'No Ownership Right': Gauhati High Court Upholds Refund Of Earnest Money To Third-Party Who Was Sold Vehicle During Subsistence Of Loan

The Gauhati High Court dismissed a woman's appeal against an order directing her to refund over ₹4 Lakh to a third party for sale of a truck which she had bought on a loan, holding that she could not have sold or transferred the vehicle to a third party when she had no ownership right over the vehicle.

The appellant had purchased a Tata truck on hire purchase agreement, but she failed to pay the instalments after 23.06.2011 to the finance company. A deed was executed between the appellant and the respondent that as there was an outstanding loan, the respondent would would pay Rs.13,500 as monthly instalments till clearance to the finance company.

For context, the trial court had allowed the respondent's suit against the appellant against which moved the appellate court. The appellate court had held that during the subsistence of the loan, the appellant could not have sold the vehicle to the 3rd party as she had no ownership or right over the vehicle and it is the finance company which is the owner of the vehicle. It was also held that the transfer of ownership of a vehicle is covered by Motor Vehicles Act and it is an admitted fact that the appellant had entered into an agreement of sale on 16.10.2012, during the subsistence of the loan. Against this order appellant had moved the high court.

Justice Susmita Phukan Khaund, presiding over the case, observed, “At the very outset, it can be held that this appeal is devoid of merits. The defendant miserably failed to refute the contentions of the appellant. Sound reasonings were ascribed while deciding the original money suit as well as the appeal. It is thereby held that the substantial question of law whether the money suit is sustainable in law is answered in the affirmative. The decision of the learned trial court was appropriate and so is the decision of the learned appellate court. It would be apt to reiterate that the execution of Exhibit -1 has not been disputed.”

“The irony is that the vehicle was seized in connection with a criminal case and handed over to the possession of the appellant/defendant, so when the appellant has not denied that she has returned the vehicle, the direction to recover the entire money Rs. 4,90,000/- by the plaintiff cannot be held to be infirm or erroneous. It has already been discussed … that the payment of Rs.4,90,000/- out of the agreed amount of Rs.8,00,000/- ( Rupees Eight lacs) has not been disputed or refuted by the defendant.,” Justice Khaund added.

The respondent (plaintiff in suit) had entered into an agreement with the appellant (defendant) for purchase of a truck for ₹8,90,000, of which ₹4,90,000 was paid to her as earnest money. The balance was to be paid directly to the Transport Finance Company in monthly instalments by the respondent. The agreement recited that the appellant had already paid ₹1 lakh to the finance company and the respondent would have to pay Rs. 1 lakh to the appellant which was in addition to the earnest money and on failure of the respondent to pay Rs. 1 lakh to the appellant, the earnest money of Rs. 4,90,000 shall be forfeited and the appellant shall have the right to take back the vehicle.

When the respondent approached the finance company to deposit an instalment, he discovered that only one instalment had been paid by the appellant and that outstanding dues remained. Alleging that the recital regarding payment of ₹1 lakh was false and that the agreement had been executed fraudulently during the subsistence of the hire-purchase loan, the respondent sought return of the amount paid filing a money suit. The appellant denied fraud and alleged non-performance by the plaintiff.

The court noted in its order that both courts below had accepted the testimony of the prosecution witnesses with respect to the failure of the appellant to clear the loan instalments and the subsistence of outstanding dues during the time when the agreement was executed.

The High Court reiterated, “According to the provisions of Section 23 of the Indian Contract Act 1972 ('Contract Act' for short) , fraudulent object of an agreement is not lawful and thus the agreement is void. It was held from the established fact that there was breach of contract on the part of the defendant. As per Section 73 of the Contract Act and on the allegation of suppression of material facts at the time of execution of the agreement, the suit was decreed with cost and the earnest money of Rs. 4,90,000/- was directed to be paid to the plaintiff with interest at the rate of 7% per annum.”

The Court held that the defendant's own admissions and the evidence on record established that the respondent had paid ₹4,90,000 to the appellant, and observed, “This is sufficient to prove on pre-ponderance of probabilities that the plaintiff is entitled to recover the amount of Rs. 4,90,000/- which has been paid to the defendant”

Finding no reason to interfere, the Court affirmed the concurrent findings and dismissed the appeal, upholding the decree directing refund of ₹4,90,000 to the respondent.

Case Title: Khurshida Ahmed v. Enuish Ali & Ors.

RSA/52/2023

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