REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.9711 OF 2011

(Arising out of SLP(C) No.19314 of 2007) CITICORP. MARUTI FINANCE LTD. …   Appellant   

Vs. S. VIJAYALAXMI …   Respondent

WITH     C.A.NO.9712/2011 @ SLP(C)NO.3119/2008,     C.A.NO.9713/2011 @ SLP(C)NO.9550/2009,     C.A.NO.9714/2011 @ SLP(C)NO.10544/2009,     C.A.NO.9715/2011 @ SLP(C)NO.11696/2009 &     C.A.NO.9716/2011 @ SLP(C)NO.10547/2009.

J U D G M E N T ALTAMAS KABIR, J.

1. Leave granted.

2. SLP(C)No.19314 of 2007, which is being heard  

along with SLP(C)No.3119 of 2008, SLP(C)Nos.9550,  

10544, 11696 and 10547 of 2009, is directed against

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the judgment and order dated 27th July, 2007, passed  

by  the  National  Consumer  Disputes  Redressal  

Commission,  hereinafter  referred  to  as  the  

“National  Commission”.   By  the  said  order,  the  

National  Commission  dismissed  Revision  Petition  

No.737  of  2005,  filed  by  the  appellant  herein  

against  the  judgment  and  order  dated  10th March,  

2005, passed by the State Commission, Delhi.  By  

its  order  dated  27th July,  2007,  the  National  

Commission  modified  the  order  of  the  State  

Commission  and  set  aside  the  part  of  the  order  

directing  the  Appellant  to  pay  Rs.50,000/-  on  

account of punitive damages and further directed  

the appellant to pay Rs.10,000/- as cost to the  

complainant Respondent.

3. From the materials on record, it appears that  

on  4th April,  2000,  at  the  initiative  of  the  

Respondent, a Hire-Purchase Agreement was entered  

into  between  the  Appellant  and  the  Respondent  

herein,  to  enable  the  Respondent  to  avail  the

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benefit  of  hire-purchase  in  respect  of  a  Maruti  

Omni  Car.  In  accordance  with  the  terms  and  

conditions of the Agreement, the Appellant granted  

a hire-purchase facility to the Respondent for a  

sum of Rs.1,82,396/-, which was repayable, along  

with interest, in 60 equal monthly hire charges of  

Rs.4,604/- each.  Clause 2.1 of the Hire-Purchase  

Agreement provides for payment of the hire charges  

in the manner stipulated in the Schedule to the  

Agreement and it also indicates that timely payment  

of  the  hire  charges  was  the  essence  of  the  

Agreement.   

4. On the failure of the Respondent to pay the  

hire charges in terms of the repayment schedule,  

the Appellant sent a legal notice to the Respondent  

on 10th October, 2002, recalling the entire hire-

purchase facility.  It further appears that as many  

as  26  cheques  issued  by  the  Respondent  towards  

payment  of  the  hire-charges  were  dishonoured  on  

presentation.   By  the  said  legal  notice,  the

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Respondent  was  informed  that  she  had  failed  to  

repay  the  hire  charges  according  to  the  payment  

schedule  and  had  defaulted  in  honouring  her  

commitments towards repayment. She was requested to  

make  payment  of  the  total  amount  of  

Rs.1,31,299.44p.  within  3  days  from  the  date  of  

receipt of the notice.

5. It  appears  that  subsequently,  pursuant  to  a  

request made by the Respondent, the Appellant, by  

its letter dated 10th May, 2003, made a one-time  

offer of settlement for liquidating the outstanding  

dues of Rs.1,26,564.84p. for Rs.60,000/-, subject  

to the payment being made by the Respondent by 16th  

May,  2003,  in  cash.   It  was  also  specifically  

mentioned  in  the  offer  that  in  the  event  the  

Respondent delayed in making payment of the said  

sum of Rs.60,000/- for whatever reason, the offer  

would  stand  voided  and  the  Appellant  would  be  

entitled  to  claim  from  the  Respondent  the  total  

dues as on date.  

