NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION
(From the order dated 10.3.2005 in Appeal No.65/2004 of the State Commission,
Citicorp Maruti Finance Ltd.
New Delhi-110 001 … Petitioner
HON’BLE MR. JUSTICE M.B. SHAH, PRESIDENT
MRS. RAJYALAKSHMI RAO, MEMBER
HON’BLE MR. JUSTICE K.S. GUPTA, MEMBER
For the Petitioner : Mr. R.S.Suri,
Senior Advocate, with
Mr. Rahul Malhotra, Advocates.
For the Respondent : Mr. J.K.Mittal and
Mr. Vijay, B., Advocates.
For intervenor : Mr. S.Balaji, Advocate.
O R D E R
M.B.SHAH, J. PRESIDENT.
For understanding the reasoning properly, at the outset, we would state as under:
Hire Purchase Agreement:
.1. When a vehicle is purchased by a person (consumer) by borrowing money from the money lender/financier/banker, the consumer is the owner of the vehicle and not the money lender/financier/banker, unless the ownership is transferred.
.2. In a democratic country having well established independent Judiciary and having various laws it is impermissible for the money lender/financier/banker to take possession of the vehicle for which loan is advanced, by use of force.
.3. Legal or judicial process may be slow but it is no excuse for employing musclemen to repossess the vehicle for which loan is given. Such type of ‘instant justice’ cannot be permitted in a civilized society where there is effective rule of law. Otherwise, it would result in anarchy, that too, when the borrower retorts and uses the force.
.1. A hire-purchase agreement is a normal one under which owner hires goods to another party called the hirer and further agrees that the hirer shall have an option to purchase the chattel when he has paid a certain sum, or when the hire-rental payments have reached the hire-purchase price stipulated in the agreement.
.2. As against this, when a person desires to purchase vehicle/goods and not having sufficient money on hand, borrows the amount needed from a money lender/financier/banker and pays it over to the vender of the vehicle, the transaction between the consumer and the money lender will unquestionably be a loan transaction. In such a case the vehicle purchased by the consumer is registered in the name of the consumer and remains at all material times so registered in his name. The consumer remains qua the world at large the owner and remains in possession of the vehicle. By an agreement the vehicle can be given as security for the loan advanced. In such a case, the right to seize the vehicle is merely a licence to ensure compliance with the terms of the so called hire purchase agreement. (Re. AIR 1966 SC 1178).
.C. It is to be stated that many financiers/banks are in race for giving loan for purchase of vehicles or various articles. After giving loan and taking interest in advance, the polite behaviour changes because of the documents which are signed on the dotted lines by the borrower. On occasions, borrower suffers harassment, torture, or abuses at the hands of the musclemen of the money lender. Such a behaviour is required to be prohibited and the process of repossession is required to be streamlined so as to fit in cultural civilized society. Let the rule of law prevail and not that of jungle where might is right.
In such cases, even the Police does not register the FIR or help the aggrieved consumer. In the present case, nothing has been done by the Police for years despite the complaint. In any case, taking of pound of flesh is required to be discouraged.
the present case, it is admitted that the complainant, Smt.Vijayalaxmi,
purchased Maruti Omni after taking a
loan for a sum of
Rs.1,82,396/- from the petitioner. Thereafter, on the said loan amount, the
petitioner included interest and directed the complainant to pay a sum of Rs.2,71,636/- in 60 equal monthly instalments
of Rs.4,604/- each. One instalment was paid in advance at the time of taking the
loan. It is also pointed out that for
the said instalments, cheques
were taken in advance. It is her say
that the complainant had paid instalments to the Bank
from May 2000 up to January 2003 but in January 2003, her husband met with an
accident and, therefore, she was unable to pay some instalments
in time. Due to the aforesaid
circumstances, she requested the officials of the bank for one-time
settlement. Thereafter, on 19.5.2003,
one Mr.Sanjay, an agent of the Bank, came to her
residence with a Settlement Letter dated 10.5.2003. As per the said letter, the complainant was
required to pay, in all, a sum of Rs.60,000/- latest
by 16.5.2003. After reading the said
letter, the husband of the complainant pointed out to Mr.Sanjay,
as to how the amount could be paid on
70, M P
Sub: Your Auto Loan a/c no. DEJ 1990379369
This has reference to our discussion to the above mentioned loan account. Your as on date prepayment amount details are as follows:-
POS : 102930.00
Interest : 9761.34
Penal Interest : 2138.00
Bounce ch. Chg. : 6599.00
Pre pay charges : 5146.02
Based on our various discussions, meeting and on your willingness to settle the dues, we confirm the offer of the plan structured payment of Rs.60,000/- (Sixty Thousand only) in 1 down payment via cash only Citicorp Maruti Finance Ltd.
