Citicorp.Maruti Finance Ltd vs S.Vijayalaxmi

Commission, hereinafter referred to as the

"National Commission". By the said order, the

National Commission dismissed Revision Petition

No.737 of 2005, filed by the appellant herein

against the judgment and order dated 10th March,

2005, passed by the State Commission, Delhi. By

its order dated 27th July, 2007, the National

Commission modified the order of the State

Commission and set aside the part of the order

directing the Appellant to pay Rs.50,000/- on

account of punitive damages and further directed

the appellant to pay Rs.10,000/- as cost to the

complainant Respondent.

3. From the materials on record, it appears that

on 4th April, 2000, at the initiative of the

Respondent, a Hire-Purchase Agreement was entered

into between the Appellant and the Respondent

herein, to enable the Respondent to avail the

3

benefit of hire-purchase in respect of a Maruti

Omni Car. In accordance with the terms and

conditions of the Agreement, the Appellant granted

a hire-purchase facility to the Respondent for a

sum of Rs.1,82,396/-, which was repayable, along

with interest, in 60 equal monthly hire charges of

Rs.4,604/- each. Clause 2.1 of the Hire-Purchase

Agreement provides for payment of the hire charges

in the manner stipulated in the Schedule to the

Agreement and it also indicates that timely payment

of the hire charges was the essence of the

Agreement.

4. On the failure of the Respondent to pay the

hire charges in terms of the repayment schedule,

the Appellant sent a legal notice to the Respondent

on 10th October, 2002, recalling the entire hire-

purchase facility. It further appears that as many

as 26 cheques issued by the Respondent towards

payment of the hire-charges were dishonoured on

presentation. By the said legal notice, the

4

Respondent was informed that she had failed to

repay the hire charges according to the payment

schedule and had defaulted in honouring her

commitments towards repayment. She was requested to

make payment of the total amount of

Rs.1,31,299.44p. within 3 days from the date of

receipt of the notice.

5. It appears that subsequently, pursuant to a

request made by the Respondent, the Appellant, by

its letter dated 10th May, 2003, made a one-time

offer of settlement for liquidating the outstanding

dues of Rs.1,26,564.84p. for Rs.60,000/-, subject

to the payment being made by the Respondent by 16th

May, 2003, in cash. It was also specifically

mentioned in the offer that in the event the

Respondent delayed in making payment of the said

sum of Rs.60,000/- for whatever reason, the offer

would stand voided and the Appellant would be

entitled to claim from the Respondent the total

dues as on date.

5 6. Thereafter, in keeping with the terms and

conditions of the Hire-Purchase Agreement, the

Appellant took possession of the financed vehicle

and informed the concerned Police Station before

and after taking possession thereof from the

residence of the Respondent. According to the

Appellant, an inventory sheet was also prepared,

which was duly countersigned by the husband of the

Respondent. It is the Appellant's case that at the

time of taking possession of the vehicle, six

monthly instalments were overdue. On the same day,

the Respondent's husband wrote to the Appellant to

extend the time for paying the amount which had

been settled at Rs.60,000/- by way of a One-Time

Settlement. It is also the Appellant's case that

subsequent thereto, the date of the settlement

offer was extended as a special case, but despite

the same, the Respondent failed to pay the amount

even within the extended period. It is on account

of such default that the Appellant was constrained

6

to sell the vehicle after having the same valued by

approved valuers and inviting bids from interested

parties.

7. On 31st May, 2003, the Appellant entered into

an Agreement for sale of the vehicle with M/s Chin

Chin Motors which was the highest bidder, for a sum

of Rs.70,000/-.

