2020 (10) TMI 1347 - SC - Indian Laws

Hire purchase agreement - unfair trade practices - whether the Financier is the real owner of the vehicle which is the subject of a hire purchase agreement, and if so, whether there can be any impediment to the Financier, taking repossession of the vehicle, when the hirer does not make payment of instalments in terms of the hire purchase agreement - service of proper notice - HELD THAT - The Complainant has only made a vague assertion that the action of the Financier in taking possession of the vehicle, admittedly for default in payment of instalments, and in not releasing the vehicle to the Complainant, in spite of the Complainant s assurance to the Financier to clear outstanding instalments and pay future instalments timely, amounts to an act of unfair trade practice and constitutes deficiency of service - the deficiency has been defined in Section 2(1)(g) set out herein above, as any fault, imperfection or shortcoming or inadequacy in the quality, nature or manner of performance which is required to be maintained by or under any law, for the time being in force, or undertaken to be performed by a person, in pursuance of a contract or otherwise, in relation to any service. The hire purchase agreement, a copy of which is annexed to the Paper Book, clearly enabled the Financier to take possession of the vehicle, on default in payment of any of the instalments. There is no term in the Hire Purchase Agreement, that requires the Financier to give notice to the Complainant before terminating the Hire Purchase Agreement, upon breach of any term thereof, or before taking possession of the vehicle - the repossession of a vehicle under hire, in accordance with the terms and conditions of a hire purchase agreement, upon default in payment of hire instalments and refusal to release the same on mere assurance of the Complainant to clear outstanding arrears of hire instalments, and pay future instalments in time, does not constitute deficiency in service. The object of a notice before taking possession of a vehicle on hire under a Hire Purchase Agreement, is to enable the hirer, to make a written request to the Financier to revive the hire purchase agreement in terms of Clause 12 of the said agreement, upon payment of all outstanding dues together with damages, as might be mutually agreed upon - Such notice gives the hirer an opportunity to show that the hirer had not, in fact, committed any breach of agreement. For example, the hirer might be able to show that the Financier had erroneously omitted to give credit to the hirer for payments made, or had not presented a cheque in its possession for payment, even though there were sufficient funds in the concerned bank account of the hirer, to honour the cheque. The evidence to which the Complainant drew the attention of the District Forum is apparent from its judgment and order. The Complainant produced a delivery receipt in respect of the vehicle, some payment receipts, Insurance papers in respect of the vehicle, an FIR unconnected with the Financier and/or copies thereof and some documents relating to the filing of the Complaint and payment of Court Fees etc., none of which establish any deficiency of service or unfair trade practice on the part of the Financier - No adverse inference could have been drawn against the Financier for not producing the Hire Purchase Agreement before the District Forum, when there was no allegation in the complaint of breach by the Financier of the Hire Purchase Agreement, in taking possession of the vehicle. The District Forum did not exercise its power under Section 13(4)(ii) to call upon the Financier to produce the Hire Purchase Agreement. Even otherwise, the District Forum did not direct the Financier to produce the Hire Purchase Agreement. The Complainant has established that there was a discrepancy and/or error in the address of the Complainant in the notice for repossession, from which all the three fora under the Consumer Protection Act, 1986, that is the District Forum, the State Commission and the National Commission have concluded that possession of the vehicle was taken without notice. It was not the case of the Complainant that the vehicle was sold without notice to or knowledge of the complainant - the error and/or discrepancy in the address is minor and there are no materials on the basis of which the State Commission concluded that the error was deliberate. The finding of the State Commission, of the error in the address being deliberate, is unsubstantiated. Whether the transaction between a Financier and a purchaser/hirer is a hire purchase transaction, or a loan transaction, might be determined from the terms of the agreement, considered in the light of surrounding circumstances. However, even a loan transaction, secured by right of seizure of a financed vehicle, confers licence to the Financier to seize the vehicle - In this case, the agreement executed by and between the Financier and the Complainant is a Hire Purchase Agreement as will appear from the terms and conditions thereof. In any event, the fora under the Consumer Protection Act, have not arrived at any specific finding to the contrary. There is no discussion of the nature of the agreement between the Financier and the Complainant. Be that as it may, the agreement clearly permits the Financier to take possession of the vehicle, upon default in payment of instalments. In the instant case, there is no evidence of any loss suffered by the complainant by reason of non-receipt of notice. Admittedly, several instalments, remained unpaid. After repossession the complainant contacted the Financier and was informed of the reasons for the repossession. He only made an offer to pay outstanding instalments and gave an assurance to pay future instalments in time. If the Financier was not agreeable to accept the offer, the Financier was within its rights under the hire purchase agreement. This is not a case where payment had been tendered by the hirer but not accepted by the Financier/lender. The Complainant had not tendered payment - the District Forum was not justified in directing the Financier to pay the Complainant Rs.2,23,335/- being the entire amount paid by the Complainant to the Financier from the inception as well as the payment of Rs.1,04,000/- made by the Complainant to the dealer along with damage of Rs.10,000/- and litigation costs of Rs.1,000/after the Complainant had held and used the vehicle for almost a year. The Complainant, admittedly a defaulter, has in effect, been allowed free use of the vehicle for about a year, plus damages, for an error in the notice of repossession, without considering the prejudice, if any, caused to the complainant by the error and consequential non receipt of the notice, and without making any assessment of the loss, if at all, to the Complainant by reason of the error/omission. The impugned orders of the National Commission, the State Commission and the District Forum, under the Consumer Protection Act, 1986 cannot be sustained and the same are set aside - Appeal allowed.

