Introduction
In a recent landmark judgment, the Patna High Court has held that banks and financial institutions cannot forcibly repossess vehicles from loan defaulters through recovery agents or “goons”. The judgment came in response to a set of pleas wherein the petitioners claimed that their vehicles, bought with financial assistance from banks, were forcibly seized without due legal process, often at odd hours and by musclemen.
Background
The court, presided over by Justice Rajeev Ranjan Prasad, expressed distress over the actions of the banks and financial companies, labeling them as wholly illegal. The judgment, passed on May 19, underscored that seizure or repossession of vehicles without adherence to the Reserve Bank of India (RBI) guidelines and the law of the land is unacceptable.
Key Findings of the Court
The court held that the banks and financial companies, being under a constitutional obligation, should not act in violation of the law. The ruling stated 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 the banks and financial institutions, when juxtaposed against the constitutional right to life and livelihood, cannot supersede the latter.
The petitioners had sought that the seized vehicles be returned to them, along with all the necessary documents. They also sought compensation for loss of reputation caused by the forcible seizure of their vehicles.
Decisive Contention
The core contention that the court had to decide upon was whether the clause in the loan agreement permitting the seizure of vehicles in the event of a default could be successfully enforced by the respondents. The court held that while the respondents could exercise their rights to recover the loan by repossessing the vehicle, they could do so only within constitutional limitations.
The Court’s Verdict
The court made it clear that banks and financial institutions cannot, under the guise of the power acquired through the loan agreement to repossess the vehicle, violate the legislative mandate and the regulatory law such as the Act of 2002.
The court ordered that each of the contesting respondents, i.e., the banks/financial institutions, must pay a sum of ₹50,000 as cost of litigation to the respective writ petitioners within 30 days from the date of receipt of a copy of this judgment.
Investigation and Enforcement
On the matter of whether the banks and financial institutions had forcibly seized or repossessed the vehicles, the court left it to an investigating agency to conduct an independent, lawful investigation into the petitioners’ complaints.
The court also directed all police superintendents in Bihar to ensure that no vehicle is seized forcefully by any recovery agent.
Conclusion
This judgment reinforces the balance between the rights of financial institutions to recover loans and the constitutional rights of individuals to life and livelihood. It underscores that the actions of these institutions must be within the bounds of the law and the Constitution, and that any violation thereof may attract penalties.
The court’s ruling thus sends a strong message to financial institutions about the limits of their authority in loan recovery processes and the paramount importance of upholding the law and the Constitution in all their actions.
Citations
- “Financial Institutions can’t forcibly seize vehicles from loan defaulters through recovery agents/goons: Patna High Court.” – Bar and Bench.
- “Patna HC: Forceful seizure of vehicles is violation of fundamental right.” – Times of India