On appropriation of the plan payment the above said Loan Account shall stand settled in full and final.
Please note that the payment plan is valid till 16.05.2003. In the event of any delay/default in the payment plan by you for whatever reason, the Plan Payment shall stand null & void and the bank shall be entitled to claim from you the total outstanding due including charges and interests as on date.
This is to bring to your kind notice that the Payment Plan being offered to you is solely on your request and based on your circumstances in your particular case and does not form any precedent.
Please sign a copy of this letter as your acceptance of this letter.
For Citicorp Maruti Finance Ltd. Accepted:
Customer Sign. -------
Writing of this letter is not disputed by the Bank.
Despite this, on 29.5.2003, at about , two persons came to her house stating that they have come from the Bank to collect the payment. She informed them about the letter received by her from Mr.Sanjay, the agent of the Bank, and that the amount was to be paid within 14 days. It is her say that, thereafter, the custody of the vehicle was taken by the said two persons and the Complainant and her husband were asked to accompany them to the bank. Further, facts stated in paragraphs 12 and 13 of the affidavit reveal that some musclemen were appointed by the bank, to repossess the vehicle, which are reproduced as under:
“12. That on the way after running some kilometers they stopped the van and my husband asked for what purpose they stopped the van to which they said that they are waiting for their colleagues who are coming behind them. After 5 minuts one jeep bearing Haryana Registration number came at I.T.O. crossing and they followed my van in which more than 5 persons were seated.
.13. That on reaching
Further, it would be worthwhile to reproduce the letter written by the complainant to the Manager of the Bank on the same date (29.5.2003) at the same time, which is as under :
Maruti Citicorp (Finance)
Maruti Finance Ltd.
A-21/18, Naraina Indl. Area
Re Loan No. DEJ199-0579369 vehicle
The above vehicle is registered in the name of Smt. S. Vijaya Laxami and there is few instalments due to the Bank for which the above vehicle was impounded.
Further this is to state that we have made settlement with Citi Bank for one time settlement i.e. Rs. 60,000/- which was agreed to pay before 25.5.2003. But due to some unavoidable circumstances, the payment was not made in time. Now I am ready to pay the said amount of Rs.60,000/- by cash and request you to kindly accept and release the car to me.
Complainant along with her husband went to Police Station, Vivek
Complainants visited the office of the Opposite Party on 30th and
The Complainant further
states that the Bank had sold the vehicle to M/s.Chinchin
Motors for more than Rs.1 lakh. Thereafter, the Chinchin Motors sold the same to one Mr.Navin
Hence, the Complainant filed the complaint praying that a direction may be given to the bank to return the said vehicle or in the alternative, pay a sum of Rs.1,50,000/- market value of the vehicle, Rs.1,00,000/- as compensation for mental agony and harassment, to return the balance unpaid cheques and any other relief the Forum may deem fit.)
.I. The first question which requires determination is whether a financier is invested with the right to repossess the vehicle, for which loan has been given by it, by use of force.
It has been contended by the learned Counsel for the Petitioner that:
.(a) the financier has legal right to repossess the hypothecated goods without the intervention of the Court. It is by virtue of contract and on the basis of the hire purchase agreement;
.(b). Repossession is not repugnant to public policy but is consistent with the same;
.(c). financial facilities provided by the banks and financial institutions depend upon public money and blocking of such money due to slow and ineffective recovery through litigation is in contrast to the concept of public policy, which accentuates protecting public interest;
.(d). our existing legal frame work relating to commercial transactions does not keep pace with changing commercial practices and financial sector reforms and slow pace of recovery of defaulting loans have an adverse effect on the economic health of our nation;
.(e). functioning of the banking sector is governed by the
regulator, i.e. Reserve Bank of
In our view, the aforesaid submissions do not hold water in view of the fact that we are a democratic country having well established independent Judiciary and having various laws, where musclemen are not to be encouraged for repossessing the hypothecated goods or vehicle for which hire purchase agreement is executed. If musclemen are encouraged to repossess the property it will create lawlessness and the loanee who himself is in financial crisis would be helpless. In a number of cases it is alleged that the vehicle of the musclemen follows the vehicle of the loanee to repossess the same by use of force. In one case, it is alleged that gunman was also accompanying such musclemen. In any case, it is impermissible for the money lender/financier/banker to take possession of the vehicle for which loan is given, by use of force.