8. Appearing for the Appellant Citicorp. Maruti

Finance Ltd., Mr. Ashok Desai, learned Senior

Advocate, submitted that the sale process followed

by the Appellant after taking possession of the

vehicle was not in violation of the Regulations

issued by the Reserve Bank of India. After the

vehicle was sold, the Appellant sent a post-sale

letter to the Respondent on 9th June, 2003,

informing her that the vehicle had been sold for

Rs.70,000/- and that the said amount had been

adjusted towards the total outstanding dues

amounting to Rs.1,21,920.48p. The Respondent was

7

also asked to pay the balance amount of

Rs.51,920.48p. which still remained due after

adjustment of the sale price of the vehicle.

9. In June, 2003, the Respondent filed Consumer

Complaint No.280 of 2003 before the Consumer

Disputes Redressal Forum, Sheikh Sarai, against the

Appellant alleging deficiency in service on their

part. The Appellant filed its reply to the said

complaint before the aforesaid Forum in August,

2003. Thereafter, the Respondent filed an

application to amend Consumer Complaint No.283 of

2003. The same was allowed and the amended

complaint was taken up for consideration. By its

order dated 22nd December, 2003, the District Forum-

VII, Sheikh Sarai, directed the Appellant to pay a

sum of Rs.1,50,000/-, along with interest at the

rate of 9% per annum, from the date of filing of

the complaint (16.6.2003) till the date of payment,

together with a further sum of Rs.5,000/- towards

harassment and cost of litigation.

8 10. Aggrieved by the said order, the Appellant

preferred Appeal No.65 of 2004 before the State

Commission, Delhi, on 30th January, 2004. By its

order dated 10th March, 2005, the State Commission,

Delhi, affirmed the order of the District Forum and

directed payment of a further sum of Rs.50,000/- on

account of punitive damages.

11. Aggrieved by the said order of the State

Commission, Delhi, the Appellant filed Revision

Petition No.737 of 2005 before the National

Commission in March, 2005, in which the stand taken

before the lower Fora was reiterated. It was also

indicated that the Appellants had followed the

letter and spirit of the Hire-Purchase Agreement

and had re-possessed the vehicle in terms of the

default clause in the Agreement. On 27th July,

2007, the National Commission, while dismissing the

Revision Petition modified the order of the State

Commission by setting aside that part of the

9

judgment directing the Appellant to pay Rs.50,000/-

on account of punitive damages. Instead, the

Commission directed the Appellant to pay a sum of

Rs.10,000/- to the Complainant/Respondent by way of

cost.

12. Appearing in support of the Appeal, Mr. Ashok

Desai, learned Senior Advocate, began his

submissions by posing a question as to whether the

High Court was justified in coming to a finding in

observing that the hire-purchase system or leasing

system was contrary to the interest of the society.

Referring to Clause 25 of the Hire-Purchase

Agreement dealing with events of default, Mr. Desai

submitted that Sub-Clause 25.1.1 provides that non-

payment of any monthly hire charges on the due date

as per terms of the Agreement, would amount to an

event of default and the consequences thereof were

set out in Clause 26 dealing with the Owner's

Rights On Default By Hirer. Since the said clause

10

is relevant to a decision in this case, the same in

its entirety is extracted hereinbelow :-

"26. OWNER'S RIGHTS ON DEFAULT OF HIRER

26.1 The occurrence of any/all of the

aforesaid events shall entitled the Owner

to terminate this Agreement. On such

termination, the entire sum of money

(inclusive of hire charges and all other

sums and charges of whatsoever nature,

including but not limited to, interests on

account of default of insurance premia and

on account of other taxes) which would

have been payable by the Hirer if the

agreement had run to its full terms, shall

become due and payable forthwith.

26.2 The owner, through its authorized

representatives, servants, agents, shall

have unrestricted right of entry in the

aforesaid events and shall not be entitled

to retake possession of the vehicle(s).

The Hirer shall be bound to return the

vehicle(s) to the owner at such location,

as the Owner may designate, in the same

condition in which it was originally

delivered to the Hirer (ordinary wear and

tear excepted). For the said purpose it

shall be lawful for the Owner forthwith or

at any time and without notice to the

Hirer to enter upon the premises, or

garage, or godown, where the vehicle(s)

shall be lying or kept and to take

possession or recover and receive the same

and if necessary to break open any such

place. The Owner will be well within his

rights to use tow-van to carry away the

11

vehicle(s). The Hirer shall not prevent or

obstruct the Owner from taking the

possession of the vehicle and shall be

liable to pay any towing charges or other

expenses incurred in this regard.

