Banks, Financial Institutions using recovery agents to forcibly seize vehicles over non-payment of loan is illegal: Patna High Court

Patna High Court: A Single Judge Bench of Rajeev Ranjan Prasad, J.* held that the action of the respondents, Banks/Financial Institutions in seizure/re-possessing the vehicle without following the RBI guidelines; the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’) and the judicial pronouncements on the aid subject was wholly illegal. It was in violation of law and deprived the petitioners of their fundamental rights of livelihood and the right to live with dignity which were included in Article 21 of the Constitution. The Court stated that since the action of the Banks/Finance Companies were found illegal, the petitioners in the present case should be entitled for the cost of litigation. Accordingly, the Court directed that each of the respondents, that is, Banks/Financial Institutions would be liable to pay a sum of Rs. 50,000 as cost of litigation to the respective petitioners.

Background

In the present case, the petitioners were aggrieved by the action of the respondents, namely, Tata Motor Finance Ltd., IndusInd Bank Ltd., Shri Ram Finance Company, ICICI Bank and State Bank of India. The petitioners’ grievance was that their respective vehicles which they had purchased with the financial assistance from these institutions had been forcibly seized with the help of goons and musclemen of the respondents during odd hours. The petitioners also had grievance against how their vehicles were seized and possessed by the respondents without recourse to the process of law. The petitioners sought directions for the respondents to hand over their respective vehicles.

Analysis, Law, and Decision

The Court noted that the petitioners were complaining of violation of their fundamental rights to earn their livelihood with dignity. They were complaining of ‘deprivation’ in the hands of the respondents without following the law and by use of force which could not be permitted in a State governed by rule of law. The Court stated that Article 21 of the Constitution guaranteed every person that he shall not be deprived of his life and liberty except according to the procedure established by law. The Court relied on Kaushal Kishore v. State of Uttar Pradesh, (2023) 4 SCC 1, wherein the Supreme Court held that Article 21 did not state that “the State shall not deprive a person of his life and liberty” but stated that “no person shall be deprived of his life or personal liberty”. Thus, this Court opined that the livelihood and all those aspects of life which come to make a man’s life meaningful, complete, and worth living were included within the meaning of the words “the Right to Life”.

The Court noted that in the present case the respondents had forcibly seized the vehicles while they were on the way. Admittedly the petitioners were the owners of the vehicle for which they had borrowed loan. The Court further noted that in one instance, the bus passengers were compelled to de-board the bus on way and then the vehicle was repossessed. While doing so, admittedly, the respondents had not taken recourse to the provisions of the SARFAESI Act, and the Rules framed thereunder. The deprivation, in the present case, the Court opined was not only by way of violation of the established procedure of law but was also against human dignity. The Court further opined that the action of the respondents was in contravention of the fundamental policy of the Indian Law, and it was in conflict with the most basic notions of justice. Thus, the Court rejected the contention of the Senior Counsel for the respondents that no writ application might be entertained against the respondents.

The Court opined that the respondents, while seeking their private power to recover the loan by repossessing the vehicle could exercise their rights only within the constitutional limitations. A law such as SARFAESI Act was a complete code unto itself and even the RBI guidelines had given much emphasis that where Banks had incorporated a repossessions clause in the contract with the borrower and rely on such repossession clause for enforcing their rights, they should ensure that the repossessions clause was legally valid, complied with the provisions of the Contract Act, 1872 in letters and spirit and ensured that such repossession clause was clearly brought to the notice of the borrower at the time of execution of the contract.

The Court noted that as per the RBI Guidelines, the terms and conditions of the contract should be strictly in terms of pre-recovery policy and should contain provisions regarding (a) notice period before taking possession; (b) circumstances in which the notice period can be waived; (c) the procedure for taking possession of the security; (d) a provision regarding final chance to be given to the borrower for repayment of loan before the sale/auction of the property; (e) the procedure for giving repossession of the policy; and (f) the procedure for sale/auction of the property. The Court further opined that in the present case, the respondents were unable to demonstrate from the records that the loan agreement contains the procedures to be followed.

