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Procedure for seizure of hypothecated vehicle
14-Jun-2024 (In Civil Law)
On January 31, 2017, we gave them a cheque for one EMI. However, the company did not present the cheque and seized the vehicle on February 8 in Jharkhand. They did not issue an inventory document. My 66-year-old father went to Jharkhand and stayed for one month to get the inventory list, but the company refused. They later sold the vehicle for just ₹4,30,000 and are now demanding ₹4,28,000 for loan closure.
When can a bank seize the vehicle? What are the RBI guidelines for vehicle seizure? What is the procedure for seizure of a hypothecated vehicle?
Banks/NBFCs can recover hypothecated vehicles either under the loan/hire'purchase contract (repossession clause) or by invoking the SARFAESI Act after classifying the account as NPA and issuing the statutory 60'day demand notice under Section 13; however repossession must be done lawfully without breach of the peace, and RBI rules require regulated entities to supervise recovery agents, adopt board'approved codes and prohibit harassment (RBI circular DOR.ORG.REC.65/21.04.158/2022'23, 12 Aug 2022) [https://www.rbi.org.in/scripts/FS_Notification.aspx'Id=12378] and the RBI Master Circular guidance on repossession clauses [https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx'id=8135]. The statutory route is Section 13 SARFAESI (enforcement of security interest; 60'day notice) [https://www.indiacode.nic.in/handle/123456789/2006'sam_handle=123456789%2F1362]. Judicially, the Supreme Court has condemned forcible seizures and use of musclemen and held repossession must follow legal procedure (Manager, ICICI Bank Ltd. v. Prakash Kaur, AIR 2007 SC 1349) [https://www.courtkutchehry.com/judgements/660028/manager-icici-bank-ltd-vs-prakash-kaur-and-others/] and confirmed a financier may be treated as owner under hire'purchase but repossession cannot be by violence (Magma Fincorp Ltd. v. Rajesh Kumar Tiwari, (2020) 10 SCC 399) [https://indiankanoon.org/doc/129687430/].
In India, a finance company can seize your vehicle for loan default, but only by following a proper legal process. They must first issue a default notice and give you a chance to repay. If you fail to pay, they can send a possession notice and then proceed with seizure, complying with rules under the SARFAESI Act, 2002 and RBI guidelines.
You have the right to dispute the seizure and can file an objection with the Debt Recovery Tribunal (DRT). If the vehicle is sold, you are entitled to a settlement report and any extra amount left after clearing the loan.but only by following a proper procedure:
- Issuance of Notice: The finance company must first issue a legal notice informing the borrower about the pending loan amount and the time frame for repayment.
- Response to Notice: The borrower has the right to negotiate a repayment plan or clear the dues within the stipulated time.
- Possession Notice: If dues remain unpaid, the finance company can issue a possession notice under the SARFAESI Act, 2002, stating that they will seize the vehicle.
- Filing an Objection:If the borrower disagrees with the seizure, they can file an objection with the Debt Recovery Tribunal (DRT) within 45 days.
- Vehicle Sale Process: If the borrower fails to repay or settle the loan, the lender may auction the vehicle, but they must issue an inventory document and follow RBI guidelines for vehicle seizure.
- Loan Closure: If the vehicle is sold, the borrower must receive a settlement report, and any excess amount after loan clearance must be refunded.
If the finance company seizes the vehicle without issuing proper notices or refuses to provide an inventory list, the borrower can file a complaint in the consumer court or civil court for violation of RBI guidelines.
43+
Adv. Chikirsha Mohanty
Delhi | 200+ Answers
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A bench of Justices Altamas Kabir, Cyriac Joseph, and S.S. Nijjar ruled that:
- Even if the loan is unpaid, the finance company cannot use force to seize the vehicle.
- Banks must follow RBI guidelines for vehicle seizure, ensuring that the recovery process follows due process of law.
- If any financier violates these guidelines, their actions can be challenged in court.
- File a case in consumer court for harassment and illegal seizure.
- Approach the Debt Recovery Tribunal (DRT) if the seizure was against legal norms.
- Request full loan settlement details and challenge the unfair loan balance demand.
24+
Adv. Siddhant Sharma
Adv. Siddhant Sharma
Delhi | 5+ Answers
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