This unlawful and unethical procedure, in our view, at the outset, can be said to be against public policy and also against the protection of public interest.
Further, lawlessness cannot be encouraged on the alleged ground that recovery of money through litigation is a slow process or in some case is ineffective as alleged by the Petitioner.
Further, it is for the Legislature to find out ways of making the slow process faster and speedier, but the money lenders/financiers/bankers cannot be allowed to take law in their own hands and repossess the vehicle on the ground that the loanee, who is in weak financial position fails to pay one or two installments.
Learned Counsel for the Petitioner, however, submitted that the Parliament has enacted Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The objects and reasons of the said Act, inter alia, provide that existing procedure of recovery of debts due to banks and financial institutions has blocked a significant portion of funds in unproductive assets, the value of which deteriorates with the passage of time. Locking of such huge amount of public money in litigation prevents proper utilization and re-cycling of the funds for the development of our country.
In our view, enactment of such legislation does not empower banks or financial institutions to make law of their convenience and to take possession of the hypothecated goods by resorting to ‘instant justice by use of force’. In the said Act, legal and just procedure is prescribed for repossessing the hypothecated properties, which is not required to be reiterated here.
Learned Counsel Mr. Suri further referred to Section 29 of State Financial Corporation Act, 1951.
In our view, unless there is a specific power by the enactment, financiers or money lenders cannot be equated with the State Financial Corporation. The status and nature of the State Financial Corporation is altogether different. They are established with a view to develop industrial growth in public interest and on business principles within the legal framework. Further, it is not heard that the State Financial Corporation has engaged musclemen or goondas for taking possession of the property by use of force.
Learned Counsel Mr. Suri referred to Hire Purchase Act, 1972. No doubt, he admitted that the it has never come into force and is repealed. The Act provided an elaborate procedure for termination of the hire purchase agreement. It also provided that notice is to be given and, in some cases, instituting a suit or an application before the Court before taking possession. But, it nowhere provided taking of the possession by use of force.
Similarly, Section 69 of Transfer of Property Act, 1882 would have also no bearing with regard to contract entered into between the Complainant and the Petitioner.
In any set of circumstances, in view of the law laid down by the Apex Court in the following two decisions, the aforesaid contentions of the learned Counsel for the Petitioner are without any substance and do not require any further consideration. The two decisions are:
.(a). Dealing with the repossession of the
vehicle by the financiers the
“Essentially these are matters of contract and unless the party succeeds in showing that the contract is unconscionable or opposed to public policy the scope of interference in writ petitions in such contractual matters is practically non-existent. If agreements permit the financier to take possession of the financed vehicles, there is no legal impediment on such possession being taken. Of course, the hirer can avail such statutory remedy as may be available.”
.(b). Thereafter, the Apex Court, emphatically stated in the case of ICICI Bank Vs. Prakash Kaur & Ors., (2007) 2 SCC 711, that practice of hiring of recovery agents who are musclemen is deprecated and needs to be discouraged. The relevant observations are as under:
“Before we part with this matter, we wish to make it clear that we do not appreciate the procedure adopted by the Bank in removing the vehicle from the possession of the writ petitioner. The practice of hiring recovery agents, who are musclemen, is deprecated and needs to be discouraged. The Bank should resort to procedure recognized by law to take possession of vehicles in cases where the borrower may have committed default in payment of the instalments instead of taking resort to strong-arm tactics.”
In the concurring judgement, Justice Dr. A.R. Lakshmanan has, inter alia, has commented on the behaviour of the agents who take the possession of the vehicle, by observing as under :
“A man’s self-respect, stature in society are all immaterial to the agent who is only primed at recovery. This is the modernized version of Shylock’s pound of flesh. No explanation is given regarding the interest charge and the bank takes cover under the guise of the holder of the card or loan having signed the agreement whose fine print is never read or explained to the owner.”
“Chronic defaulters should mean a default of a maximum of three months if intermittent payments have been made.”
· Most of the non-banking financial institutions adopt the arbitration route for the purpose of getting a Commissioner of the Court appointed for seizing the vehicles.
