The Allahabad high court recently held that finance companies cannot use goons to seize vehicles over loan default. The court said that a finance company’s contractual right to repossess a financed vehicle must be enforced through a forum known to law, such as a civil court or an arbitrator, and not by recovery agents who waylay the borrower and seize the vehicle by force.
The court said reading a repossession clause literally, to allow this, would arm a private party with the coercive authority of the state. It noted that the vehicle of a borrower, who had paid 31 of 45 instalments, was seized at gunpoint and the allegation was never specifically denied.
While allowing the writ petition filed by a borrower S Ahmad, a division bench comprising Justice JJ Munir and Justice Indrajeet Shukla directed the vehicle to be delivered forthwith without any precondition, imposed costs of ₹10,000, and directed the finance company to restructure the loan without penal interest. It left the question of any default open for adjudication by a competent forum.
Passing the above directives, the court observed in its October 26 order that came into limelight on Saturday, “The right of the finance company engrafted into a hire-purchase agreement to seize the chattel, the vehicle here, purchased on hire-purchase, gives an enforceable right no doubt to the finance company but that enforcement has to be done through a process known to law. It cannot be done by force employing goons, styled as agents.”
“It would be virtually arming a private party with the coercive authority of the state, invariably exercisable by a judge, an arbitrator or some quasi-judicial authority with the aid of its own agency and re-enforced by the police,” the court said.
{{/usCountry}}“It would be virtually arming a private party with the coercive authority of the state, invariably exercisable by a judge, an arbitrator or some quasi-judicial authority with the aid of its own agency and re-enforced by the police,” the court said.
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