The Court relied on ICICI Bank Ltd. v. Prakash Kaur, (2007) 2 SCC 711, wherein the Bank had recovered possession of the vehicles forcible and therefore, the Supreme Court directed the Bank to hand over the vehicles to the respective people from which they were recovered and held that “in case of default in payment of subsequent installments, the Bank would be entitled to repossess the vehicle in accordance with law”. The Court referred to Magma Fincorp Ltd. v. Rajesh Kumar Tiwari, (2020) 10 SCC 399, wherein the Supreme Court had “banned taking over possession by recourse to physical violence, assault and/or criminal intimidation. It also completely banned taking such possession by engaging gangsters, goons, and musclemen as so-called recovery agents”. Thus, this Court opined that “a recovery agent could not intercept a bus or a truck or a scorpio vehicle on way and direct the passengers to come down and leave the vehicle, unless they obtained appropriate order in accordance with law and such orders were required to be executed only in accordance with law”.

The Court further opined that “the loan agreement in the present case was at best creating a security interest in the vehicles which would be covered within the meaning of the words “Secured Asset” under the SARFAESI Act. The covenants of the loan agreement providing for re-possessing the vehicle did not provide for a procedure in accordance with the provisions of the SARFAESI Act and the Rules framed thereunder. In the garb of a power acquired by the financier under the loan agreement to re-possess the vehicle, they could not be allowed to take the law into their hands and enforce the loan agreement by violating the legislative mandate and regulatory law such as the SARFAESI Act”.

The Court opined that “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”. Thus, the Court held that the action of the respondents in seizing/repossessing the vehicle without following the RBI guidelines and the law and also the judicial pronouncements on the subject was wholly illegal. It was in violation of law and deprived the petitioners of their fundamental rights of livelihood and the right to live with dignity which were included in Article 21 of the Constitution.

Abhinav Srivastava, Amicus Curae submitted that the way these respondents were repeatedly acting in violation of law and taking the law into their hands, some stringent measures were required to be taken against them and they were liable to be proceeded against by instituting a contempt proceeding for showing their willful disobedience and dis-regard to the decision of this Court in Sujay Kumar v. Uco Bank, (2020) 1 PLJR 583, wherein this Court had “declared the seizure of a similar nature as illegal and ordered the financial institution to return the vehicle to the owner with liberty to claim damage by the owner. This Court also held that the SARFAESI Act and the Rules framed thereunder were to be followed in the matter of seizure of the vehicles”.

The Court directed that the Banks/Financial Institutions who were respondents in the present case must henceforth, exercise their power to seize and repossess the vehicle only in accordance with the provisions of the SARFAESI Act and the Rules framed thereunder and the RBI guidelines. The Court further directed the Superintendent of Police of all the districts in the State of Bihar, to ensure that within their jurisdiction no recovery agent of the Bank and Financial Institution might take the law into their hands, intercept the vehicles on way and takes possession of the vehicle in default without an order of the competent court of law. Further, the Court stated that since the action of the Banks/Finance Companies were found illegal, the petitioners in the present case should be entitled for the cost of litigation. Accordingly, the Court directed that each of the respondents, that is, Banks/Financial Institutions would be liable to pay a sum of Rs. 50,000 as cost of litigation to the respective petitioners.

[Dhananjay Seth v. Union of India, 2023 SCC OnLine Pat 1393, decided on 19-5-2023]

Advocates who appeared in this case:

For the Petitioners: Sanjay Kumar Pandey, Badri Narayan Singh, Manoj Kumar, Sushan Kumar Keshari, Anil Kumar Verma, Indira Kumari, Advocates;

For the Respondents: Manoj Kumar, AC to GP 24; Dr. Krishna Nandan Singh, ASG; Anil Kumar Singh, Gp26, Md. Nadim Seraj, Gp5; Divya Verma, AC to AAG-3; Y.V. Giri, Senior Advocate; Anuj Kumar, Rajiv Kumar, Manoj Priydarshi, Anil Kumar Verma, Prabhakar Nath Rai, Advocates.

*Judgment authored by: Justice Rajeev Ranjan Prasad