Repossession Clause Doesn't Permit Banks To Take Law Into Their Own Hands; Vehicle Seizure Without Due Process Illegal: Uttarakhand HC

The Uttarakhand High Court has held that existence of a repossession clause in a loan agreement does not authorize a financial institution or its agents to take law into their own hands for recovery of dues.

The Court further reiterated that although disputes arising purely out of contractual obligations ordinarily may not warrant interference under Article 226, a writ petition would remain maintainable where repossession is alleged to have been carried out in an “arbitrary and high-handed manner in violation of due process and statutory safeguards”. Observing that enforcement of contractual rights must necessarily conform to legality and procedural fairness, the Court held that repossession of a vehicle through recovery agents without demonstrating compliance with due process is illegal and violative of Article 300A of the Constitution. On this basis, the Court directed restoration of possession of the vehicle to the petitioner.

Justice Pankaj Purohit was dealing with a writ petition filed against ICICI Bank and other private respondents challenging repossession of a commercial vehicle financed under a loan agreement.

The petitioner had availed a loan facility of Rs. 17.60 lakhs from the Bank in December 2019 for purchase of a commercial vehicle repayable through monthly instalments over a tenure of 67 months. Certain repayments were made towards the loan account, but disputes subsequently arose regarding the outstanding dues.

According to the record, respondent Nos.2 and 3 paid an amount of Rs.7,45,109/- to the Bank on 30.04.2024, following which the loan account was treated as subrogated in their favour. Thereafter, the vehicle was taken into possession on behalf of respondent Nos.2 and 3, giving rise to the present dispute.

The petitioner argued that the loan account had already been settled and yet the respondents forcibly repossessed the vehicle through recovery agents without following due process of law. Emphasis was also laid on the fact that the vehicle constituted the petitioner's primary source of livelihood and that no notice under the SARFAESI Act or other procedural safeguards had been complied with prior to repossession.

Challenge was also raised to the alleged assignment/subrogation of the loan account in favour of respondent Nos.2 and 3 on the ground that no valid assignment or notice thereof had been demonstrated. According to the petitioner, the action amounted to deprivation of property without authority of law in violation of Article 300A of the Constitution.

The Bank objected to the maintainability of the writ petition contending that the dispute arose out of a purely contractual transaction between private parties and involved disputed questions of fact. Further contentions were regarding the fact that the Bank did not constitute a 'State' within the meaning of Article 12 of the Constitution and hence no writ lies against it in matters of this nature.

The respondents further submitted that the borrower had defaulted in repayment of instalments and that after payment made by respondent Nos.2 and 3, the loan account stood validly subrogated/assigned in their favour. It was contended that repossession of the vehicle was carried out in accordance with the terms of the loan agreement.

The Court observed that the central issue was not merely the contractual relationship between the parties or the quantum of dues, but the legality and procedural propriety of the manner in which the vehicle had been repossessed.

Rejecting the objection regarding maintainability, the Court held that although contractual disputes ordinarily do not warrant interference under Article 226, “this rule is not absolute. A well-recognized exception exists where the impugned action is arbitrary, unfair, in violation of statutory or regulatory norms, or results in deprivation of property without authority of law. 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 further noted that allegations regarding repossession through recovery agents in violation of applicable recovery guidelines could not be treated as mere breaches of contract. “Such allegations, if established, cannot be treated as mere breaches of contract, but would amount to arbitrary and high-handed action. Considering that the vehicle in-question constitutes a source of livelihood, such action also has serious civil consequences.”, the Court held.

Placing reliance on ICICI Bank Ltd. v. Prakash Kaur and Citicorp Maruti Finance Ltd. v. S. Vijayalaxmi, the Court found that “respondents have not placed cogent material on record to demonstrate that possession of the vehicle was taken strictly in accordance with due process of law. Significantly, no material has been produced to indicate compliance with the procedural safeguards ordinarily required prior to repossession, including issuance of notice and affording opportunity to the borrower. In the absence of such material, the action of respondents in taking possession of the vehicle cannot be said to be in accordance with law”.

“The existence of a repossession clause in the loan agreement does not authorize the respondents to take law into its own hands. It is trite that contractual terms cannot override the requirement of legality and due process. Any enforcement of contractual rights must necessarily conform to law. Moreover, dispute regarding the quantum of outstanding dues remains contested. Such disputes require adjudication by competent forums on the basis of evidence and cannot justify unilateral action in the nature of repossession without following due process”, the Court said.

Consequently, the action of the respondents in repossessing or attempting to repossess the vehicle without due process of law was found to be illegal, unsustainable and violative of Article 300A of the Constitution.

Accordingly, the respondents were directed to forthwith restore possession of the vehicle to the petitioner and were restrained from interfering with the petitioner's possession except in accordance with due process of law. The Court clarified that the respondents would remain at liberty to recover their legitimate dues before the appropriate forum in accordance with law.

Case Name: Savitri Devi v ICICI Bank Limited and Ors

Case No.: Writ Petition Misc. Single No.481 of 2025

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