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6. Thereafter,  in  keeping  with  the  terms  and  

conditions  of  the  Hire-Purchase  Agreement,  the  

Appellant took possession of the financed vehicle  

and informed the concerned Police Station before  

and  after  taking  possession  thereof  from  the  

residence  of  the  Respondent.   According  to  the  

Appellant, an inventory sheet was also prepared,  

which was duly countersigned by the husband of the  

Respondent.  It is the Appellant’s case that at the  

time  of  taking  possession  of  the  vehicle,  six  

monthly instalments were overdue.  On the same day,  

the Respondent’s husband wrote to the Appellant to  

extend the time for paying the amount which had  

been settled at Rs.60,000/- by way of a One-Time  

Settlement. It is also the Appellant’s case that  

subsequent  thereto,  the  date  of  the  settlement  

offer was extended as a special case, but despite  

the same, the Respondent failed to pay the amount  

even within the extended period.  It is on account  

of such default that the Appellant was constrained

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to sell the vehicle after having the same valued by  

approved valuers and inviting bids from interested  

parties.   

7. On 31st May, 2003, the Appellant entered into  

an Agreement for sale of the vehicle with M/s Chin  

Chin Motors which was the highest bidder, for a sum  

of Rs.70,000/-.   

8. Appearing  for  the  Appellant  Citicorp.  Maruti  

Finance  Ltd.,  Mr.  Ashok  Desai,  learned  Senior  

Advocate, submitted that the sale process followed  

by  the  Appellant  after  taking  possession  of  the  

vehicle  was  not  in  violation  of  the  Regulations  

issued by the Reserve Bank of India.  After the  

vehicle was sold, the Appellant sent a post-sale  

letter  to  the  Respondent  on  9th June,  2003,  

informing her that the vehicle had been sold for  

Rs.70,000/-  and  that  the  said  amount  had  been  

adjusted  towards  the  total  outstanding  dues  

amounting to Rs.1,21,920.48p.  The Respondent was

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also  asked  to  pay  the  balance  amount  of  

Rs.51,920.48p.  which  still  remained  due  after  

adjustment of the sale price of the vehicle.

9. In June, 2003, the Respondent filed Consumer  

Complaint  No.280  of  2003  before  the  Consumer  

Disputes Redressal Forum, Sheikh Sarai, against the  

Appellant alleging deficiency in service on their  

part.  The Appellant filed its reply to the said  

complaint  before  the  aforesaid  Forum  in  August,  

2003.   Thereafter,  the  Respondent  filed  an  

application to amend Consumer Complaint No.283 of  

2003.   The  same  was  allowed  and  the  amended  

complaint was taken up for consideration.  By its  

order dated 22nd December, 2003, the District Forum-

VII, Sheikh Sarai, directed the Appellant to pay a  

sum of Rs.1,50,000/-, along with interest at the  

rate of 9% per annum, from the date of filing of  

the complaint (16.6.2003) till the date of payment,  

together with a further sum of Rs.5,000/- towards  

harassment and cost of litigation.

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10. Aggrieved  by  the  said  order,  the  Appellant  

preferred  Appeal  No.65  of  2004  before  the  State  

Commission, Delhi, on 30th January, 2004.   By its  

order dated 10th March, 2005, the State Commission,  

Delhi, affirmed the order of the District Forum and  

directed payment of a further sum of Rs.50,000/- on  

account of punitive damages.   

11. Aggrieved  by  the  said  order  of  the  State  

Commission,  Delhi,  the  Appellant  filed  Revision  

Petition  No.737  of  2005  before  the  National  

Commission in March, 2005, in which the stand taken  

before the lower Fora was reiterated.  It was also  

indicated  that  the  Appellants  had  followed  the  

letter and spirit of the Hire-Purchase Agreement  

and had re-possessed the vehicle in terms of the  

default  clause  in  the  Agreement.   On  27th July,  

2007, the National Commission, while dismissing the  

Revision Petition modified the order of the State  

Commission  by  setting  aside  that  part  of  the

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judgment directing the Appellant to pay Rs.50,000/-  

on  account  of  punitive  damages.  Instead,  the  

Commission directed the Appellant to pay a sum of  

Rs.10,000/- to the Complainant/Respondent by way of  

cost.   