26.3 The Owner shall be in the aforesaid

events be entitled to sell/transfer/assign

the vehicle(s) either by public action or

by private treaty or otherwise. However,

the Owner shall however, be liable to pay

for any deficiencies after the said

appropriation. In case there is any

surplus after adjusting the dues of the

Owner, the same shall be paid to the

Hirer.

26.4 The Hirer shall not be entitled to

raise any objections regarding the

regularity of the sale and/or actions

taken by the Owner nor shall the Owner be

liable/responsible for any loss that may

be occasioned from the exercise of such

power and/or may arise from any act or

default on the part of any broker or

auctioneer or other person or body

employed by the Owner for the said

purpose.

26.5 The Owner shall be entitled to

recover from the Hirer all expenses

(including legal costs on full indemnity

basis) incurred by or on behalf of the

Owner in ascertaining the whereabouts, of

taking possession, insuring, transporting

and selling the vehicle and of any legal

proceedings that may be filed by or on

behalf of the Owner to enforce the

provisions of this agreement. It is

expressly clarified that the remedies

12

referred to hereinabove shall be in

addition to and without prejudice to any

other remedy available to the Owner either

under this agreement or under any other

Agreement or in law.

26.6 Without prejudice to the generality

of the foregoing words, the Hirer hereby

consents to the Owner disseminating to and

sharing with third parties (including

banks, financing entities, credit bureaus

of which the Owner is a member or any

statutory body or regulatory authority)

all information within the knowledge of

the Owner and pertaining to Hirer

(including credit history and credit

status of the Hirer) at any time as the

Owner may consider necessary or be

requested or directed to do."

13. Mr. Desai contended that in order to act in

accordance with the aforesaid clause, the Appellant

had framed its own Code of Conduct, wherein, the

guidelines as to how recovery of dues is to be

effected, has been laid down in great detail, with

the emphasis on politeness and treating the

customer with dignity. Mr. Desai submitted that it

had also been provided in the guidelines that any

breach of the conditions by the collecting agency

would attract punitive action.

13 14. Mr. Desai contended that the concept of hire-

purchase is just another form of bailment, where

the goods are held by the hirer in bailment till

such time as the ownership thereof is made over to

him. Mr. Desai also urged that the jurisdiction of

the Consumer Forum was to ensure that the Agreement

between the parties was duly executed, but it had

no jurisdiction to rewrite the terms of the

Agreement. In this regard, Mr. Desai submitted

that the Consumer Forum had gone beyond its

jurisdiction in settling and deciding the question

regarding the validity of the Hire-Purchase

Agreement itself. Learned counsel submitted that

the Reserve Bank of India had issued guidelines on

24th April, 2008 to all Scheduled Commercial Banks,

regarding the policy to be adopted by Banks in

engaging Recovery Agents for recovering their dues.

On the issue relating to the engagement of Recovery

Agents, the Banks were directed to take note of the

specific conditions set out in the guidelines in

14

that behalf. Clause 2(ii) makes it very clear that

Banks should have a due diligence process in place

for engagement of Recovery Agents, which should be

so structured to cover, among others, individuals

involved in the recovery process. Clause 2(ix)

relates to the method to be followed by Recovery

Agents and the Banks were advised to strictly

adhere to the guidelines/Code during the loan

recovery process. The said guidelines also

provided for the manner in which the possession of

mortgaged/hypothecated property is to be taken and

it was clearly indicated that the recovery of loans

or seizure of vehicles should be done through legal

process.