Summary

Issues Involved:
1. Ownership and repossession rights under a hire-purchase agreement.
2. Necessity and consequences of proper notice before repossession.
3. Deficiency in service and unfair trade practices under the Consumer Protection Act, 1986.
4. Assessment of damages and compensation.

Detailed Analysis:

Ownership and Repossession Rights:
The primary issue was whether the financier is the real owner of the vehicle under a hire-purchase agreement and if they can repossess the vehicle upon the hirer's default in payment. The court affirmed that in a hire-purchase agreement, the financier remains the owner until all instalments are paid. The hirer only has the right to use the vehicle and an option to purchase it upon fulfilling the payment terms. The court cited precedents like *Charanjit Singh Chadha v. Sudhir Mehra* and *Anup Sarmah v. Bhola Nath Sharma* to support that the financier can repossess the vehicle upon default without committing theft or other offenses.

Necessity and Consequences of Proper Notice:
The court examined if proper notice to the hirer is necessary before repossession and the implications of failing to provide such notice. It was found that the hire-purchase agreement implicitly required notice before repossession, as evidenced by the financier's attempt to send a notice, albeit to an incorrect address. The court held that non-service of proper notice constitutes a deficiency in service, warranting compensatory damages. However, punitive damages should only be awarded in exceptional circumstances where the financier's actions are reprehensible.

Deficiency in Service and Unfair Trade Practices:
The court evaluated if the financier's actions amounted to deficiency in service or unfair trade practices under the Consumer Protection Act, 1986. The court concluded that repossession of the vehicle without proper notice, despite the hirer's default, constituted a deficiency in service. However, the complaint did not make out a case of unfair trade practice as defined under Section 2(1)(r) of the Act. The court emphasized that the onus of proof lies on the complainant to establish deficiency or unfair practices.

Assessment of Damages and Compensation:
The court criticized the lower forums for awarding excessive compensation and damages without assessing the actual loss suffered by the complainant due to the omission of proper notice. The court noted that the complainant had used the vehicle for almost a year and had defaulted on payments. The lower forums' orders were set aside as they did not consider the depreciation of the vehicle's value and the financier's right to repossess. Instead, the court awarded a composite sum of Rs. 15,000 to the complainant for the deficiency in service due to the improper notice.

Conclusion:
The Supreme Court allowed the appeal, setting aside the orders of the National Commission, State Commission, and District Forum. The court held that the financier, as the owner under the hire-purchase agreement, had the right to repossess the vehicle upon the hirer's default. However, the financier was directed to pay Rs. 15,000 to the complainant for the deficiency in service due to the failure to provide proper notice before repossession.