12. Appearing in support of the Appeal, Mr. Ashok  

Desai,  learned  Senior  Advocate,  began  his  

submissions by posing a question as to whether the  

High Court was justified in coming to a finding in  

observing that the hire-purchase system or leasing  

system was contrary to the interest of the society.  

Referring  to  Clause  25  of  the  Hire-Purchase  

Agreement dealing with events of default, Mr. Desai  

submitted that Sub-Clause 25.1.1 provides that non-

payment of any monthly hire charges on the due date  

as per terms of the Agreement, would amount to an  

event of default and the consequences thereof were  

set  out  in  Clause  26  dealing  with  the  Owner’s  

Rights On Default By Hirer.  Since the said clause

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is relevant to a decision in this case, the same in  

its entirety is extracted hereinbelow :-

“26.  OWNER’S RIGHTS ON DEFAULT OF HIRER

26.1  The  occurrence  of  any/all  of  the  aforesaid events shall entitled the Owner  to  terminate  this  Agreement.  On  such  termination,  the  entire  sum  of  money  (inclusive of hire charges and all other  sums  and  charges  of  whatsoever  nature,  including but not limited to, interests on  account of default of insurance premia and  on  account  of  other  taxes)  which  would  have  been  payable  by  the  Hirer  if  the  agreement had run to its full terms, shall  become due and payable forthwith.

26.2  The owner, through its authorized  representatives,  servants,  agents,  shall  have  unrestricted  right  of  entry  in  the  aforesaid events and shall not be entitled  to  retake  possession  of  the  vehicle(s).  The  Hirer  shall  be  bound  to  return  the  vehicle(s) to the owner at such location,  as the Owner may designate, in the same  condition  in  which  it  was  originally  delivered to the Hirer (ordinary wear and  tear excepted).  For the said purpose it  shall be lawful for the Owner forthwith or  at  any  time  and  without  notice  to  the  Hirer  to  enter  upon  the  premises,  or  garage,  or  godown,  where  the  vehicle(s)  shall  be  lying  or  kept  and  to  take  possession or recover and receive the same  and if necessary to break open any such  place.  The Owner will be well within his  rights to use tow-van to carry away the

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vehicle(s). The Hirer shall not prevent or  obstruct  the  Owner  from  taking  the  possession  of  the  vehicle  and  shall  be  liable to pay any towing charges or other  expenses incurred in this regard.

26.3  The Owner shall be in the aforesaid  events be entitled to sell/transfer/assign  the vehicle(s) either by public action or  by private treaty or otherwise.  However,  the Owner shall however, be liable to pay  for  any  deficiencies  after  the  said  appropriation.   In  case  there  is  any  surplus  after  adjusting  the  dues  of  the  Owner,  the  same  shall  be  paid  to  the  Hirer.

26.4  The Hirer shall not be entitled to  raise  any  objections  regarding  the  regularity  of  the  sale  and/or  actions  taken by the Owner nor shall the Owner be  liable/responsible for any loss that may  be  occasioned  from  the  exercise  of  such  power  and/or  may  arise  from  any  act  or  default  on  the  part  of  any  broker  or  auctioneer  or  other  person  or  body  employed  by  the  Owner  for  the  said  purpose.

26.5  The  Owner  shall  be  entitled  to  recover  from  the  Hirer  all  expenses  (including legal costs on full indemnity  basis)  incurred  by  or  on  behalf  of  the  Owner in ascertaining the whereabouts, of  taking  possession,  insuring,  transporting  and selling the vehicle and of any legal  proceedings  that  may  be  filed  by  or  on  behalf  of  the  Owner  to  enforce  the  provisions  of  this  agreement.   It  is  expressly  clarified  that  the  remedies

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referred  to  hereinabove  shall  be  in  addition to and without prejudice to any  other remedy available to the Owner either  under  this  agreement  or  under  any  other  Agreement or in law.  

