Magma Fincorp Ltd vs Naziya Parvin

Challenge in this Revision Petition, under Section 21(b) of the Consumer Protection Act, 1986, is to the order dated 10.07.2017, passed by the Uttar Pradesh State Consumer Disputes Redressal Commission at Lucknow (for short "the State Commission") in Appeal No. 488 of 2014. Vide the impugned order, the State Commission has allowed the Appeal in part; set aside the order dated 22.01.2014, passed by the District Consumer Disputes Redressal Forum, Sitapur (for short "the District Forum") in Complaint Case No. 116 of 2009; and directed Magma Fincorp Ltd. (for short "the Finance Company"), the Revision Petitioner herein, to pay to the Appellant/Complainant a sum of ₹1,53,952/-, with interest @ 9% p.a. on the said amount from the date of filing of the Complaint till payment. In the first instance, the District Forum had dismissed the Complaint, preferred by the Complainant.

Briefly put, the facts material to the case are that the Complainant, owner of Marshal Maxx vehicle, took a loan of ₹3,75,000/- from the Finance Company. He repaid a total sum of ₹2,34,000/- on different occasions, up-to 30.06.2009. It was averred that the subject vehicle was challaned on two occasions, i.e. 30.06.2007 and 17.07.2008; the Complainant had to spent substantial amounts in order to get the vehicle released; and, therefore, she could not repay 1-2 instalments on time. It was further pleaded that the Finance Company seized the vehicle from the driver of the Complainant in Village and Post Ataria, District Sitapur, U.P., without giving prior intimation to the Complainant. Despite several requests, the vehicle was not released and fearing that the Finance Company would auction the same, the Complainant approached the District Forum, seeking a direction to the Finance Company to return the vehicle to her, along with compensation and costs.

The Finance Company resisted the Complaint, admitting that the Complainant had availed a loan of ₹3,75,000/-. It was contended on its behalf that the Complainant never deposited the instalments on time and though the Complainant had to repay the dues in 47 instalments of ₹11,451/- each between 01.01.2006 and 31.08.2010, she had deposited only ₹3,48,589/- in total. It was averred that an amount of ₹1,00,569/- was still due against the Complainant. Despite several reminders, the Complainant did not pay the requisite instalments and, therefore, the Finance Company took possession of the vehicle and initiated the sale process. The Complainant was called upon to repay the amount due but she never turned up and ultimately the vehicle was sold at ₹1,10,000/- and the said amount was adjusted against the amount due from the Complainant. Hence, repossession of the vehicle was justified and no deficiency in service could be attributed to the Finance Company.

The District Forum, based on the evidence adduced, dismissed the Complaint on the ground that there was no deficiency in service on the part of the Finance Company.

Aggrieved with the said order, the Complainant preferred the Appeal before the State Commission. The State Commission allowed the Appeal in part. The finding of the State Commission is being reproduced verbatim, despite the fact that it is hopelessly translated. The same reads as follows:

"There is a force in the appeal filed by the appellant. And the judgment in question is liable to be set aside. As the vehicle in question has been sold off by the opposite party long ago the same cannot be brought back in the same condition. Thus, it will be in the interest of justice, to make opposite party pay the damages to the complainant/appellant. As per the calculation chart filed by the appellant alongwith the written facts, the cost of the vehicle in question was Rs.4,64,666/- in 2006 and the depreciated value of the same was Rs.2,85,363/- in 2009. In 2009 the remaining loan amount payable was Rs.1,31,411/-. Thus after subtracting, the payable loan amount of Rs.1,31,411/- from the depreciated value of the vehicle i.e. Rs.2,85,363/-, the remaining amount of Rs.1,53,953/- which the opposite party owes to the appellant must be returned to the appellant with interest."

Learned Counsel appearing for the Revision Petitioner submitted that notice prior to possession was given on 22.05.2009 and that the Complainant had never paid the instalments on time and, therefore, the subject vehicle was repossessed on 07.07.2009.

Learned Counsel appearing for the Complainant submitted that there was a change in the address of the Complainant; the same was communicated to the Finance Company; and that the notice was sent to the wrong address by the Finance Company. A perusal of the notice dated 22.05.2009, which has been filed by the Finance Company by way of additional documents, shows that the notice was sent to the Complainant at Bhithauli, Jankipuram, Sitapur Road, Lucknow, whereas her actual address, as arrayed in the cause title, is Village Gadhiya Hasanpur, Tehsil Sidhauli, District Sitapur, Uttar Pradesh.

Be that as it may, it is an admitted fact that the vehicle was repossessed on 07.07.2009 and the said notice is dated 22.05.2009. It is pleaded by the Complainant that the vehicle was repossessed by force, using musclemen, for which there is no rebuttal by the Finance Company.

