Tuesday, February 21, 2023

LAW ON REPOSSESSION OF LOANED VEHICLE BY BANK

 

 


LAW ON REPOSSESSION OF LOANED VEHICLE BY BANK

 

The offshoot of development is a growing need and a desire of meeting such needs. That propels people to avail money from other sources. Obviously, as there are often gaps between the cost of availing of or meeting needs on immediate basis and available income, therefore, receiving loan is opted for. Even to further the entrepreneur desire also, people crave for loan. The wheel of development is thus based on the lending system of bank or financial institutions. The loan for vehicle, for instance are commonly availed of. However, sometime default occurs in repayment of installments, thereby, necessitating the need of retrieving of vehicle for recovery of sums. As the instances of forcible repossession of vehicles without taking recourse to law are found rampant on the part of financier, therefore, it was felt necessary that rules should be framed in accordance with law for such retrieval of loaned vehicle so that chaos is not caused and norms of a welfare society are not tinkered with. Once, vehicle is possessed by the financier, there are further rules for auction of the vehicles for receiving better value of the vehicles so retrieved.

Periodically, judgments are pronounced by courts and there has been Supreme Court guidelines in this regard. The High Courts have also released guidelines in sync with Supreme Court judgments. For instance, recently, in a matter captioned as M/S ICICI BANK LIMITED  versus NAVEEN KALKAL bearing no. CM (M) 1821/2019, the hon’ble Delhi High court has laid down guidelines based on earlier judicial precedents. To put it in perspective, in the above case, the ICICI bank had sought permission from the court which was under the custody of the bank for sell. The hearing in the trial court was getting adjourned, thus, the bank had to approach Delhi High Court. The application under Order LX Rule 1 of CPC was filed for appointment of Receiver for the purpose of sale. The possession of vehicle was received by the bank thereafter. The application was filed in the backdrop of respondent defaulting on repayment of loan. Pertinently, the bank had filed application under Order XXXIX Rule 6 of Code of Civil Procedure as well for, seeking sale of hypothecated vehicle.



FACTUAL MATRIX

To buttress the entire issue further, there was an agreement between the bank and respondent for financing of the vehicle. The recovery suit was filed by the bank along with an application under Order XL Rule 1 CPC, for appointment of a Receiver for the hypothecated vehicle, with power to sell and Receiver was appointed and the bank official had taken possession of the vehicle. Since the Defendant continued to not appear before the trial Court, hence, application under Order XXXIX Rule 6 CPC came to be filed by the Bank seeking permission to sell the vehicle. The application was not being heard and it was simply being adjourned.

Earlier, in M/s. ICICI Bank Ltd. v. Kamal Kumar Garewal, [FAO 49/2015, decided on 29th May, 2015], a ld. Single Judge of Delhi High Court has already passed directions as to the manner in which such cases are to be dealt with, especially in respect of loan transactions, where there is a default in payment. Despite guidelines, having been laid down, it was alleged that the Trial Courts did not follow the same and hearings were delayed. Considering that the value of vehicles is likely to deteriorate as time passes on and also considering that there is a steep maintenance cost on the Bank, for preservation of the vehicles, a ld. Single Judge of Delhi High Court under similar circumstances had passed the directions in M/s ICICI Bank Ltd.Vs kamal Garewal  (supra) and the same was reinforced in M/S ICICI BANK LIMITED  versus NAVEEN KALKAL which shall be dealt with.  

In view of the above guidelines which shall be delineated little later , it was held in ICICI Bank Vs Naveen (Supra) that the process and procedure for retrieval of vehicle and roles of Receiver has to be in sync with the directions for dealing with the vehicles and vehicle loans. In general, whenever the Court finds that the availing of the loan itself is admitted, either due to the payment of some installments or on the basis of documents, the Court can appoint a Receiver for taking the possession of the vehicle. The vehicle can be taken either from address given in the loan application or from any other location where it may be found. The directions given in above paragraphs can be prescribed as a general procedure to be followed for taking possession of the vehicle, precautions to be taken during the same, preservation of evidence as to the status of the vehicle and maintenance of the safe custody of the vehicle. The Court’s judgment above has also made adequate provisions for the payments by the Defendant, even after the possession is taken. If the payments are not made, a proper course of action would be permission for sale by public auction.

