Supreme Court Bars Forceful Vehicle Repossession

On Wednesday, a two-judge bench of the Supreme Court—Justices P S Narasimha and Alok Aradhe—held that banks and non-banking financial companies (NBFCs) may not employ strong-arm tactics or seize financed vehicles without adhering to legal safeguards. The judgment arose from an appeal by Hari Dutta Sharma, who had taken a commercial-vehicle loan of roughly INR10 lakh from Cholamandalam Investment and Finance Company Ltd. The court ordered the Reserve Bank of India (RBI) to ensure “genuine compliance” with its guidelines, master circulars, and clarifications for both scheduled commercial banks and NBFCs.

Hindustan Times

The court referenced the RBI’s “Fair Practices Code for Lenders” issued on May 5, 2003, which mandates that lenders avoid undue harassment in loan recovery. It also recalled its own February 26, 2007 decision in *Manager, ICICI Bank Ltd vs Prakash Kaur* that emphasized recovery must occur through legal means, not by employing “goondas.” These precedents frame the current directive that repossession must be preceded by proper notice and due process.

The Indian Express

Sharma alleged that on April 9, 2023, four unidentified persons broke his truck’s steering lock at about 1 a.m. in Ayodhya and drove the vehicle away without any prior notice. Consequently, the bench ordered compensation to Sharma for violation of his constitutional rights and directed the RBI to take effective steps to secure compliance with its recovery guidelines.

The Indian Express

• “It is well-settled in law that a financier’s right to take possession of the financed vehicle in the first instance is a matter of contract… They are what make it commercially feasible for institutions to extend credit, against the security of the very asset financed, to borrowers of modest means.” — Justice Aradhe

The Indian Express

The ruling reinforces borrowers’ entitlement to notice and lawful procedure before deprivation of the asset that generates their livelihood. For lenders, it clarifies that the contractual right to repossess a financed vehicle is subject to RBI-mandated safeguards and cannot be exercised as an “unbridled licence” to seize property. The Supreme Court’s directive to the RBI signals heightened regulatory oversight, aiming to balance efficient credit recovery with protection against oppressive recovery practices.

Hindustan Times