· The most important aspect would be a broad guideline for fixing the targets, whether they be for lending or for recovery. This would result in a proper balance between the extreme differences of working conditions between the multinational commercial banks and nationalized and non-nationalised banks who are doing the very same credit business with dignity.”
“Additional inputs :
Considering the difficulties of the customers as well as banks, the concept to be developed is to create distinct and separate department for recovery. This should be manned by persons who will not resort to violence or force when they are in the process of recovery of the dues.”
“In conclusion, we say that we are governed by the rule of law in the country. The recovery of loans or seizure of vehicles could be done only through legal means. The banks cannot employ goondas to take possession by force.”
The Delhi High Court in the case of Dr.Amitabh Verma Vs. Commissioner of Police & Ors. 100 (2002) DLT 581, has made similar observations, as under:
“In this case, it is alleged that the petitioner is a leading and an eminent Neurologist of the country and is the Honorary Physician to the President of India. On 20.3.1999 he purchased a Tata Safari vehicle on hire purchase basis on obtaining a loan of Rs.6,23,000/- from the 3rd respondent finance company. It is to be mentioned here that against the said loan, a total sum of Rs.7,38,692.10 has been paid by the petitioner. In such circumstances, a Division Bench of the High Court gave following directions:
(a.) It is not clear under what provisions of law the finance company or any of its repossession agency can forcibly stop the running vehicle, push the driver and hirer out of the car and take possession of the car. These acts of the respondent can never be supported on the anvil of the settled provisions of law.
(b.) The finance company must consider the facts of each case in proper perspective. The case of the hirer who has not paid any instalment or substantial number of instalments cannot be equated with the case of a hirer who has to pay only one instalment or a very small amount.
(c.) Before we part with the judgement, we would like to observe that a large number of similar cases are being filed in Courts. Therefore, apart from deciding the controversy involved in this case, we deem it appropriate to formulate general guidelines so that similar problems are not to be encountered or repeated in similar cases.
(i). The finance companies must inform the hirers regarding the details of instalments due and payable by a written communication.
(ii). Even before repossession another written notice must be sent to the hirers and only thereafter the vehicles be repossessed.
Finance companies are restrained from stopping the running vehicles on the roads and forcibly pulling out the driver and take possession of the vehicle against all provisions of law”.
Mr.Mittal, learned Counsel for the Complainant referred to the decision of the High Court of Punjab and Haryana in Tarun Bhargava Vs. State of Haryana & Anr. AIR 2003 P&H 98. The relevant portion of the judgment reds as under:
“In a loan agreement for financing goods on hypothecated basis the creditor cannot forcibly repossess the hypothecated item, though he can enforce the security through the Court. If the agreement is held to be a loan agreement and rights of the creditor are held to be those of a hypothecatee, rights of the parties under the agreement would be different. A hypothecatee, cannot take possession of the security without intervention of the Court, though he has a right to take possession or to sell the hypothecated property though Court or to give notice to the hypothecator to enforce the security. Permitting a hypothecatee to physically repossess the hypothecated goods against the wishes of the hypothecator will enable the hypothecatee to take law in his own hands, deprive the hypothecator of his defence by depriving him of the use of goods even when his claim may be that he does not owe any money.
The finding that the hypothecatee cannot be permitted to take over the hypothecated goods under repossession clause, without intervention of the Court is also supported by events which have been taken cognizance of by the legislature, which shows that the public policy requires safeguards to be provided against arbitrary repossession clauses.”
As against this, learned Counsel Mr.Suri referred to the decision in State Bank of India Vs. S.B.Shah Ali (died) and Ors. AIR 1995 AP 134, wherein a Division Bench of the High Court held that:
“Where there is a mere charge in hypothecation agreement, the hypothecatee has to approach the Court and seek intervention of the Court for obtaining money decree and for bringing the hypothecated goods for sale through the court. When there is any specific clause in the hypothecation agreement empowering the hypothecatee to take possession of the goods and sell the same, in the event of default in payment, as per the said terms the hypothecatee can proceed ahead without intervention of the Court”.
our view, the aforesaid judgment cannot be considered to be a good law in view
of the law laid down by the
From the aforesaid law laid down by the Apex Court as well as the High Court of Delhi, it is clear that even though the hire-purchase agreement may give right to take possession of the vehicle, money lenders/financial institution/banks have no power to take possession by use of force and have to follow the statutory remedy which may be available under the law.
