The Patna High Court has recently ruled that banks and financial institutions are prohibited from using forceful methods, such as employing recovery agents or goons, to repossess vehicles from borrowers who have defaulted on their loans. This verdict, delivered in the case of Dhananjay & Ors v UOI v Ors, emphasizes that such actions are in violation of the law.
During the hearing of multiple pleas, a common grievance was raised by the petitioners. They alleged that their vehicles, which were financed by banks and financial institutions, were seized without following proper legal procedures. Disturbingly, these seizures were carried out by intimidating individuals, including hired goons and musclemen, often at unusual hours.
The Patna High Court’s decision serves as a significant reminder to financial institutions that they must adhere to the rule of law and refrain from resorting to unlawful tactics when dealing with loan defaulters and the repossession of vehicles.
Justice Rajeev Ranjan Prasad, in a judgment delivered on May 19, strongly criticized the actions of banks and finance companies for seizing and repossessing vehicles without adhering to the guidelines set by the Reserve Bank of India (RBI) and the relevant laws. The judge expressed deep distress over this unlawful practice.
Justice Prasad emphasized that the banks and finance companies involved in these cases have a constitutional duty to abide by the law. They are obligated to act in accordance with the fundamental principles and policies of India, which protect individuals’ right to livelihood and the right to live with dignity. These institutions cannot disregard the established legal procedures. When the constitutional right of a person or petitioner to live with dignity, and not to be deprived of their livelihood without following due process, clashes with the banks’ and financial institutions’ right to recover their dues, the Court firmly held that the constitutional rights of the individuals and petitioners must take precedence.
The Court’s ruling underscores the importance of upholding the constitutional rights of individuals and emphasizes that banks and financial institutions must operate within the boundaries of the law when seeking recovery, even in the face of financial defaults.
In a judgment passed on May 19, it was expressed by Justice Rajeev Ranjan Prasad that the seizure or repossession of vehicles by banks and finance companies without following the Reserve Bank of India (RBI) guidelines and the law on the subject was deemed wholly illegal.
It was noted that the banks and finance companies contesting these matters are under a constitutional obligation not to act in violation of the law. It was highlighted that acting contrary to the core principles and policies of India is strictly discouraged. This implies that no individual should be stripped of their means of survival and their right to lead a dignified life without adhering to the legal procedures in place. The Court has made it clear that when the banks and financial institutions seek to recover their dues, they must not infringe upon the constitutional right to ‘life’ of an individual or petitioner, ensuring their dignity and protection from deprivation without due process. Ultimately, the constitutional rights of the individuals or petitioners will take precedence over the banks and financial institutions’ recovery efforts. The investigating agency was tasked by the Court to look into the complaints raised by the petitioners and conduct an independent and lawful investigation regarding the forcible seizure or repossession of the vehicles by the banks and financial institutions.
It was observed by the Court, while disposing of the plea, that the actions of the banks and finance companies were deemed illegal, entitling the petitioners, who were compelled to contest the matter, to receive costs.
The Court has issued a directive stating that each of the contesting respondents, specifically the Banks/Financial Institutions, must pay a litigation cost of ₹50,000 to the respective writ petitioners within 30 days from the date of receiving or producing a copy of this judgment.
Written by – Sohini Chakraborty intern under LegalVidhiya