 


The Delhi High Court has thus held that procedure laid down in M/s ICICI Bank Ltd. (supra), thus, ought to be followed generally by the Trial Courts while dealing with the Banks’ suits, which involve vehicle loan. The preservation of the vehicle initially and thereafter permitting the public auction is essential in order to ensure that the value of the vehicle is not eroded and the Bank does not incur the additional expenses, maintenance for parking space etc. Thus, whenever the application for appointment of Receiver or for permission for sale are moved, the Trial Court shall consider the same expeditiously.

Under these circumstances, it was directed that the Bank would be entitled to sell the vehicle through a proper public auction with written notice to the Defendant. The notice would be served by way of speed post at the known address(es) of the Defendant, as also the location from where the possession of the vehicle was taken. The Defendant was also permitted to participate in the auction, in the manner explained in the judgment in M/s ICICI Bank Ltd. (supra). Once the auction has taken place, strictly in terms of the said judgment, a report shall be filed before the Trial Court for further proceedings.

It was also directed by the Delhi High Court the above order along with the judgment in M/s ICICI Bank Ltd. (supra) be circulated to all the District Judges, for proper circulation amongst all the Commercial Courts Judges and Civil Judges, to enable the courts to follow the broad procedure laid down therein. In cases of this nature, since public money is involved, all steps ought to be taken to ensure that recoveries to the extent possible, ought to be enabled in accordance with law.

In Icici Bank Ltd vs Kamal Kumar Garewal (Supra)  the Delhi High Court had dealt with the matter. In that case the learned Trial Court had issued the summons of the suit and notice of the application under Order XL Rule 1 of the Code of Civil Procedure to the respondent. The grievance of appellant before the High Court was that the learned Trial Court has not appointed the receiver to take over the possession of the vehicle at the time of issuing the summons to the respondent. The loan was sanctioned to the respondent who executed the following documents in favour of the appellant :-

(a) Credit facility application form along with the standard terms and conditions;

(b) Deed of hypothecation; and

(c) Irrevocable power of attorney.

 The respondent agreed to repay the loan with interest @ 12.50 % per annum in equal monthly installments. The loan was disbursed and dealer had delivered the vehicle to the respondent. After payment of first EMI, the respondent committed default for repayment of 46 EMIs. Vide a Notice dated 03rd December, 2014, the appellant recalled the loan and called upon the respondent to the pay total outstanding amount. The respondent did not comply with the aforesaid notice dated 03rd December, 2015 and on 27th January, 2015, the appellant instituted a suit for recovery of Rs.8,08,491.09 along with an application under Order XL Rule 1 of the Code of Civil Procedure for appointment of a Receiver for the hypothecated vehicle. On 27th January, 2015, the learned Trial court issued summons of the suit and notice of the application to the respondent returnable on 17th March, 2015. However, the learned Trial Court did not appoint the Receiver ex parte to take over the possession of the vehicle in question.

The outstanding of the respondent is Rs. 8,55,685.09 and the appellant had filed an application under Order XL Rule 1 of the Code of Civil Procedure for appointment of a receiver to take over the possession of the vehicle before the Trial Court and the appellant pressed that application at the time of issuing of summons. The respondent was alleged to be a chronic defaulter, who has defaulted in the payment of the EMIs to the appellant bank and it was p[rayed that if the ex parte order appointing the receiver is not passed, it would be very difficult for the appellant to recover the vehicle from the respondent. It was further prayed that after the receipt of the summons, the respondent was likely to remove the vehicle from his residence/office to make it difficult, if not impossible to trace the vehicle. It is further submitted that the delay in appointment of the receiver would also result in depreciation of the value of the vehicle. It was further contended that the delay in appointing the receiver has caused prejudice to the appellant, who became entitled to take over the vehicle in terms of the agreement at the time of recalling the loan. No reasons whatsoever was given by ld trial court for declining the appellant's prayer for appointment of an ex parte Receiver.

GUIDELINES FOR RETRIEVAL OF VEHICLES

The Delhi High Court on careful consideration of the matter has held that the appellant had made out a case for ex parte appointment of a Receiver. The appeal was accordingly allowed and representative of the appellant bank was appointed as Receiver to take the possession of Ritz Car. The directions to the Receiver by the hon’ble Delhi High Court in a matter captioned as M/S ICICI BANK LIMITED  versus NAVEEN KALKAL (supra) in sync with earlier judicial precedents are as under:-

(i)          The Receiver was directed to take over the possession of the vehicle from the respondent at the address(es) given in the loan application.