May be that the procedure of law is slow, but that is no excuse for use of force for repossessing the vehicle. If the contention of the Petitioner that it can take possession of the vehicle by means of force is accepted the rule of jungle would prevail and might would be right.
.II. The second question which requires consideration is: Whether the hire-purchase agreement is valid or non-est?
.(a). Learned counsel Mr.Mittal appearing on behalf of the complainant submitted that the agreement entered into between the parties on 4.4.2002 is void ab-initio and non-est, because---
(i). the vehicle was purchased by the complainant and the invoice is in her name ;
(ii). the vehicle is registered in her name as provided under Sections 41 & 42 of Motor Vehicles Act.
(iii). The vehicle, after being purchased with the financial assistance of the financier, was not transferred in its name.
(iv). Insurance cover is also taken by the complainant.
He further contends that the agreement
which is executed between the parties is on false foundation that the financier
(petitioner) is the owner of the vehicle.
As a matter of fact, petitioner (the financier) is not the owner of the
vehicle. In any case, it is his
contention that as held by the
In the case of Sundaram Finance (supra) the Court inter-alia observed that – “a hire-purchase agreement is a normal one under which an owner hires goods to another party called the hirer and further agrees that the hirer shall have an option to purchase the chattel when he has paid a certain sum, or when the hire-rental payments have reached the hire-purchase price stipulated in the agreement”.
Thereafter, the Court observed that “the true effect of a transaction could be determined from the terms of the agreement, considered in the light of the surrounding circumstances, and in such case, the court has, unless prohibited by Statute, power to go behind the documents and to determine the nature of the transaction, whatever may be the form of documents; when a person desiring to purchase goods and not having sufficient money on hand, borrows the amount needed, from a third person and pays it over to the vendor, the transaction between the customer and the lender will unquestionably be a loan transaction. The Court considered various decisions and quoted Re Waston, Ex parte Official Receiver in Bankruptcy [(1890) 25 Q.B.D.27 and referred to observation made by Lord Esher, M.R. as under:
“……when the transaction is in truth merely a loan transaction, and the lender is to be repaid his loan and to have a security upon the goods, it will be unavailing to cloak the reality of the transaction by a sham purchase and hiring. It will be a question of fact in each case whether there is a real purchase and sale complete before the hiring agreement.”
Thereafter, on facts of that case, the Court observed as under :
“In the light of these principles the true nature of the transactions of the appellants may now be stated. The appellants are carrying on the business of financiers : they are not dealing in motor vehicles. The motor vehicle purchased by the customer is registered in the name of the customer and remains at all material times so registered in his name. In the letter taken from the customer under which the latter agrees to keep the vehicle insured, it is expressly recited that the vehicle has been given as security for the loan advanced by the appellants. As a security for repayment of the loan, the customer executes a promissory note for the amount paid by the appellants to the dealer of the vehicle. The so-called “sale letter” is a formal document which is not made effective by registering the vehicle in the name of the appellants and even the insurance of the vehicle has to be effected as if the customer is the owner. Their right to sieze the vehicle is merely a licence to ensure compliance with the terms of the hire-purchase agreement.”
Finally, the Court held that the transactions were merely financing transactions.
In the present case also, as stated above, the car was purchased by the complainant from the dealer and the invoice was in her name; the vehicle was and is registered in her name as contemplated under Sections 41 and 42 of the Motor Vehicles Act, 1988; and, an insurance policy was also taken by the complainant. Further, the complainant has not transferred the vehicle in favour of the financier at the time of taking the loan. In these set of circumstances, we have to determine the nature of the hire-purchase agreement relied upon by the financier. It is to be stated that the entire hire-purchase agreement is on the assumption or presumption that the financier is the owner of the vehicle or that it has purchased the vehicle directly from the vendor and hired it to the Complainant. Learned counsel for the petitioner failed to point out that the vehicle was purchased by the financier or that after the purchase, the same was given on hire to the complainant.
It is to be stated that definition of ‘hire purchase agreement’ given under Section 2(c) of the Hire Purchase Act, 1972 (Repealed) is also to the same effect. Such an agreement is to be executed by the owner of the vehicle in favour of the hirer and not by owner/borrower for obtaining loan. Section 2(c) reads as under:
“2(c) ‘hire-purchase agreement’ means an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under which –
.(i). possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical instalments, and
.(ii). the property in the goods is to pass to such person on the payment of the last of such instalments, and
.(iii). such person has a right to terminate the agreement any time before the property so passes.”
