Forcible Repossession Of Vehicles By NBFC Through Recovery Agents Violates Constitutional Protections: Uttarakhand HC

The Uttarakhand High Court has held that forcible repossession of financed vehicles by a Non-Banking Financial Company through recovery agents, without adherence to due process, is illegal and violative of constitutional protections.

The Court was dealing with cases where transporters alleged that their vehicles were intercepted on public roads and taken away by recovery agents despite disputes regarding outstanding dues. Observing that such self-help measures undermine the rule of law and infringe the right to livelihood, the Court directed restoration of possession of the vehicles to the petitioners.

Justice Pankaj Purohit allowed two writ petitions involving similar questions relating to the legality of repossession by an NBFC and the maintainability of writ jurisdiction in such matters.

In one of the petitions, the vehicle financed for over ₹31 lakh was allegedly repossessed while it was on a commercial consignment, with the driver being removed by recovery agents. In the other case, despite repayment exceeding the principal loan amount, the petitioner alleged coercive repossession or attempts to repossess the vehicle over disputed outstanding dues.

In both cases, the petitioners asserted that the vehicles were forcibly taken or sought to be taken without prior notice or legal process, directly affecting their livelihood as transporters.

The petitioners argued that the actions of the respondent violated binding guidelines issued by the Reserve Bank of India governing recovery practices. It was submitted that the use of coercive methods for repossession had been expressly deprecated by the Supreme Court.

They further contended that the dispute was not merely contractual, as the impugned actions were arbitrary, high-handed, and violative of fundamental rights, particularly the right to livelihood.

The respondent contended that the writ petitions were not maintainable as the dispute arose out of a contractual relationship and that alternative remedies were available.

It was further submitted that the petitioners had defaulted in repayment and that the respondent was entitled to repossess the vehicles in terms of the loan agreement. The allegations of forcible repossession were denied.

The Court first addressed the issue of maintainability and held that while contractual disputes ordinarily fall outside writ jurisdiction, an exception exists where the impugned action is arbitrary, violates statutory or regulatory norms, or infringes fundamental rights. “In such circumstances, the dispute ceases to remain confined within the domain of private law and assumes a public law character warranting judicial review”, the Court opined.

On merits, the Court relied on the judgments of the Supreme Court in ICICI Bank Ltd. v. Prakash Kaur and Citicorp Maruti Finance Ltd. v. S. Vijayalaxmi, which categorically deprecate the use of muscle men or coercive means for repossession of vehicles. The Court reiterated that such self-help measures are impermissible and contrary to the rule of law.

Applying these principles, the Court found that the allegations of forcible repossession had not been effectively rebutted by the firm and that no material was placed to demonstrate compliance with due process, such as issuance of prior notice or recourse to lawful recovery mechanisms.

“In the absence of such procedural safeguards, the action of the respondent cannot be sustained. The existence of a repossession clause in the loan agreement does not authorize the respondent to take law into its own hands. It is trite law that contractual terms cannot override constitutional guarantees or statutory protections. Any enforcement of contractual rights must necessarily conform to the overarching requirement of legality and due process”, the Court held.

It also noted that disputes regarding outstanding dues cannot justify unilateral and coercive action.

Taking into account that the vehicles constituted the primary source of livelihood of the petitioners, the Court held that such deprivation without due process directly infringes their rights under Articles 14, 19(1)(g), and 21 of the Constitution.

The High Court held that the action of the respondent in repossessing or attempting to repossess the vehicles through coercive means was illegal, arbitrary, and violative of constitutional and regulatory safeguards.

Accordingly, the Court directed restoration of possession of the vehicles, restrained further interference except through due process of law, and clarified that recovery of dues may be undertaken only in accordance with legally sanctioned procedures.

The writ petitions were accordingly allowed.

Case Name: Mohan Lal v RBI with Rajendra Singh v RBI

Case No.: Writ Petition Misc. Single No.2032 of 2023

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