15. Mr. Desai also referred to a RBI Circular dated

24th April, 2009, on re-possession, clarifying the

manner in which vehicles financed by Non-Banking

Finance Companies (NBFCs) were to be recovered. Mr.

Desai pointed out that in the said guidelines, it

was indicated that NBFCs must have a built-in re-

15 possession clause in the contract/loan Agreement

with the borrower, which must be legally

enforceable. In order to ensure transparency, the

terms and conditions of the contract/loan Agreement

should also contain provisions regarding notice

period before taking possession; circumstances

under which the notice could be waived; the

procedure for taking possession of the security and

provision providing for a final chance to be given

to the borrower for repayment of the loan, before

proceeding with the sale or auction of the

property. Mr. Desai submitted that the said

guidelines had been duly embodied in the Hire-

Purchase Agreement and that the Appellant was, in

fact, taking steps, in accordance with such

provisions, to recover the hypothecated properties

in case of default.

16. Mr. Desai lastly contended that the Tribunal

was not entitled to modify the terms of the

Agreement which had been arrived at between the

16

parties and that when there was an acute dispute

relating to facts, the Tribunal, in this case the

National Commission, ought not to have gone behind

the terms of the Contract and should have instead

referred the parties to the Civil Court. It was

also observed that only in an appropriate case was

the Tribunal entitled to enter into the validity of

the terms of the contract. In support of his

submissions, Mr. Desai referred to the decision of

this Court in Bharathi Knitting Company Vs. DHL

Worldwide Express Courier [(1996) 4 SCC 704], where

the aforesaid principal has been considered and

explained. Mr. Desai submitted that the order of

the National Commission was erroneous and is liable

to be set aside.

17. Appearing for the Finance Industry Development

Council (FIDC), Ms. Haripriya Padmanabhan, learned

Advocate, submitted that the Council is a self-

regulatory organization registered with the Reserve

Bank of India and is governed by the guidelines

17

issued by the Reserve Bank of India from time to

time. Ms. Padmanabhan submitted that on 26th

October, 2007, this Court had in the present

proceedings expressed concern over the manner in

which loans by financial institutions were being

recovered. Learned counsel submitted that this

Court was particularly concerned with the procedure

adopted for recovery of such loan amounts by

financial institutions by alleged use of force,

despite the directions given by this Court in ICICI

Bank Ltd. Vs. Prakash Kaur [(2007) 2 SCC 711]. It

was submitted that the Reserve Bank of India had

formulated operational guidelines for adoption by

all commercial banks. Pursuant to the guidelines

of July, 2009, relating to Debt Collections

Standards in India, the Citibank had updated its

Code for collection of dues and re-possession of

security. It was submitted that the said

guidelines were detailed and expansive and

attempted to cover all the shortcomings in the

18

earlier guidelines in order to ensure that no force

was used for the purpose of effecting recovery of

the dues.

18. Mr. Prashant Kumar, learned Advocate, appearing

for the Appellants in the four Special Leave

Petitions filed by Mahindra & Mahindra Financial

Services Ltd., adopted the submissions of Mr. Ashok

Desai and Ms. Padmanabhan. He added that from the

month of September, 2009, the financial

institutions were following the process of

arbitration in order to recover its dues. Mr.

Prashant Kumar submitted that the matters in which

he was appearing do not contemplate the financial

institutions as the owner of the goods and the

transaction was a loan simplicitor. Consequently,

the said matters could not be treated on the same

footing as those which involved Hire-Purchase

Agreements. It was urged that although the

provisions of the SARFAESI Act, 2002, could be

applied in similar cases, the same would not apply

19

as far as the present cases were concerned, since

they constituted loan agreements in respect of

which either the normal civil or the arbitration

law would have application. It was further

submitted that if a loan had been taken against a

mortgage, the remedy on account of recovery would

be with the Civil Court in regard to the mortgaged

properties. In this regard, reliance was placed on

the decision of this Court in Sundram Finance Ltd.