The Hon'ble Supreme Court in ICICI Bank Ltd. Vs. Prakash Kaur, (2007) 2 SCC 711, in which a borrower got his truck financed by ICICI Bank and on default of the payments, her truck was repossessed by the Bank by using force and without issuing any notice, was of the view that instead of taking resort to strong arm tactics the Bank should follow the procedure recognised by law to take repossession of the vehicle in cases where the borrower has defaulted in payment of the instalments. It was also observed for many a time even notice is not given to the borrowers prior to repossession causing embarrassment to the borrower when it is ceased in public. In this judgement it is pertinent to note that Hon'ble Justice Altamas Kabir has observed that the procedure adopted by the Bank in removing the vehicle from the possession of the borrower was not at all appreciated. During the course of a separate judgement, Hon'ble Dr. Justice A.R. Laxmanan noted that the financer should follow RBI guidelines both in respect of lending and recovery which contemplate that no use of force or abuse should be used in recovery proceedings.

The banking procedure should be people-friendly at the same time strict in their enforcement and educative enough to guide the public of the benefits of prudent banking and saving at the same time, enlighten them on the pitfalls of borrowings or taking credit from institutions for various purposes, way beyond their means. The Hon'ble Justice concluded that we are all governed by rule of law in the country and the recovery of loan or seizure of vehicles could be done only through legal means. The same ratio was reinforced by the Hon'ble Supreme Court in Citicorp. Maruti Finance Ltd. Vs. S. Vijalaxmi IV (2011) CPJ 67 (SC), in which a Three Judge Bench of the Apex Court reiterated as under:

"We reiterate the earlier view taken that even in case of mortgaged goods subject to Hire Purchase Agreements, the recovery process has to be in accordance with law and the recovery process referred to in the Agreements also contemplates such recovery to be affected in due process of law and not by use of force. Till such time as the ownership is not transferred to the purchaser, the hirer normally continues to be the owner of the goods, but that does not entitle him on the strength of the Agreement to take back possession of the vehicle by use of force".

It is pertinent to note that the RBI has issued guidelines on 24.04.2008 DBOD. No. Leg. BC. 75/09.07.005/2007-08 with specific reference to 'Taking possession of property mortgaged / hypothecated to banks' which states as follows:

"(xii) In a recent case which came up before the Honourable Supreme Court, the Honourable Court observed that we are governed by rule of law in the country and the recovery of loans or seizure of vehicles could be done only through legal means. In this connection it may be mentioned that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Security Interest (Enforcement) Rules, 2002 framed thereunder have laid down well defined procedures not only for enforcing security interest but also for auctioning the movable and immovable property after enforcing the security interest. It is, therefore, desirable that banks rely only on legal remedies available under relevant statutes while enforcing security interest without intervention of the Courts.

(xiii) Where banks have incorporated a re-possession clause in the contract with borrower and rely on such re-possession clause for enforcing their rights, they should ensure that the re-possession clause is legally valid, complies with the provision of the Indian Contract Act in letter and spirit, and ensure that such repossession clause is clearly brought to the notice of the borrower at the time of execution of the contract. The terms and conditions of the contract should be strictly in terms of the Recovery Policy and should contain provision regarding (a) notice period before taking possession (b) circumstances under which the notice period can be waived (c) the procedure for taking possession of the security (d) a provision regarding final chance to be given to the borrower for repayment of loan before the same/ auction of the property (e) the procedure for giving repossession to the borrower and (f) the procedure for sale/ auction of the property".

It is also pertinent to note that the vehicle was sold on 04.08.2009, as per the submission of the Revision Petitioner herein before the District Forum. An application, seeking stay of the sale of the vehicle, was filed by the Complainant before the District Forum, which was taken up for hearing by the District Forum on 09.11.2009, on which date the Finance Company had submitted that the vehicle was sold on 04.08.2009. It is evident from the material on record that no notice prior to sale was issued to the Complainant. On a pointed query, the Counsel appearing for the Finance Company submitted that no notice was required to be sent prior to the sale of the vehicle, as there is no requirement stipulated as per the terms of the agreement.

The Hon'ble Supreme Court in the afore-stated cases has clearly laid down the law that prior to sale of the repossessed vehicle, in accordance with the principles of natural justice, the borrower has to be put to notice, so that he/she can exercise his/her option of making further payments and participating in the auction. Though the details of the procedure adopted for auction of the vehicle was specifically asked for, there was no explanation to the same by the Counsel appearing for the Finance Company. It is the contention of the Complainant that the vehicle was sold for a lesser value of ₹1,10,000/- and the Finance Company has not given any explanation about the mode and manner of the auction, in which the said vehicle was sold. For all the aforesaid reasons, this Revision Petition fails and is dismissed accordingly. No order as to costs.