The bank’s appeal to the Jharkhand State Commission was dismissed, upholding the order of the district forum.
The bank filed a revision petition before the National Commission. Its main argument was the loan agreement contained a clause entitling the bank to repossess the vehicle. Vinay Kumar noted the bank was attempting to obfuscate the issue. The question was not about the right to repossess the vehicle, but the manner in which it had been done. The commission noted that in an earlier case before it involving Citicorp Maruti Finance, it had been observed that we are in a democratic country having a independent judiciary and various laws where musclemen are not to be encouraged for repossessing the hypothecated goods or vehicle for which a hire purchase agreement is executed. If musclemen are encouraged to repossess the property, it will create lawlessness and the loanee, who himself is in a financial crisis, would be helpless. It is impermissible for a money lender, financier or banker to take possession of the vehicle by use of force. This unlawful and unethical procedure is against public policy and also against the protection of public interest.
The commission also considered the case of ICICI Bank where the Supreme Court had observed that the practice of hiring recovery agents, who are musclemen, is deprecated and needs to be discouraged. Banks should resort to a procedure recognized by law to take possession of vehicles in cases where the borrower may have committed default in payment of the installments instead of taking resort to strong-arm tactics.
Impact: Consumer forums often refuse to entertain complaints about forcible repossession of a vehicle by stating that the remedy lies under the Securitization Act. This interpretation is not correct because the forcible repossession of a vehicle is a deficiency in service and an unfair trade practice for which a consumer complaint is maintainable. The judgment of the National Commission will help consumers fight for their rights against the might of banks and financial corporations.
(The author is a consumer activist and has won the Govt. of India‘s National Youth Award for Consumer Protection. His email is email@example.com)