26.6  Without prejudice to the generality  of the foregoing words, the Hirer hereby  consents to the Owner disseminating to and  sharing  with  third  parties  (including  banks, financing entities, credit bureaus  of  which  the  Owner  is  a  member  or  any  statutory  body  or  regulatory  authority)  all  information  within  the  knowledge  of  the  Owner  and  pertaining  to  Hirer  (including  credit  history  and  credit  status of the Hirer) at any time as the  Owner  may  consider  necessary  or  be  requested or directed to do.”          

13. Mr. Desai contended that in order to act in  

accordance with the aforesaid clause, the Appellant  

had framed its own Code of Conduct, wherein, the  

guidelines as to how recovery of dues is to be  

effected, has been laid down in great detail, with  

the  emphasis  on  politeness  and  treating  the  

customer with dignity.  Mr. Desai submitted that it  

had also been provided in the guidelines that any  

breach of the conditions by the collecting agency  

would attract punitive action.

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14. Mr. Desai contended that the concept of hire-

purchase is just another form of bailment, where  

the goods are held by the hirer in bailment till  

such time as the ownership thereof is made over to  

him.  Mr. Desai also urged that the jurisdiction of  

the Consumer Forum was to ensure that the Agreement  

between the parties was duly executed, but it had  

no  jurisdiction  to  rewrite  the  terms  of  the  

Agreement.   In  this  regard,  Mr.  Desai  submitted  

that  the  Consumer  Forum  had  gone  beyond  its  

jurisdiction in settling and deciding the question  

regarding  the  validity  of  the  Hire-Purchase  

Agreement itself.  Learned counsel submitted that  

the Reserve Bank of India had issued guidelines on  

24th April, 2008 to all Scheduled Commercial Banks,  

regarding  the  policy  to  be  adopted  by  Banks  in  

engaging Recovery Agents for recovering their dues.  

On the issue relating to the engagement of Recovery  

Agents, the Banks were directed to take note of the  

specific conditions set out in the guidelines in

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that behalf. Clause 2(ii) makes it very clear that  

Banks should have a due diligence process in place  

for engagement of Recovery Agents, which should be  

so structured to cover, among others, individuals  

involved  in  the  recovery  process.   Clause  2(ix)  

relates to the method to be followed by Recovery  

Agents  and  the  Banks  were  advised  to  strictly  

adhere  to  the  guidelines/Code  during  the  loan  

recovery  process.   The  said  guidelines  also  

provided for the manner in which the possession of  

mortgaged/hypothecated property is to be taken and  

it was clearly indicated that the recovery of loans  

or seizure of vehicles should be done through legal  

process.

15. Mr. Desai also referred to a RBI Circular dated  

24th April, 2009, on re-possession, clarifying the  

manner in which vehicles financed by Non-Banking  

Finance Companies (NBFCs) were to be recovered. Mr.  

Desai pointed out that in the said guidelines, it  

was indicated that NBFCs must have a built-in re-

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possession  clause  in  the  contract/loan  Agreement  

with  the  borrower,  which  must  be  legally  

enforceable.  In order to ensure transparency, the  

terms and conditions of the contract/loan Agreement  

should  also  contain  provisions  regarding  notice  

period  before  taking  possession;  circumstances  

under  which  the  notice  could  be  waived;  the  

procedure for taking possession of the security and  

provision providing for a final chance to be given  

to the borrower for repayment of the loan, before  

proceeding  with  the  sale  or  auction  of  the  

property.  Mr.  Desai  submitted  that  the  said  

guidelines  had  been  duly  embodied  in  the  Hire-

Purchase Agreement and that the Appellant was, in  

fact,  taking  steps,  in  accordance  with  such  

provisions, to recover the hypothecated properties  

in case of default.       

