Employing muscle power to recover vehicle loans cannot be permitted in a civilised society where there is effective rule of law – procedure of law may be slow, but that is no excuse for use of force: National Consumer Commission
It is well known that the private banks use muscle power to recover loans. The National Consumer Redressal Commission in a recent order came down heavily on such barbaric methods of collection. What more, the Commission held that even the hire purchase agreement is ab initio void.
The Commission started its decision with some primary observations:-
1. When a vehicle is purchased by a person (consumer) by borrowing money from the money lender/financier/ banker, the consumer is the owner of the vehicle and not the money lender/financier/ banker, unless the ownership is transferred.
2. In a democratic country having well established independent Judiciary and having various laws it is impermissible for the money lender/financier/ banker to take possession of the vehicle for which loan is advanced, by use of force.
3. Legal or judicial process may be slow but it is no excuse for employing musclemen to repossess the vehicle for which loan is given. Such type of ‘instant justice’ cannot be permitted in a civilized society where there is effective rule of law. Otherwise, it would result in anarchy, that too, when the borrower retorts and uses the force.
4. A hire-purchase agreement is a normal one under which owner hires goods to another party called the hirer and further agrees that the hirer shall have an option to purchase the chattel when he has paid a certain sum, or when the hire-rental payments have reached the hire-purchase price stipulated in the agreement.
5. As against this, when a person desires to purchase vehicle/goods and not having sufficient money on hand, borrows the amount needed from a money lender/financier/ banker and pays it over to the vender of the vehicle, the transaction between the consumer and the money lender will unquestionably be a loan transaction. In such a case the vehicle purchased by the consumer is registered in the name of the consumer and remains at all material times so registered in his name. The consumer remains qua the world at large the owner and remains in possession of the vehicle. By an agreement the vehicle can be given as security for the loan advanced. In such a case, the right to seize the vehicle is merely a licence to ensure compliance with the terms of the so called hire purchase agreement.
6. Many financiers/banks are in race for giving loan for purchase of vehicles or various articles. After giving loan and taking interest in advance, the polite behaviour changes because of the documents which are signed on the dotted lines by the borrower. On occasions, borrower suffers harassment, torture, or abuses at the hands of the musclemen of the money lender. Such a behaviour is required to be prohibited and the process of repossession is required to be streamlined so as to fit in cultural civilized society. Let the rule of law prevail and not that of jungle where might is right.
7. In such cases, even the Police does not register the FIR or help the aggrieved consumer. In the present case, nothing has been done by the Police for years despite the complaint. In any case, taking of pound of flesh is required to be discouraged.
Now the facts of the case:-
The complainant, Smt.Vijayalaxmi, purchased Maruti Omni after taking a loan for a sum of Rs.1,82,396/ – from the petitioner. Thereafter, on the said loan amount, the petitioner included interest and directed the complainant to pay a sum of Rs.2,71,636/ – in 60 equal monthly installments of Rs.4,604/- each. One installment was paid in advance at the time of taking the loan.
She had paid installments to the Bank from May 2000 up to January 2003 but in January 2003, her husband met with an accident and, therefore, she was unable to pay some installments in time. Due to these circumstances, she requested the officials of the bank for one-time settlement. Thereafter, on 19.5.2003, one Mr. Sanjay, an agent of the Bank, came to her residence with a Settlement Letter dated 10.5.2003. As per the said letter, the complainant was required to pay, in all, a sum of Rs.60,000/- latest by 16.5.2003. After reading the said letter, the husband of the complainant pointed out to Mr. Sanjay, as to how the amount could be paid on 16th May, 2003, whereas the letter was received on 19th May, 2003. In response to this, Mr.Sanjay, stated that 14 days time was given for making the payment and a letter to that effect was also given.
Despite this, on 29.5.2003, at about 8 A.M., two persons came to her house stating that they have come from the Bank to collect the payment. She informed them about the letter received by her from Mr. Sanjay, the agent of the Bank, and that the amount was to be paid within 14 days. It is her say that, thereafter, the custody of the vehicle was taken by the said two persons and the Complainant and her husband were asked to accompany them to the bank. Further, facts stated by her reveal that some musclemen were appointed by the bank, to repossess the vehicle, who took away the van and her husband after asking her to get down.
Thereafter, the Complainant along with her husband went to Police Station, Vivek Vihar, New Delhi, to lodge a complaint about the forceful seizure of the vehicle. But, till date, the Police has neither registered any complaint nor taken any action.
The Complainants visited the office of the Opposite Party on 30th and 31st May, 2003 with the sum of Rs.60,000/- for depositing the same in the bank. They were asked to come again on 4.6.2003. There was no proper response. After two days, one Mr. Rajiv told them that the vehicle had already been sold by the Bank.
