Banks/FIs Must Duly Follow Procedure Laid Down by RBI for Recovery of Loans/Repossession of Hypothecated Vehicles | HC

Case Details: Dhananjay Seth v. Union of India - [2023] 153 taxmann.com 212 (HC-Patna)

Judiciary and Counsel Details

• • Rajeev Ranjan Prasad, J.
  • Sanjay Kumar Pandey, Badri Narayan Singh, Manoj Kumar, Sushan Kumar Keshari, Anil Kumar Verma & Ms Indira Kumari, Advs. for the Petitioners.
  • Anuj Kumar, Adv., Manoj Kumar, AC to GP 24, Rajiv Kumar, Manoj Priydarshi, Advs., Anil Kumar Singh, (GP26), Y.V. Giri, Sr. Advs., Prabhakar Nath Rai, Adv., Dr Krishna Nandan Singh, (ASG), Md. Nadim Seraj, (GP5) & Ms Divya Verma, AC to AAG-3 for the Respondent.

Facts of the Case

In the instant case, the petitioners purchased their respective vehicles with financial assistance from respondent banks. The petitioners had committed a default in the repayment of EMI against their respective vehicle loan accounts. Thus, the Respondents, forcibly seized the vehicles while they were on their way and thereafter, respondents auctioned some of the vehicles.

In one case, bus passengers were compelled to de-board the bus on the way and then the vehicle was repossessed. While doing so, admittedly, the respondents neither followed the procedure prescribed under the SARFAESI Act and Rules framed thereunder nor gave any notice to the petitioners seeking to repossess the vehicle. The bank did not even allow the petitioners to know what the valuation of the vehicle was.

High Court Held

The High Court observed that the action of the respondents in the seizure/re-possession of the vehicle without following RBI guidelines and the law was wholly illegal and, hence, they could not continue with the same.

The High Court, further observed that it was in violation of the law and deprived the petitioners of their Fundamental rights of livelihood and the right to live with dignity, which is included in Article 21 of the Constitution of India.

The High Court also observed that where vehicles were not sold, petitioners and the bank through its authorized representative would sit together and reconcile the account to determine the amount due in the loan account. However, the bank would not charge any interest for the period during which the vehicle remained in seizure.

The High Court held that in cases where the vehicle had been sold to a third party and the bank was not in a position to restore a vehicle, they would be liable to pay the petitioners to the extent of the value of the vehicle as per their insurance value on the date of their seizure.

The High Court, further held that Banks/financial institutions are governed by guidelines issued by the Reserve Bank of India in the matter of appointment of recovery agents and procedures which are required to be followed in matters of recovery of loans and repossession/sale of hypothecated vehicles.

The High Court also held that banks and finance companies cannot act in conflict with fundamental principles and policy of India, which means that no person may be deprived of his livelihood and right to live with dignity without following established procedures of law.

Thus, the right to recovery of these banks and financial institutions if pitted against the constitutional right of life of a person to live with dignity, the constitutional rights of the person shall prevail.

List of Cases Reviewed

• • Kaushal Kishore v. State of Uttar Pradesh [2023] 4 SCC 1 (para 33)
  • Sujay Kumar v. UCO Bank 2020(1) PLJR 583 (para 63) followed.

List of Cases Referred to

• • Shivram Singh v. State of Bihar [CWJC No. 2808 of 2023, dated 18-4-2023] (para 2)
  • ICICI Bank v. Shanti Devi Sharma [2008] 7 SCC 532 (para 7)
  • Sujay Kumar v. UCO Bank 2020 (1) PLJR 583 (para 7)
  • Magma Fincorp Ltd. v. Rajesh Kumar Tiwari [2020] 10 SCC 399 (para 18)
  • Maganlal Chhaganlal (P.) Ltd. v. Municipal Corpn. of Greater Bombay [1974] 2 SCC 402 (para 18)
  • Kaushal Kishore v. State of Uttar Pradesh [2023] 4 SCC 1 (para 27)
  • P.D. Shamdasani v. Central Bank of India [1951] SCC 1237 (para 31)
  • Shrimati Vidya Varma v. Dr. Shiv Narain AIR 1956 SC 108 (para 31)
  • Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi [1975] 1 SCC 421 (para 31)
  • People’s Union for Democratic Rights v. Union of India [1982] 3 SCC 235 (para 31)
  • S. Rangarajan v. P. Jagjivan Ram [1989] 2 SCC 574 (para 31)
  • Nilabati Behera v. State of Orissa [1993] 2 SCC 746 (para 31)
  • Lucknow Development Authority v. M.K. Gupta [1994] 1 SCC 243 (para 31)
  • Bodhisattwa Gautam v. Subhra Chakraborty [1996] 1 SCC 490 (para 31)
  • M.C. Mehta v. Kamal Nath [1997] 1 SCC 388 (para 31)
  • Vellore Citizens’ Welfare Forum v. Union of India [1996] 5 SCC 647 (para 31)
  • M.C. Mehta v. Kamal Nath [2000] 6 SCC 213 (para 31)
  • Consumer Education and Research Centre v. Union of India [1995] 3 SCC 42 (para 31)
  • Vishaka v. State of Rajasthan [1997] 6 SCC 241 (para 31)
  • Githa Hariharan v. Reserve Bank of India [1994] 104 Taxman 220/236 ITR 380 (SC) (para 31)
  • Indian Medical Association v. Union of India [2011] 7 SCC 179 (para 31)
  • Society for Unaided Private Schools of Rajasthan v. Union of India [2012] 6 SCC 1 (para 31)
  • Jeeja Ghosh v. Union of India [2016] 7 SCC 761 (para 31)
  • Zee Telefilms Ltd. v. Union of India [2005] 4 SCC 649 (para 31)
  • Janet Jeyapaul v. S.R.M. University [2015] 16 SCC 530 (para 31)
  • Justice K.S. Puttaswamy v. Union of India [2017] 10 SCC 1(para 31
  • Juma Musjid Primary School v. Essay N.O. 2011 SCC Online JACC 13 (para 37)
  • Manager ICICI Bank Ltd. v. Prakah Kaur [2007] 2 SCC 711 (para 48).