(ii)        If the vehicle was not available at the said address(es), the receiver shall be at liberty to recover the vehicle wherever found. However, the receiver shall not stop a running vehicle on the road to forcibly take out the driver to take the possession of the vehicle.

(iii)       The Receiver shall also not make any attempt to block the passage of a car to bring it to a halt to take its possession. The receiver shall avoid taking the possession of the vehicle if the vehicle is occupied by a woman who is not accompanied by a male member or an elderly, infirm or physically/mentally challenged person. In such cases, the receiver shall take the possession of the vehicle from the borrower's residence.

(iv)       The Receiver shall be at liberty to take the assistance of the local police, if required, for taking over possession of the vehicle. The concerned SHO shall provide assistance to the receiver as and when requested.

(v)         The receiver shall also ensure that the repossession of the vehicle does not result any breach of the peace. In the event of any breach of peace by the person occupying the vehicle, the receiver shall not proceed without assistance of police.

(vi)        At the time of taking the custody of the vehicle, the receiver shall take the photographs of the vehicle from different angles along with the person(s) occupying the vehicle as well as the place of taking over the possession.

(vii)      The Receiver shall prepare an inventory of the articles/accessories found in the vehicle and shall furnish the copy of the inventory to the person from whom the possession is taken.

(viii)    After taking the vehicle in possession, the receiver shall keep the vehicle in safe custody.

(ix)        If the respondent makes payment of the outstanding installments as on date of possession, the Receiver shall release the vehicle in question to the respondent on superdari subject to an undertaking by the respondent to the Receiver for regular repayment of future monthly installments till the expiry of the tenure and a declaration not to part with the vehicle or create third party interest in the vehicle until the entire amount is paid.

(x)         If the respondent is not in a position to clear the entire outstanding installments, the Receiver shall give him another opportunity to pay the outstanding installments within 30 days of taking over the possession of the vehicle and in case the respondent makes the payment the outstanding installments within the said period, the Receiver shall release the vehicle to the respondent subject to an undertaking as aforementioned.

(xi)       If the respondent does not make the payment of the outstanding amount to the appellant bank within 60 days, the Receiver, with the prior permission of the Trial Court, would be authorised to sell the vehicle in question in a public auction with prior written notice (to be sent by Speed Post AD) of the date of auction to the respondent at the address(es) mentioned in the loan agreement or the address from where the vehicle is taken into possession so that the respondent may also be able to participate in the auction to enable the appellant to fetch maximum amount from the sale of the vehicle.

(xii)   Whenever such an application for permission to auction the vehicle is made, the Trial Court shall adjudicate the same within 30 days of filing of the application. The Receiver shall carry out video recording of the auction proceedings and shall submit the same before the Trial Court along with his final report.

(xiii)  The receiver shall submit his first report before the Trial Court within 10 days of taking the custody of the vehicle along with the photographs and inventory mentioned above. The final report shall be submitted before the Trial Court within 10 days of the public auction along with the proceedings for public auction and video recording of the public auction.

CONCLUSION

The directions and guidelines in respect of retrieving the hypothecated vehicle in the event of loan default are now categorical and it will be unlawful for Police or a receiver so appointed to act contrary to the guidelines laid down by the courts. The guidelines are aimed at to enforce rule of law and to dissuade the Financial Institutions/Banker from adopting extra-legal manner and mandates the authorities to act as per law and strictly in sync with the guidelines. A bank or financial institutions approaches courts of law for loan default in order to retrieve the vehicle and sell that in open public auction, but the rights of the bank shall not be unqualified and the recourse to law shall have to be taken in sync with the guidelines as narrated above and rights of the defaulter shall also have to be accorded due consideration, so that undue harm is not caused to defaulter. In case the loan agreement contains arbitration clause, then, the Bank or Financial Institutions shall have to approach civil courts u/s 9 of Arbitration & Conciliation Act 1996 and interim measures can be passed by the courts and the further order, being arbitrable can be passed by Arbitrator so appointed in terms of the provision of the agreement between the parties. However, whether arbitration agreement existed or not or whether courts of law alone shall have the jurisdiction in absence of arbitration agreement, the fact remains that guidelines shall have to be followed for retrieval and disposal of hypothecated vehicles.

                                               -----------

                                       Anil K Khaware

                                                      Founder & Senior Associate

Societylawandjustice.com

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