Therefore, hire purchase agreement in the first instance requires that the ownership of the goods shall lie with the owner; and, thereafter, letting the goods on hire to the consumer. That means, the person who passes the possession in goods to hirer, shall be the owner of the goods. But, when the consumer is himself the owner, in possession of the vehicle, there is no question of giving right of possession to him. Lending of money in such cases would simpliciter be giving loan to the consumer.
.(b). On the basis of the aforesaid finding, the question now requires consideration is whether the so-called hire-purchase agreement entered into between the parties is non-est or void ab-initio.
Admittedly, the money lender/financier/banker is not dealing in purchase and thereafter hiring of vehicles. If the vehicle is purchased by the consumer in his own name; registered in his name; insurance is also taken by him (i.e. the consumer); earnest money is also paid by him, then, it is clear that ownership of the vehicle is that of the consumer. Hence, if the Complainant is the owner of the vehicle and for purchase of such vehicle if money is borrowed from money lender/financier/banker then, the nature of the agreement between the parties would be altogether different. But, if the agreement is executed under the premises that the financier is the owner of the vehicle, such agreement is totally on the basis of misrepresentation/misunderstanding of facts and law and such contract would be void as provided under Section 20 of the Indian Contract Act, 1872. The said Section specifically provides that where both the parties to an agreement are under a mistake as to a matter of fact essential to the contract, the agreement is void.
However, learned Senior Advocate Mr. Suri submitted that as per Section 51(5) of Motor Vehicles Act, the financier can have the Certificate of Registration, which is in the name of registered owner, i.e. the hirer, cancelled and have a fresh certificate of registration issued in their name (i.e. in the name of the financier) if the financier satisfies the registering authority that it has taken possession of the vehicle owing to default of the registered owner, i.e. the hirer.
For the aforesaid contentions, firstly, it is to be stated that Section 51 of the Motor Vehicles Act, provides only special provisions regarding registration of motor vehicle subject to hire purchase agreement. This contemplates valid hire purchase or hypothecation agreement. For obtaining such a certificate, the financier has to satisfy the registering authority that it has taken the possession, i.e. the possession of the vehicle is taken by him in accordance with the law, and not by use of force. Hence, we see no force in this contention. However, the provisions for registration of motor vehicle in such cases elaborate procedure is prescribed which is not required to be discussed, as the alleged hire purchase agreement is void.
Further, the aforesaid Section 51(5) of the Motor Vehicles Act nowhere provides that hirer can take possession by use of force or by unauthorized method or by adopting unauthorised means.
.(c). Learned Counsel Mr. Mittal has elaborately submitted that various clauses of the so called hire purchase agreement are unconscionable and unfair. Once we have arrived at the conclusion that the hire purchase agreement is non-est or void, then those clauses are not required to be discussed. However, we agree with him that any clause in the agreement which gives unrestricted right of entry in the premises of the Complainant to take possession of the vehicle would be in violation of the established legal system in a civilized society and in some cases, it may amount to offences punishable under the Indian Penal Code.
.III. Code of conduct prescribed by the Petitioner Bank for repossessing the vehicle:
Repossession Procedure Prescribed by the Citibank
Next, learned Counsel Mr. Suri submitted that the money lender/financier/banker have not taken possession of the vehicle by use of force.
For this contention he has pointed out the Code of Conduct prescribed before taking possession of the vehicle. He has submitted that possession of the vehicle is not to be taken by use of force. In our view, if the code of conduct prescribed in the book is followed, no such complaint would be filed. However, for his satisfaction, we would refer to some portion of the code of conduct which gives an elaborate procedure to be followed, before taking possession of the vehicle.
The Repossession Procedure is elaborate which is as under:-
The Process Flow chart, indicating how the officers have to proceed before repossession of the vehicle, is as under :
1. Failure of TC/Field efforts ;
2. Loan Recall Notice to the CM ;
3. Issuance of a Repo Kit, complete documentation and RCM approval ;
4. Pre-Repo intimation to the police station ;
5. Repossession of the car, due diligence checks ;
6. Post-Repo intimation to the police station ;
7. Inventory check, vehicle moved to the godown ;
8. Pre-sale notice to the customer, 7 days time for prepayment ;
9. Prepayment - (a) If made - Vehicle released to
(b) If not made-
commenced, sealed quotations
The car is sold to the highest bidder, agreement in place.
