Petitioners Vikram Sharma and others filed PIL before the Hon’able Supreme Court stating therein -

"This petition is about the use of force by recovery agents of government banks and micro finance institutions. This is against the rule of law. The citizens of this country are suffering "

Matter had come before the apex court for admission of the above PIL Justice Rohinton Nariman told the advocate

 "The RBI has issued circulars for this very problem since 2003.”

"The circulars are not working. What we need is the enactment of some law, we need guidelines" the counsel pressed for law and guidelines

Court dismissed the petition but gave liberty to the petitioner to make a representation in this regard to the concerned ministry.

The above proceedings before the Apex Court confirm two things-

1.      There are  already guidelines issued by RBI in this regard through circular  issued as back as in 2003

2.      Supreme Court cannot issue a mandamus /Direction to legislature in the form of law.

Making law is the function of legislature and court interpret the law when some issue comes before the court. Interpretation so made by the  Apex court becomes precedent for the courts below in future cases of such nature as per article 141 of our constitution 

Supreme court has already delivered number of judgment on this issue . In the recent order in case of M/S Magma Fincorp Ltd. Versus Rajesh Kumar Tiwari Civil Appeal No. 5622 Of 2019 Delivered On 1^st October 2020 Held that

“ Financier Continues To Be Owner Of Goods Which Are Subject Of Hire Purchase Agreement Until Hirer Pays All Installments: Financier is not at fault by taking possession of the vehicle when the hirer does not make payment of instalments/hire charges in terms of the Hire Purchase Agreement.”said the Apex court

However, such repossession cannot be taken by recourse to physical violence, assault and/or criminal intimidation. Nor can such possession be taken by engaging gangsters, goons and muscle men as so called Recovery Agents", the court added.

In this case, the NCDRC and SCDRC had upheld District Forum's order directing the Financier to pay the Complainant the entire amount paid by the Complainant to the Financier towards instalments.
, The issues under consideration wer-

(1)    whether the Financier is the real owner of the vehicle which is the subject of a hire purchase agreement,

(2)     whether Financier IS legally entitled to  take repossession of the vehicle, when the hirer does not make payment of instalments in terms of the hire purchase agreement.

(3)     Whether service of proper notice on the hirer is necessary for repossession of a vehicle which is the subject of a hire purchase agreement 

In the present case SC observed that proper legal notice  as required under the agreement was not given to the complainant for which court held financer deficient in services imposing rs 15000/- as damages but did not agree to the finding of commissions below with order to refund entire amount paid through instalments to the financer .

 For understanding the law on the issue we can refer to number of cases already decided by the apex court earlier also

Supreme court said while deciding the matter of Suryapal Singh V Siddha Vinayak Motors & others SLP[Civil]No.5302/2012 decided on 21.02.2012

 

 “under the hire purchase agreement ,it is the financer who is the owner of the vehicle and the person who takes the loan retains the vehicle only as a bailee/trustee,therefore taking possession of the vehicle on the ground of non-payment of the instalments has always been upheld to be a legal right of the financer ”

 

The Financier continues to remain the owner of a vehicle, covered by a hire purchase agreement till all the hire instalments are paid and the hirer exercises the option to purchase. Thus, when the Financier takes re-possession of a vehicle under hire, upon default by the hirer in payment of hire instalments, the Financier takes repossession of the Financier's own vehicle.

The present case in hands the apex court has made clear about the policy in hire purchase matters through various judgment so far delivered In M/s Damodar Valley Corporation vs. State of Bihar SC ,21 November, 1960

 

 “Ordinarily, a contract of hire purchase confers no title on the hirer, but a mere option to purchase on fulfilment of certain conditions. But a contract of hire purchase may also provide for the agreement to purchase the thing hired by deferred payments subject to the condition that title to the thing shall not pass until all the instalments have been paid.”

Further in   Charanjit Singh Chadha And Ors. Vs Sudhir Mehra On 31 August, 2001  Supreme Court Of India Noted

 

“. Though in India the Parliament has passed a Hire Purchase Act, 1972, the same has not been notified in the official gazette by the Central Govt. so far. An initial notification was issued and the same was withdrawn later. The rules relating to hire purchase agreements are delineated by the decisions of higher courts. There are series of decisions of this Court explaining the nature of the hire purchase agreement and mostly these decisions were rendered when the question arose whether there was a sale so as to attract payment of tax under the Sales Tax Act. .”

