Financial institutions can't forcibly seize vehicles from loan defaulters through recovery agents, goons: Patna High Court

The Patna High Court recently held that the bank and financial institutions cannot forcibly re-possess vehicles from loan defaulters through recovery agents/goons and such acts would be in violation of law [Dhananjay & Ors v UOI v Ors].The Court was hearing a batch of pleas where the common grievance of all the petitioners was that their vehicles, which they had purchased with the financial assistance from bank and financial institutions, had been forcibly seized from them without taking recourse to the process of law and by using goons and musclemen during odd hours.In a judgment passed on May 19, Justice Rajeev Ranjan Prasad expressed anguish over the action of the banks and finance companies noting that seizure/re-possessing the vehicle without following the Reserve Bank of India (RBI) guidelines and the law on the subject, was wholly illegal. "The banks and the finance companies who are contesting these matters are under a constitutional obligation not to act in violation of law. They cannot act in conflict with the fundamental principles and policy of India which means that no person may be deprived of his livelihood and the right to live with dignity without following the established procedure of law. The right to recovery of these banks and financial institutions if pitted against the constitutional right of ‘life’ of a person/petitioner to live with dignity and not to be deprived of without following the established procedure of law, the constitutional rights of the person/petitioners shall prevail," the Court held..The petitioners moved the Court seeking a direction to the contesting respondents to hand back the vehicles with all papers. They also sought compensation for loss of reputation..The main contention that Court had to decide was whether the respondents could successfully enforce the clause in the loan agreement in these situations that allows for the seizure of vehicles in the event of default.The Court ruled that the respondents, while seeking their private power to recover the loan by repossessing the vehicle, can exercise their rights only within constitutional limitations.“In the garb of a power acquired by the financier under the loan agreement to repossess the vehicle, they cannot be allowed to take the law into their hands and enforce the loan agreement by violating the legislative mandate and the regulatory law such as the Act of 2002,” the single-judge made it clear..On whether the banks and financial institutions had forcibly seized or repossessed the vehicles, the Court left it to the investigating agency to look into the petitioners complaints and conduct an independent, lawful investigation.The petitioners who were forced to contest the present matter will be entitled to costs because the banks and finance companies actions were illegal, the Court observed while disposing of the plea."Accordingly, this Court directs that each of the contesting respondents i.e. Banks/Financial Institutions would be liable to pay a sum of ₹50,000 as cost of litigation to the respective writ petitioners within a period of 30 days from the date of receipt/production of a copy of this judgment," the Court directed..[Read Judgment]