For this purpose, under pre-repossession checks, following are included :
Ø Loan Recall Notice
Ø Preparation of a Repo Kit
· Latest Statcard
· RC/FOP Copy – confirmation of hypothecation
· Loan Recall Notice
· Pre-post intimation letter formats
· Inventory sheets
Ø Regional Manager Approval on each case
Ø Issuance of kit to the authorized repo agency
Ø Pre-Repo intimation to the local police station
Steps taken at the time of repossession are :
Ø Due diligence checks conducted
· Occupants in the vehicle
· Profile of the occupant
· RC/FOP validation
Ø Conversation with the customer/owner of the vehicle and handover of a card carrying service desk numbers.
Ø Preparation of the inventory sheet signed from the customer/notorized.
Ø Due diligence report/confirmation sent to RCM.
Do’s and Don’ts at the time of repossession include :
· Validate RC/FOP details
· Check for the occupants in the car
· Clarify Identity of the team to the customer
· Reason for Repo - clear communication to the customer
· Conversation with the customer for cars driven by third person.
· Inventory sheet preparation.
· Repossess car occupied with women/girls/children/ elderly/handicapped
· Stop a moving car with force.
· Use of force to dispossess the occupant
· Threaten the occupant
· Use of abusive language
Post Repossession steps are as under :
· Post- Repo intimation to the police station.
· Send the vehicle to the yard within 24 hours – independent inventory check
· Valuation and AHFS booking
· Pre-sale letter to the customer – 7 days time for prepayment
· Prepayment/sale process
Controls include :
Loan Recall notice sent to the customer for all cases
RC/FOP in the repo kit and subsequent validation at the time of repo, RCM approval for all cases.
Pre-Repo and Post Repo intimation in the local police station
Repo team guided by ‘Code of Conduct’, Due diligence report filled for each repo
Valid identity cards carried by the Repo team along with the endorsement cards issued by Citibank. Authorisation letter to the agency forms a part of repo kit.
Inadequate support post repossession
Service desk numbers handed over to the occupant of the car at the time of repo
Car repossessed but not received from the repo agency
Vehicle sent to the Godown within 24 hours of repossession along with repo file. Exceptions tracked by regional operations unit. All repo files are called back on a monthly basis.
Yard Controls include :
· Designated godown officer in each location.
· Entry on the basis of valid authorization letter/gate pass.
· Release of car-release letter signed by authorized signatory
o Vehicle In/out register and stock register
o Visitor entry register
o Copies of inventory sheets/release orders
o Designation memos
· Monthly proofing on a surprise date – exceptions highlighted
Steps under the Sale Process are as under :
· Pre-approved empaneled buyers
· Offer letters- inspection of vehicle
· Sealed quotations – opened by two designated officers
· Car sold to the highest bidder
· Agreement and release of car on receipt of full payment
· Post sale Notice to the customer
Certain Additional Controls are :
· At least three quotations for each vehicle
· Second valuation for cases with difference >20 K
· Comparison with Grid value
· Independent specialist from business to oversight/review sale transactions and participate in negotiations selectively
· Independent testing by Control Unit
o Dealerwise realization trends
o Adherence to process and control points
We would reiterate that if such procedure is followed most of the complaints would not be filed. Further, it is to be stated that when the valuation is made by the financier/banker, then, at least, a chance should be given to the consumer to repurchase the vehicle at the said price.
In the present case, it is to be stated that the following procedure prescribed for repossession is not followed.
“Once the vehicle is repossessed, a pre-sale notice is sent through registered post to the customer to repay the total amount to foreclose the loan within 3/7 days from the receipt of the letter. If the customer comes back within the given time and clears the negotiated amount approved by the RCM, the vehicle is returned to the customer. If the customer does not respond to the pre-sale communication, then sale proceedings need to be initiated.”
against this, the Complainant has pointed out that the vehicle was repossessed
on 29.5.2003. On the same day, the Complainant prayed that he was prepared to
pay the amount of Rs.60,000/- as demanded for one-time
settlement. That prayer was not accepted. Thereafter, the Complainant visited
the office of the Opposite Parties on 30th and
This would mean that before repossession no registered notice is given; before sale is also no notice is given and in a highhanded manner the vehicle was sold without following the procedure allegedly required to be followed.
.IV. Learned Counsel for the Petitioner submitted that the State Commission has erred in directing the payment of damages by fixing its market price by taking into consideration only depreciation. He submits that market price is to be determined on the basis of the price which is prevailing in the market and that is properly reflected by auction sale of the vehicle. He has referred to the procedure prescribed by the Petitioner, Citi Crop Maruti Finance Ltd. for auction sale.
