2012 (7) TMI 105 - SC - Companies Law

Recovery of loan - mortgaged goods subject to hire-purchase agreements - cheques issued by the Respondent towards payment of the hire-charges were dishonoured on presentation vehicles recovered by use of force from the loanees Held that - recovery process has to be in accordance with law and the recovery process referred to in the Agreements also contemplates such recovery to be effected in due process of law and not by use of force - 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. By its order, the District Forum, directed the Appellant to pay a sum of Rs. 1,50,000/-, along with interest at the rate of 9% per annum, from the date of filing of the complaint till the date of payment, together with a further sum of Rs. 5,000/- towards harassment and cost of litigation. Aggrieved by the said order, the Appellant preferred Appeal before the State Commission, Delhi. By its order, the State Commission, Delhi, affirmed the order of the District Forum and directed payment of a further sum of Rs. 50,000/- on account of punitive damages. In the instant case, the situation is a little different, since after the vehicle had been seized, the same was also sold and third party rights have accrued over the vehicle. It is possibly on such account that the Appellant Bank chose to comply with the directions of the District Forum notwithstanding the pendency of this case. Since the Appellant Bank has already accepted the decision of the District Forum and has paid the amounts as directed, no relief can be granted to the Appellant.

Summary

Issues Involved:
1. Legality of the hire-purchase agreement and the recovery process.
2. Jurisdiction of the Consumer Forum in modifying the terms of the hire-purchase agreement.
3. Compliance with Reserve Bank of India guidelines on recovery processes.
4. Use of force in the recovery of hypothecated goods.
5. Impact of third-party rights on the recovery process.

Issue-wise Detailed Analysis:

1. Legality of the Hire-Purchase Agreement and the Recovery Process:
The judgment discusses the initiation of a hire-purchase agreement between the Appellant and the Respondent for a Maruti Omni Car, where the Appellant provided a hire-purchase facility of Rs. 1,82,396/-. The Respondent defaulted on payments, leading to the Appellant recalling the entire hire-purchase facility and subsequently taking possession of the vehicle. The Appellant contended that the recovery process followed was not in violation of the Reserve Bank of India regulations. The vehicle was sold to M/s Chin Chin Motors for Rs. 70,000/-, and the Respondent was informed of the sale and the adjusted outstanding dues.

2. Jurisdiction of the Consumer Forum in Modifying the Terms of the Hire-Purchase Agreement:
The Appellant argued that the Consumer Forum overstepped its jurisdiction by modifying the terms of the hire-purchase agreement. The Consumer Forum directed the Appellant to pay Rs. 1,50,000/- along with interest and additional costs for harassment and litigation. The State Commission affirmed this order and added Rs. 50,000/- as punitive damages, which was later modified by the National Commission to Rs. 10,000/- as costs. The Appellant contended that the Consumer Forum should not have questioned the validity of the hire-purchase agreement and that disputes on facts should be referred to Civil Court.

3. Compliance with Reserve Bank of India Guidelines on Recovery Processes:
The Appellant emphasized compliance with RBI guidelines and internal codes of conduct for recovery processes, emphasizing politeness and dignity. The guidelines included provisions for engaging recovery agents, the method of recovery, and the legal process for taking possession of hypothecated properties. The Appellant claimed that these guidelines were adhered to during the recovery process.

4. Use of Force in the Recovery of Hypothecated Goods:
The judgment reiterates the principle that recovery of hypothecated goods must be conducted in accordance with the law and not through the use of force. This principle was upheld in previous decisions such as Manager, ICICI Bank Ltd. v. Prakash Kaur. The judgment acknowledges that the Appellant had complied with the District Forum's order and that the recovery process should have followed due legal procedures.

5. Impact of Third-Party Rights on the Recovery Process:
The judgment notes that after the vehicle was seized, it was sold, and third-party rights accrued over the vehicle. This situation influenced the Appellant's decision to comply with the District Forum's directions despite the ongoing case. The judgment concludes that since the Appellant had already accepted the decision of the District Forum and paid the directed amounts, no further relief could be granted to the Appellant.

Conclusion:
The Supreme Court disposed of the appeals, emphasizing that recovery processes must adhere to legal procedures and guidelines. The judgment underscores the importance of due process and the limitations of consumer forums in modifying contractual terms. The compliance with RBI guidelines and the impact of third-party rights were also significant considerations in the judgment. The application for bringing on record the legal heirs of a respondent was dismissed as irrelevant due to the decision. No order as to costs was made.