It is further observed “the owner re-possessing the vehicle delivered to the hirer under the hire purchase agreement will not amount to theft as the vital element of 'dishonest intention' is lacking. The element of 'dishonest intention'  is an essential element to constitute the offence of theft."Dishonestly"—is Whoever does anything with the intention of causing wrongful gain to one person or wrongful loss to another person, is said to do that thing "dishonestly".

 

In the matter of  Sardar Trilok Singh & Ors. vs. Satya Deo Tripathi AIR 1979SC 850 it was observed by the honourable court was of a clear view that it cannot be a case of criminal offence if vehicle is re-possessed by he financer. On the well-settled principles of law, the criminal proceeding ought to have been quashed by the High Court in exercise of its inherent power. The dispute among the paties can purely be of a civil nature even assuming the factsof re-possession are  substantially correct.

 

According to the law laid down in the case of  In K.A. Mathai & Anr. vs. Kora Dibbikutty & Anr.1996(7)SCC212 .The hire-purchase agreement in law is an executory contract of sale and confers no right in rem on hire until the conditions for transfer of the property to him have been fulfilled. Therefore, the re-possession of goods as per the term of the agreement may not amount to any criminal offence.In that particular case , the financier took possession of the bus from the complainant with the aid of the appellants. It cannot thus be said that the appellants, in any way, had committed the offence of theft and that too, when criminal or  dishonest intention could not be pin-ponted.

 

Similar views were expressed earlier in Instalment Supply (Pvt.) Ltd. & Anr. vs. Union of India & Ors. ; and reiterated in Sundaram Finance Ltd. vs. State of Kerala &OTHERS AIR1966SC1178,Smt Lalmuni Devi V Stse Of Bihar &Others 1(2001)SLT 26

14. It is also to be noticed that learned author R.M. Goode, in his book Hire Purchase Law & Practice (Second Edn.) has observed as follows at page 846:-

 

"It would seem that so long as the hirer is in possession of the goods they belong to him for the purpose of the Act [The Theft Act, 1968] even though his possession is unlawful, e.g. because the hire-purchase agreement has come to an end. If the owner has an enforceable right to possession then he will not be guilty of theft in seizing the goods”

 

Answering this issue, the bench, referring to various precedents, summarized the principles regarding Hire Purchase transactions

1.      Under a Hire Purchase Agreement Goods are let out on hire, with an option to purchase, in accordance with the terms and conditions of the Hire Purchase Agreement. The hirer simply pays for the use of the goods and for the option to purchase them.

2        Until the option to purchase is exercised by the hirer, upon payment of all amounts agreed upon between the hirer and the Financier, the financier continues to be owner of the goods

3        When the agreement between the Financier and the hirer permits the Financier to take possession of a vehicle financed by the Financier and possession of the vehicle is taken, the Financier cannot be said to have committed theft.

4        Whether the transaction between a Financier and a purchaser/hirer is a hire purchase transaction, or a loan transaction, might be determined from the terms of the agreement, considered in the light of surrounding circumstances. However, even a loan transaction, secured by right of seizure of a financed vehicle, it confers licence to the Financier to seize the vehicle.

RE-possessing vehicle without Notice

The court observed:

1.      If the hire purchase agreement provides for notice on the hirer before repossession, such notice would be mandatory. Notice may also be necessary, if a requirement to give notice is implicit in the agreement from the course of conduct of the parties.

2.      If the hirer commits breaches of the conditions of a hire purchase agreement which expressly provides for immediate repossession of a vehicle without further notice to the hirer, in case of default in payment of hire charges and/or hire instalments repossession would not be vitiated for want of notice.

3.      In a case where the requirement to serve notice before repossession is implicit in the hire purchase agreement, non service of proper notice would tantamount to deficiency of service for breach of the hire purchase agreement giving rise to a claim in damages. The Complainant consumer would be entitled to compensatory damages, based on an assessment of the loss caused to the complainant by reason of the omission to give notice.

4.      Where there is no evidence of any loss to the hirer by reason of omission to give notice, nominal damages may be awarded.

Allowing the appeal, the bench set aside orders of the Consumer Forum/Commissions. The Financier was, however, directed to pay a composite sum of Rs.15,000/- to the Complainant towards damages for 'deficiency' in service and costs for omission to give the Complainant a proper notice before taking repossession of the vehicle.

Reference Case ;M/S Magma Fincorp Ltd. vs. Rajesh Kumar Tiwari

Case No Civil Appeal No. 5622 Of 2019 Decided on Oct 2020

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