The Patna High Court came down heavily on banks and financial institutions for repeatedly indulging in re-possessing vehicles forcibly through recovery agents and musclemen, despite the clear mandate of the Supreme Court. Consequentially, the bench 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 takes the law into their hands, intercepts the vehicles on the way, and takes possession of the vehicle in default without an order of the competent court of law.

Advocate Sanjay Kumar Pandey appeared for the petitioner, Senior Advocate Y.V. Giri appeared for the contesting respondents, and Advocate Abhinav Srivastava appeared as Amicus Curiae in the matter.

The bench also directed the Banks/Financial Institutions to pay a sum of Rs. 50,000/- (fifty thousand) as the cost of litigation to the respective writ petitioners within a period of 30 days.

“…The action of the contesting respondents in seizure/re-possess the vehicle without following the RBI guidelines and the law as also the judicial pronouncements on the subject is wholly illegal. It is in violation of law and deprive the petitioners of their fundamental rights of livelihood and the right to live with dignity which are included in Article 21 of the Constitution of India", a bench of Justice Rajeev Ranjan Prasad observed in the matter.

In this case, the batch of writ petitions contested a common grievance against the manner in which the petitioners' respective vehicles were seized and possessed by the Finance Companies (contesting respondents) without taking recourse to the process of law. The contesting respondents were Tata Motor Finance Limited, IndusInd Bank Limited, Shri Ram Finance Company, ICICI Bank, and the State Bank of India.

It was alleged that their respective vehicles which they had purchased with the financial assistance from these institutions were forcibly seized with the help of goons and musclemen of the contesting respondents during odd hours.

The petitioners relied upon the judgment of the Apex Court in ICICI Bank v. Shanti Devi Sharma & Ors, (2008) 7 SCC 532 in which such action by the Bank was held to be illegal. While further, relied on Sujay Kumar v. UCO Bank 2020(1) PLJR 583 wherein the High Court had declared the seizure of such nature to be illegal and had directed the financial institution to return the vehicle to the owner with the liberty to claim damage by the owner.

The bench also noted that in the earlier decisions, the Court had held that the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002). and the Rules framed thereunder are to be followed in the matter of seizure of the vehicles.

As per the submissions of the respondents:

- the Court can not entertain the present writ, as no part of the cause of action has arisen within the territorial jurisdiction of the Court;

-that the Banks and Finance Companies which are involved in the financing business are not a State or instrumentality of the State within the meaning of Article 12 of the Constitution of India, hence, no writ may be issued;

- the respondent Bank and Finance Company has an option either to re-possess the hypothecated vehicles in terms of the Loan Agreement and without taking recourse to court or to follow the procedure prescribed under the SARFAESI Act, 2002 and Rules framed thereunder.

The single-judge bench while relying on Magma Fincorp Ltd v. Rajesh Kumar Tiwari, (2020) 10 SCC 399 noted, "It is crystal clear from the aforementioned judgment that the Hon’ble Supreme Court’s judgment bans taking over possession by recourse to physical violence, assault and/or criminal intimidation. It completely bans taking such possession by engaging gangsters, goons and musclemen as so called recovery agents".

The Court further observed, "This Court is of the considered opinion that a recovery agent cannot 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 obtain appropriate order in accordance with law and such orders are required to be executed only in accordance with law".

It was further held that loan agreements, available on the record are at best creating a security interest in the vehicles which would be covered within the meaning of the words “Secured Asset” under the Act of 2002. "

"The covenants of the loan agreement providing for re-possessing the vehicle do not provide for a procedure in accordance with the provisions of the Act of 2002 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 cannot be allowed to take the law into their hands and enforce the loan agreement by violating the legislative mandate and the regulatory law such as as the Act of 2002", the judgment further read.

Constitutional Obligation- not to act in violation of Law

The bench while observing that the Banks and the Finance Companies are under a constitutional obligation not to act in violation of law, observed, “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. In this connection, this Court is tempted to reiterate that these are the rights conferred by Part III of the Constitution of India to ‘a person’ which are to be honoured by and also enforceable against, non-State actors. The private rights of the contesting respondents must be exercised within the constitutional limitations and in accordance with law”.

"While This Court, at this stage, must express its anguish on the conduct of the respondents who are acting in violation of law, the judgments of the Hon’ble Apex Court as well as in complete disobedience and disregard to the judgment of this Court. Despite the clear mandate of the Hon’ble Supreme Court that they cannot re-possess the vehicle forcibly through recovery agents, several repeated allegations are coming that these Banks and Financial institutions are indulged in repeatedly doing the same", the judgment added.

Thus the Court passed directions:

-that in all such cases where the vehicles have not been sold, the petitioners and the Bank/Financial Institution through it’s authorized representative to sit together and reconcile the account to determine the amount due in the loan account

-however, the Bank/Financial Institution shall not charge any interest for the period during which the vehicle remained in seizure and they will treat the Covid-19 period in accordance with lockdown notification.

- in cases where the vehicle has been sold to a third party and the Bank/Financial Institution is not in a position to restore the vehicle, they would be liable to pay the petitioners to the extent of the value of the vehicles as per their insurance value on the date of their seizure. The said amount shall be adjusted against the outstanding vehicle loan

Accordingly, the Court disposed of the writ petitions.

Cause Title: Dhananjay Seth v. Union of India

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