16. Mr. Desai lastly contended that the Tribunal  

was  not  entitled  to  modify  the  terms  of  the  

Agreement  which  had  been  arrived  at  between  the

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parties and that when there was an acute dispute  

relating to facts, the Tribunal, in this case the  

National Commission, ought not to have gone behind  

the terms of the Contract and should have instead  

referred the parties to the Civil Court.  It was  

also observed that only in an appropriate case was  

the Tribunal entitled to enter into the validity of  

the  terms  of  the  contract.   In  support  of  his  

submissions, Mr. Desai referred to the decision of  

this  Court  in  Bharathi  Knitting  Company Vs.  DHL  

Worldwide Express Courier [(1996) 4 SCC 704], where  

the  aforesaid  principal  has  been  considered  and  

explained.  Mr. Desai submitted that the order of  

the National Commission was erroneous and is liable  

to be set aside.   

17. Appearing for the Finance Industry Development  

Council (FIDC), Ms. Haripriya Padmanabhan, learned  

Advocate,  submitted  that  the  Council  is  a  self-

regulatory organization registered with the Reserve  

Bank of India and is governed by the guidelines

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issued by the Reserve Bank of India from time to  

time.  Ms.  Padmanabhan  submitted  that  on  26th  

October,  2007,  this  Court  had  in  the  present  

proceedings expressed concern over the manner in  

which loans by financial institutions were being  

recovered.  Learned  counsel  submitted  that  this  

Court was particularly concerned with the procedure  

adopted  for  recovery  of  such  loan  amounts  by  

financial  institutions  by  alleged  use  of  force,  

despite the directions given by this Court in ICICI  

Bank Ltd. Vs. Prakash Kaur [(2007) 2 SCC 711].   It  

was submitted that the Reserve Bank of India had  

formulated operational guidelines for adoption by  

all commercial banks.  Pursuant to the guidelines  

of  July,  2009,  relating  to  Debt  Collections  

Standards in India, the Citibank had updated its  

Code for collection of dues and re-possession of  

security.   It  was  submitted  that  the  said  

guidelines  were  detailed  and  expansive  and  

attempted  to  cover  all  the  shortcomings  in  the

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earlier guidelines in order to ensure that no force  

was used for the purpose of effecting recovery of  

the dues.

18. Mr. Prashant Kumar, learned Advocate, appearing  

for  the  Appellants  in  the  four  Special  Leave  

Petitions filed by Mahindra & Mahindra Financial  

Services Ltd., adopted the submissions of Mr. Ashok  

Desai and Ms. Padmanabhan.  He added that from the  

month  of  September,  2009,  the  financial  

institutions  were  following  the  process  of  

arbitration  in  order  to  recover  its  dues.   Mr.  

Prashant Kumar submitted that the matters in which  

he was appearing do not contemplate the financial  

institutions  as  the  owner  of  the  goods  and  the  

transaction was a loan simplicitor.  Consequently,  

the said matters could not be treated on the same  

footing  as  those  which  involved  Hire-Purchase  

Agreements.   It  was  urged  that  although  the  

provisions  of  the  SARFAESI  Act,  2002,  could  be  

applied in similar cases, the same would not apply

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as far as the present cases were concerned, since  

they  constituted  loan  agreements  in  respect  of  

which either the normal civil or the arbitration  

law  would  have  application.  It  was  further  

submitted that if a loan had been taken against a  

mortgage, the remedy on account of recovery would  

be with the Civil Court in regard to the mortgaged  

properties.  In this regard, reliance was placed on  

the decision of this Court in Sundram Finance Ltd.  

Vs. State of Kerala [AIR 1966 SC 1178].  Reliance  

was also placed on a decision of this Court in  

Civil  Appeal  No.5993  of  2007  (Commissioner  of  

Central Excise Vs. Bajaj Auto Finance Ltd.), where  

similar views have been expressed.   