The Complainant further states that the Bank had sold the vehicle to M/s. Chinchin Motors for more than Rs.1lakh. Thereafter, the Chinchin Motors sold the same to one Mr. Navin of Vikaspuri, Delhi.
The complainant prays that a direction may be given to the bank to return the said vehicle or in the alternative, pay a sum of Rs.1,50,000/ – market value of the vehicle, Rs.1,00,000/ – as compensation for mental agony and harassment, to return the balance unpaid cheques and any other relief the Forum may deem fit.
The first question which requires determination is whether a financier is invested with the right to repossess the vehicle, for which loan has been given by it, by use of force.
The Commission observed:
1. We are a democratic country having well established independent Judiciary and having various laws, where musclemen are not to be encouraged for repos
sessing the hypothecated goods or vehicle for which hire purchase agreement is executed.
2. If musclemen are encouraged to repossess the property it will create lawlessness and the loanee who himself is in financial crisis would be helpless.
3. In a number of cases it is alleged that the vehicle of the musclemen follows the vehicle of the loanee to repossess the same by use of force. In one case, it is alleged that gunman was also accompanying such musclemen. In any case, it is impermissible for the money lender/financier/ banker to take possession of the vehicle for which loan is given, by use of force.
4. This unlawful and unethical procedure at the outset can be said to be against public policy and also against the protection of public interest.
5. Further, lawlessness cannot be encouraged on the alleged ground that recovery of money through litigation is a slow process or in some case is ineffective as alleged by the Petitioner.
6. Further, it is for the Legislature to find out ways of making the slow process faster and speedier, but the money lenders/financiers/ bankers cannot be allowed to take law in their own hands and repossess the vehicle on the ground that the loanee, who is in weak financial position fails to pay one or two installments.
Supreme Court’s views
The Apex Court had in a recent case remarked,
“A man’s self-respect, stature in society are all immaterial to the agent who is only primed at recovery. This is the modernized version of Shylock’s pound of flesh. No explanation is given regarding the interest charge and the bank takes cover under the guise of the holder of the card or loan having signed the agreement whose fine print is never read or explained to the owner.”
The Commission then observed,
Even though the hire-purchase agreement may give right to take possession of the vehicle, money lenders/financial institution/ banks have no power to take possession by use of force and have to follow the statutory remedy which may be available under the law.
May be that the procedure of law is slow, but that is no excuse for use of force for repossessing the vehicle. If the contention of the Petitioner that it can take possession of the vehicle by means of force is accepted the rule of jungle would prevail and might would be right.
The second question for consideration is: Whether the hire-purchase agreement is valid or non-est?
The Commission observed,
Hire purchase agreement in the first instance requires that the ownership of the goods shall lie with the owner; and, thereafter, letting the goods on hire to the consumer. That means, the person who passes the possession in goods to hirer, shall be the owner of the goods. But, when the consumer is himself the owner, in possession of the vehicle, there is no question of giving right of possession to him. Lending of money in such cases would simpliciter be giving loan to the consumer.
If that be so, is the so-called hire-purchase agreement entered into between the parties is non-est or void ab-initio?.
The Commission observed,
Admittedly, the money lender/financier/ banker is not dealing in purchase and thereafter hiring of vehicles. If the vehicle is purchased by the consumer in his own name; registered in his name; insurance is also taken by him (i.e. the consumer); earnest money is also paid by him, then, it is clear that ownership of the vehicle is that of the consumer.
Hence, if the Complainant is the owner of the vehicle and for purchase of such vehicle if money is borrowed from money lender/financier/ banker then, the nature of the agreement between the parties would be altogether different.
But, if the agreement is executed under the premises that the financier is the owner of the vehicle, such agreement is totally on the basis of misrepresentation/ misunderstanding of facts and law and such contract would be void as provided under Section 20 of the Indian Contract Act, 1872.
The said Section specifically provides that where both the parties to an agreement are under a mistake as to a matter of fact essential to the contract, the agreement is void.
The Commission concluded that
any clause in the agreement which gives unrestricted right of entry in the premises of the Complainant to take possession of the vehicle would be in violation of the established legal system in a civilized society and in some cases, it may amount to offences punishable under the Indian Penal Code.
The District Forum had ordered payment of Rs. 1,50,000 along with interest and Rs. 5000/- for mental harassment.
On appeal by the Bank, the State Commission imposed a punitive penalty of Rs. 50,000/- which was also to be paid to the complainant.
Now the national Commission confirmed the order of the District Forum and set aside the punitive damages imposed by the State Commission.
The Commission also made it clears that
1. The bank shall not be entitled to recover any amount from the Complainant on the basis that some amount remains unpaid in their books of accounts.
2. If any ante-dated cheques are remaining with the Petitioner, the same shall be treated as null and void and no action on that basis shall be taken by the Petitioner against the Complainant.
The bank was also asked to pay Rs. 10,000/- as costs to the complainant.