Vs. State of Kerala [AIR 1966 SC 1178]. Reliance

was also placed on a decision of this Court in

Civil Appeal No.5993 of 2007 (Commissioner of

Central Excise Vs. Bajaj Auto Finance Ltd.), where

similar views have been expressed.

19. Reference was also made to Section 51 of the

Motor Vehicles Act, 1988, which makes special

provision in regard to motor vehicle which was

subject to a Hire-Purchase Agreement in cases

covered under a Hire-Purchase Agreement. In cases

covered under Hire-Purchase Agreements, provision

20

has been made for the Registering Authority to make

an entry in the Certificate of Registration

regarding the existence of such agreement. Clause

(b) of Section 51 provides for cancellation of such

an endorsement on proof of termination of the

agreement by the parties.

20. The last person to address us was Shri

Dharampal Yadav, Respondent No.1 in Special Leave

Petition (Civil) No.9550 of 2009 and Special Leave

Petition (Civil) No.10544 of 2009, who appeared in

person. He submitted that in most cases, the

various guidelines framed by the Reserve Bank of

India and the Bank themselves, were not followed

and more often than not the hypothecated goods,

mostly vehicles were forcibly taken possession of

by Recovery Agents hired by the financiers. Mr.

Dharampal Yadav submitted that the methodologies

adopted by the Recovery Agents were contrary to the

guidelines laid down by the Banks themselves and in

the decisions of this Court in several other

21

matters, where it has been uniformly indicated that

recovery would have to be effected in due process

of law and not by the use of muscle power.

21. Since during the pendency of the Special Leave

Petitions before this Court, the Appellant had

complied with the orders of the District Forum and

the National Commission had already set aside the

punitive damages imposed by the State Commission,

the reliefs prayed for on behalf of the Appellant

had been rendered ineffective and the submissions

were, therefore, channeled towards the question of

whether the fora below were right in holding that

the vehicles had been illegally and/or wrongfully

recovered by use of force from the loanees. The

aforesaid question has since been settled by

several decisions of this Court and in particular

in the decision rendered in ICICI Bank Ltd. Vs.

Prakash Kaur (supra). It is, not, therefore,

necessary for us to go into the said question all

over again and we reiterate the earlier view taken

22

that even in case of mortgaged goods subject to

Hire-Purchase Agreements, the recovery process has

to be in accordance with law and the recovery

process referred to in the Agreements also

contemplates such recovery to be effected in due

process of law and not by use of force. Till such

time as the ownership is not transferred to the

purchaser, the hirer normally continues to be the

owner of the goods, but that does not entitle him

on the strength of the agreement to take back

possession of the vehicle by use of force. The

guidelines which had been laid down by the Reserve

Bank of India as well as the Appellant Bank itself,

in fact, support and make a virtue of such conduct.

If any action is taken for recovery in violation of

such guidelines or the principles as laid down by

this Court, such an action cannot but be struck

down.

22. In the instant case, the situation is a little

different, since after the vehicle had been seized,

23

the same was also sold and third party rights have

accrued over the vehicle. It is possibly on such

account that the Appellant Bank chose to comply

with the directions of the District Forum

notwithstanding the pendency of this case.

23. Since the Appellant Bank has already accepted

the decision of the District Forum and has paid the

amounts as directed, no relief can be granted to

the Appellant and the Appeals are disposed of in

the light of the observations made hereinabove.

24. The application filed in Special Leave Petition

(Civil) No.10547 of 2009 on 26th August, 2011, for

bringing on record the legal heirs of the sole

respondent Shiv Nath Sareen is no longer relevant

on account of the aforesaid decision and the same

is, therefore, dismissed. The Appeals are also

disposed of in terms of the observations made

hereinabove.

25. There shall, however, be no order as to costs.

24 ...............................................................J.

(ALTAMAS KABIR)

...............................................................J.

(CYRIAC JOSEPH)

...............................................................J.

(SURINDER SINGH NIJJAR)

New Delhi

Dated: 14.11.2011