It is contended that the Petitioner is following set procedure for auction of the vehicle seized, which is as under:
“(iii). Live auction:
On the auction day, brokers would place their respective bids on-line from their office/home/cyber café using the internet. Bidding shall continue on all auctions until the auction ending time. The auction duration would depend on the number of vehicles.
Bank would provide on-line and off-line support to the brokers during the entire duration of the auction.
(iv). Post auction:
The auctions would close automatically after the specified time duration.
The bidding report will be generated by the bank within ½ hours of the auction closing.
The MIS report would specify all information on the auction including all the bids placed by the respective dealers and names of all winners.
The outcome of the auction would be binding on all brokers.
Post the auction, the collection of cash and possession of cars would be between the Bank and the broker as earlier”.
It is to be stated that in this auction the consumer whose vehicle is seized has no voice or role to play. In any case, if an opportunity is given to the consumer, when his vehicle is likely to be sold at a particular price and option should be given to him to purchase the vehicle at the said price, then it is a transparent procedure. The procedure which is stated in the Conduct Book may appear to be attractive, but in practice it is not followed and causes loss to the consumer – because in many cases the bidders purchase vehicle at a throw-away price.
.V. The next question which requires consideration is when the repossession of the vehicle is held to be unfair what relief should be given to the Complainant?
- In such cases, grant of relief would depend upon the fact whether the vehicle after repossession is sold.
- (a). If not sold, it is to be returned to the Complainant with adequate compensation/damages suffered by the Complainant.
- (b). If sold, the damages/compensation is the only relief which can be granted to the Complainant.
.VI. The next question would be in such types of cases whether the Petitioner has right to demand the balance outstanding from hirer after adjustment of sale proceeds towards dues?
In a case when the vehicle was repossessed by use of force, and thereafter, sold without informing the Complainant, in our view, it would be unjust to direct the consumer to pay the balance amount, as alleged by the financier to be outstanding. If such a relief is given to the money lender/financier, it would be unjust enrichment to the money lender and against equity. That question may arise for consideration only if the Complainant willingly surrenders the vehicle for sale and for recovery of the outstanding amount. Then, in such cases, consumer dispute would not arise.
In view of the aforesaid discussion, in our view, where the vehicle is forcefully seized and sold by the money lender/financier/banker it would be just and proper to award reasonable compensation to the Complainant. ‘Reasonable compensation’ would depend upon facts of each case.
the present case, as per the settlement letter dated
The District Forum, while allowing the complaint, held as under:
“In view of what we have noted
herein above, we direct the OP Bank to make up the deficiency to the
complainant. Since the car has already
been sold we cannot direct the OP to restore the car to the complainant. According to the statement of account filed
by the complainant, she has paid Rs.2,52,723/- till
Feeling aggrieved, the Opposite Party has filed an appeal before the State Commission. The State Commission, vide its order dated 10.3.2005, held as under:
“The entire action of the appellant was illegal, arbitrary and criminal in nature and requires to be visited with punitive damages besides refunding the market value of the vehicle with interest. We dismiss the appeal and impose a punitive damages of Rs.50,000/- which shall be paid to the respondent for the mental agony, harassment and humiliation she suffered before her neighbours, friends and relatives at the hands of such an unscrupulous and uncouth provider of service. In the result appeal is dismissed with aforesaid order. Payment shall be made within one month.”
Considering the fact that the District Forum had already directed payment of Rs.1,50,000/- with interest at the rate of 9% p.a. from the date of filing of the complaint and Rs.5,000/- as compensation, in our view, it is not necessary to impose punitive damages. Hence, the order passed by the State Commission directing the petitioner to pay Rs.50,000/- as punitive damages to the Complainant, is set aside. However, we make it clear that Petitioner shall not be entitled to recover any amount from the Complainant on the basis that some amount remains unpaid in their books of accounts. If any ante-dated cheques are remaining with the Petitioner, the same shall be treated as null and void and no action on that basis shall be taken by the Petitioner against the Complainant.
In the result, the Revision Petition stands disposed of accordingly. The Petitioner shall pay Rs.10,000/- as costs to the complainant.
We appreciate the assistance rendered by Senior Advocate, Mr.R.P.Bhatt, as amicus curiae.
( M.B.SHAH )
( K.S. GUPTA )