The National Commission and the Supreme Court have repeatedly held that the rule of law must prevail and it is illegal to use musclemen to forcibly take repossession of a vehicle when the borrower or the hire purchaser fails to pay the installments.
Yet banks and finance companies continue to adopt strong-arm tactics to forcibly seize vehicles from borrowers who default in making payment.
In order to try and circumvent the law, they have introduced a clause in the agreement that the vehicle can be repossessed for default in repayment of the loan amount.
What is the validity of this clause?
This interesting issue was decided on February 11 by the bench of Justice Batta and Vinay Kumar of the National Commission in the case of IndusInd Bank v/s Birendra Kumar Sinha.
Case Study: Sinha had taken a loan from IndusInd Bank for purchase of a Tata truck. The loan was required to be repaid in 48 installments of Rs 27,500 each. In July 2007 the vehicle was forcibly repossessed by the bank. When Sinha asked for its release, he was asked to pay the entire outstanding loan.
Sinha filed a complaint before the Dhanbad district forum. During the pendency of the proceedings under the Consumer Protection Act, the bank initiated arbitration proceedings without the permission of the consumer forum, despite Sinha protesting against it. The bank also sold the vehicle in auction.
The district forum upheld the complaint, observing that repossession of the vehicle was illegal as Sinha had already paid Rs 1,23,000 and a balance of merely Rs 43,495 was outstanding. The bank's appeal to the Jharkhand State Commission was dismissed, upholding the order of the district forum.
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