Authority: Supreme Court of India (Civil Appellate Jurisdiction)
Order Date: 16 September 2026
Case Overview
- Parties: Appellant Hari Dutta Sharma vs. State of U.P. & Ors., with Cholamandalam Investment and Finance Company Limited (the Company) as the financier.
- Loan Details: On 25‑03‑2019, the appellant obtained a commercial vehicle loan of Rs 10,40,080.75; Rs 9,36,000 was initially disbursed and a supplementary loan of Rs 1,04,080.75 was extended on 12‑06‑2021. The loan was to be repaid in 75 monthly instalments and was secured by hypothecation of a Tata SFC 407 (Reg. No. UP‑16‑GT‑0449).
- Default & Notices: The appellant defaulted on repayments. A recall‑cum‑demand notice dated 17‑01‑2022 was issued. Subsequent notices dated 07‑07‑2022 and 22‑12‑2022 demanded payment or surrender of the vehicle. A pre‑seizure notice was sent to the SHO, Ayodhya Cantt on 09‑04‑2023.
- Alleged Illegal Repossession: The appellant claimed that on 09‑04‑2023, at about 01:00 a.m., four unidentified persons broke the vehicle’s steering lock and drove it away, without any notice. An e‑FIR and lost‑article report were lodged the same day; a further complaint was made on 08‑09‑2023 to the Superintendent of Police, Ayodhya.
- Sale of Vehicle: The Company issued a legal notice on 30‑09‑2023 stating that the vehicle had been sold on 31‑08‑2023 for Rs 4,50,000. The outstanding amount as of that date was Rs 5,71,914, leaving a balance of Rs 1,25,571 to be paid by the appellant.
- Criminal Complaint: The appellant filed a complaint under Section 156(3) of the CrPC before the Chief Judicial Magistrate, Ayodhya, which was dismissed on 23‑09‑2024 on the ground that the vehicle had been confiscated for default.
- High Court Proceedings: The appellant filed a writ petition in the Allahabad High Court. The Division Bench, by order dated 04‑04‑2025, dismissed the petition, holding that the vehicle had already been sold and that the appellant’s approach was belated.
- Supreme Court Submissions: Counsel for the appellant argued that the High Court erred by not considering the violation of Article 11 of the loan agreement, which mandates a seven‑day prior notice, and that the repossession was a forced, unlawful act. Counsel for the Company contended that the appellant was a chronic defaulter and that all procedural notices (pre‑seizure, inventory, post‑seizure, pre‑sale) had been duly served.
- Legal Analysis: The Court examined RBI guidelines on Fair Practices Code for lenders (issued 05‑05‑2003, 21‑11‑2005, 28‑09‑2006, and multiple Master Circulars up to 01‑07‑2015) prohibiting undue harassment, muscle‑power recovery, and mandating a notice period before repossession. It referenced precedents such as Orix Auto Finance (India) Ltd. v. Jagmander Singh (2006), Sundaram Finance Ltd. v. T. Thankam (2015), and ICICI Bank Ltd. v. Prakash Kaur (2007), emphasizing that repossession must be lawful and cannot be executed by force.
- Findings on Article 11: The Court held that Article 11 of the loan agreement, which allowed immediate forfeiture of the asset “ipso facto without any notice” and permitted the Company to enter any place to seize the asset, contravened RBI guidelines and the Indian Contract Act. No seven‑day notice was issued before the alleged repossession, and the manner of taking possession (breaking the steering lock at night) amounted to “goondaism”.
- Finding on Delay: The Court rejected the High Court’s dismissal on the ground of delay, noting that the appellant had lodged an FIR on the day of the incident and continued to receive traffic challans for the vehicle after its purported sale, indicating a genuine dispute requiring adjudication.
Final Outcome
- The impugned High Court order dated 04‑04‑2025 is quashed and set aside.
- The Company shall close both loan accounts of the appellant.
- The Company shall refund Rs 4,50,000 (sale price) to the appellant, with interest at 6% per annum from the date of sale until payment.
- The appellant is awarded Rs 10,00,000 as compensation for mental agony and loss of livelihood.
- The appellant is awarded costs of Rs 50,000.
- The Registry is directed to forward a copy of this judgment to the Reserve Bank of India, directing the RBI to ensure effective compliance with its Fair Practices Guidelines by NBFCs and Scheduled Commercial Banks.
Topics: Repossession Practices, RBI Fair Practices Guidelines, Consumer Compensation