Patna High Court: Banks Barred from Seizing Vehicles by Force from Loan Defaulters

The Patna High Court recently passed a landmark judgment in the case of Dhananjay v UOI & Ors., wherein it was held that bank and financial institutions cannot forcibly re-possess vehicles from loan defaulters through recovery agents/goons.

This judgement was made in response to a batch of pleas from petitioners who had their vehicles seized without taking recourse to the process of law and by using goons and musclemen during odd hours.

Expressing his anguish over the action of the banks and finance companies, Justice Rajeev Ranjan Prasad noted that such seizure/re-possessing of vehicles without following the Reserve Bank of India (RBI) guidelines and the law on the subject, was wholly illegal.

He stated that the banks and the finance companies were under a constitutional obligation not to act in violation of law, and that they cannot act in conflict with the fundamental principles and policy of India which means that no person may be deprived of his livelihood and the right to live with dignity without following the established procedure of law.

The petitioners sought a direction to the contesting respondents to hand back the vehicles with all papers, along with compensation for loss of reputation. The Court had to decide whether the respondents could successfully enforce the clause in the loan agreement that allows for the seizure of vehicles in the event of default. It was held that the respondents, while seeking their private power to recover the loan by repossessing the vehicle, can exercise their rights only within constitutional limitations. The Court also made it clear that the banks and financial institutions cannot take the law into their own hands and enforce the loan agreement by violating the legislative mandate and the regulatory law.

On the issue of whether the banks and financial institutions had forcibly seized or repossessed the vehicles, the Court left it to the investigating agency to look into the petitioners complaints and conduct an independent, lawful investigation. The petitioners who were forced to contest the present matter were also awarded costs because the banks and finance companies actions were illegal. The Court directed that each of the contesting respondents i.e. Banks/Financial Institutions would be liable to pay a sum of ₹50,000 as cost of litigation to the respective writ petitioners within a period of 30 days from the date of receipt/production of a copy of this judgment.

The Court’s ruling in this case is a major victory for loan defaulters as it ensures that their constitutional rights to life and livelihood are respected. This judgment also serves as an important reminder that banks and financial institutions cannot take the law into their own hands, and must adhere to the established procedures of law while seeking to enforce their rights.(alert-success)