The Nainital Bench of the Uttarakhand High Court has asserted that where a Non-Banking Financial Company (NBFC) repossesses or attempts to repossess a financed vehicle through coercive means, without adherence to due process of law and in violation of RBI recovery guidelines, the action is not merely a contractual dispute but assumes a public law character and is amenable to writ jurisdiction under Article 226. Such coercive repossession is arbitrary, illegal, and violative of Articles 14, 19(1)(g), and 21 of the Constitution, and the creditor, even if entitled to recover dues under the contract, must do so only through lawful procedures before competent forums and not by self-help methods.
A Single Judge Bench of Justice Pankaj Purohit observed that the central issue was not merely the contractual relationship or the quantum of dues, but the legality, fairness, and procedural propriety of the manner in which the respondent financial institution proceeded to repossess or attempt to repossess the vehicles. It held that although contractual disputes ordinarily do not invite interference under Article 226, that rule is not absolute, and an exception applies where the impugned action is arbitrary, unfair, violative of statutory or regulatory norms, or infringes fundamental rights.
The Bench further observed that the petitioners had made specific allegations of forcible repossession through recovery agents in violation of RBI guidelines, and that if such allegations were established, the matter could not be treated as a mere breach of contract but as arbitrary and high-handed action offending Article 14. Since the vehicles were the petitioners’ primary means of livelihood, the Bench held that the action also directly affected their rights under Article 21 and Article 19(1)(g).
The Bench therefore rejected the preliminary objection on maintainability and held that RBI guidelines governing recovery practices are binding on NBFCs and are intended to secure fairness, transparency, and respect for the dignity of borrowers.
Reference was made to ICICI Bank Ltd. v. Prakash Kaur [(2007) 2 SCC 711] and Citicorp Maruti Finance Ltd. v. S. Vijayalaxmi [(2012) 1 SCC 1], to reiterate that employing recovery agents or musclemen for forcible repossession is wholly impermissible, and that even in cases of admitted default, repossession must be carried out strictly in accordance with law through legally sanctioned procedures.
The Bench found that the respondents had not effectively rebutted the serious allegations of forcible repossession and had produced no material showing prior notice, opportunity of hearing, or lawful recovery proceedings before a competent forum. The Bench also emphasized that a repossession clause in a loan agreement does not authorize the creditor to take law into its own hands, and that contractual terms cannot override constitutional guarantees or statutory protections.
The Bench also observed that disputes regarding the outstanding dues were contested and required adjudication by a competent forum on evidence, and could not be resolved through unilateral and coercive action by the creditor. It noted the socio-economic reality that the petitioners were transporters and the vehicles were their primary source of sustenance, and held that arbitrary deprivation of such assets without due process results in serious civil consequences and infringes the right to livelihood under Article 21.
Briefly, the two petitions involved similar issues concerning the legality of repossession of financed commercial vehicles by a Non-Banking Financial Company and the maintainability of petitions in such matters. In the first petition, Mohan Lal, a transporter, challenged the repossession of his goods vehicle financed by Indostar Capital Finance Limited under a loan of Rs. 31.40 lakhs repayable in 66 EMIs. He claimed to have paid Rs. 14.66 lakhs and alleged that only Rs. 1.84 lakhs remained due as on June 22, 2023, while an additional Rs. 47,994/- was arbitrarily added. He further alleged that on June 25, 2023, recovery agents forcibly intercepted the vehicle during a commercial consignment, removed the driver, and repossessed the vehicle without due process.
In the second petition, Rajendra Singh, also a transporter, challenged similar action in respect of his goods vehicle financed through a loan of Rs. 15 lakhs repayable in 44 monthly instalments. He asserted that he had already paid Rs. 18.64 lakhs and that only Rs. 1.77 lakhs remained due as on August 28, 2023, whereas an additional Rs. 60,067/- had been added without justification. He alleged forcible repossession or attempted repossession by recovery agents in violation of law and binding guidelines, affecting his livelihood.
Appearances:
Advocates Altaf Hussain and Aakib Ahmed, for the Petitioners
Advocate Dr. Kartikey Hari Gupta, for the Respondents