19. Reference was also made to Section 51 of the  

Motor  Vehicles  Act,  1988,  which  makes  special  

provision  in  regard  to  motor  vehicle  which  was  

subject  to  a  Hire-Purchase  Agreement  in  cases  

covered under a Hire-Purchase Agreement. In cases  

covered  under  Hire-Purchase  Agreements,  provision

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has been made for the Registering Authority to make  

an  entry  in  the  Certificate  of  Registration  

regarding the existence of such agreement.  Clause  

(b) of Section 51 provides for cancellation of such  

an  endorsement  on  proof  of  termination  of  the  

agreement by the parties.

20. The  last  person  to  address  us  was  Shri  

Dharampal Yadav, Respondent No.1 in Special Leave  

Petition (Civil) No.9550 of 2009 and Special Leave  

Petition (Civil) No.10544 of 2009, who appeared in  

person.  He  submitted  that  in  most  cases,  the  

various guidelines framed by the Reserve Bank of  

India and the Bank themselves, were not followed  

and  more  often  than  not  the  hypothecated  goods,  

mostly vehicles were forcibly taken possession of  

by Recovery Agents hired by the financiers.  Mr.  

Dharampal  Yadav  submitted  that  the  methodologies  

adopted by the Recovery Agents were contrary to the  

guidelines laid down by the Banks themselves and in  

the  decisions  of  this  Court  in  several  other

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matters, where it has been uniformly indicated that  

recovery would have to be effected in due process  

of law and not by the use of muscle power.   

21. Since during the pendency of the Special Leave  

Petitions  before  this  Court,  the  Appellant  had  

complied with the orders of the District Forum and  

the National Commission had already set aside the  

punitive damages imposed by the State Commission,  

the reliefs prayed for on behalf of the Appellant  

had been rendered ineffective and the submissions  

were, therefore, channeled towards the question of  

whether the fora below were right in holding that  

the vehicles had been illegally and/or wrongfully  

recovered by use of force from the loanees.  The  

aforesaid  question  has  since  been  settled  by  

several decisions of this Court and in particular  

in the decision rendered in  ICICI Bank Ltd. Vs.  

Prakash  Kaur (supra).  It  is,  not,  therefore,  

necessary for us to go into the said question all  

over again and we reiterate the earlier view taken

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that even in case of mortgaged goods subject to  

Hire-Purchase Agreements, the recovery process has  

to  be  in  accordance  with  law  and  the  recovery  

process  referred  to  in  the  Agreements  also  

contemplates such recovery to be effected in due  

process of law and not by use of force.  Till such  

time as the ownership is not transferred to the  

purchaser, the hirer normally continues to be the  

owner of the goods, but that does not entitle him  

on  the  strength  of  the  agreement  to  take  back  

possession of the vehicle by use of force.  The  

guidelines which had been laid down by the Reserve  

Bank of India as well as the Appellant Bank itself,  

in fact, support and make a virtue of such conduct.  

If any action is taken for recovery in violation of  

such guidelines or the principles as laid down by  

this Court, such an action cannot but be struck  

down.   

22. In the instant case, the situation is a little  

different, since after the vehicle had been seized,

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the same was also sold and third party rights have  

accrued over the vehicle. It is possibly on such  

account  that  the  Appellant  Bank  chose  to  comply  

with  the  directions  of  the  District  Forum  

notwithstanding the pendency of this case.

23. Since the Appellant Bank has already accepted  

the decision of the District Forum and has paid the  

amounts as directed, no relief can be granted to  

the Appellant and the Appeals are disposed of in  

the light of the observations made hereinabove.   

24. The application filed in Special Leave Petition  

(Civil) No.10547 of 2009 on 26th August, 2011, for  

bringing  on  record  the  legal  heirs  of  the  sole  

respondent Shiv Nath Sareen is no longer relevant  

on account of the aforesaid decision and the same  

is,  therefore,  dismissed.   The  Appeals  are  also  

disposed  of  in  terms  of  the  observations  made  

hereinabove.   

25. There shall, however, be no order as to costs.

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………………………………………………………J.    (ALTAMAS KABIR)

………………………………………………………J.                     (CYRIAC JOSEPH)

………………………………………………………J.                             (SURINDER SINGH NIJJAR) New Delhi Dated: 14.11.2011