Repossession under hire-purchase/loan agreement
Whether the transaction between a financier (eg. bank) and a purchaser/hirer is a hire purchase transaction or a loan transaction (collectively referred to as “finance”), is determined principally from the terms of the agreement. Under the former transaction/agreement, the financier is generally the (registered) owner of the vehicle in question till all the installment sums (eg. EMIs) and any other dues are repaid, which then gives the hire-purchaser the option to acquire outright ownership of the vehicle. Under a loan agreement, the financier is generally not the owner, but secures the loan amount through collateral or the power of seizure of the vehicle and its sale in case of loan repayment default, as also provided for in hire purchase agreements.
Where the power to repossess the financed vehicle is provided for in the terms of the agreement, these terms may also provide the manner in which such repossession will be undertaken, such as service of notice to the defaulter of such potential action.
Therefore, at the time of finance application and before agreement, it is prudent to carefully read all the terms of the finance, including whether the power to repossess is provided, when and in what manner it is required to be exercised.
Legal counter-measures
Action of repossession, including the manner (eg. service of notice), contrary to the terms of the agreement or on terms found unfair, may justify a consumer complaint under Consumer Protection Act 2019 by the dispossessed hire-purchaser/loanee.
It is settled law that the financier, on the strength of an agreement to take back possession of the vehicle, cannot do so by use of force. Where no such power of repossession is provided under any such agreement or transaction, the recovery of loans or seizure of vehicles can be done only through legal means i.e. judicial court processes.
Recovery of the vehicle by unauthorized agents (“recovery/collection agents”), or in a manner that is coercive, uses force or criminal in nature, may also warrant the registration of an immediate criminal complaint or FIR (“First Information Report”) with the local jurisdictional police against such agents and the financier.
Where such vehicle is repossessed by the financier and then subject to proceedings before a criminal court, the Hon’ble Karnataka High Court is of the view that interim custody of the vehicle should generally be granted to the registered owner and/or with prima facie superior possessory rights.
Legal information by Legalrisk – law, risk and AI
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