Hire Purchase

STATEMENT OF JURISDICTION

The Appellant has approached the honorable Supreme Court of India under Article 136 of the
Constitution of India.1

1

Art. 136 of Indian Constitution: “Special leave to appeal by the Supreme CourtNotwithstanding
anything in this Chapter, the Supreme Court may, in its discretion, grant special leave to appeal from
any judgment, decree, determination, sentence or order in any cause or matter passed or made by any
court or tribunal in the territory of India”
Bharat Bank v Employees of Bharat Bank AIR 1958 SC 578, it was held, “first and foremost for a body to be
a tribunal it should be a quasi-judicial body, exercising some judicial functions.” The statement of Objects of
the Consumer Protection Act provides that the aim of the Act is to provide inexpensive, speedy and summary
redressal of consumer disputes, quasi-judicial bodies have been set up in each District and State and at the
National levels.. See http://ncdrc.nic.in/; S. 13(5) of the CPA 1986, provides that every proceeding before the
forum shall be deemed to be a judicial proceeding within the meanings of sections 193 and 228 of Indian Penal
Code. Therefore, since both the ingredients are getting fulfilled, National Consumer Dispute Redressal
Commission is a “Tribunal” for the purposes of Art 136 of Indian Constitution. Hence, the SC has the discretion
to entertain an appeal by special by way of Art 136 from the order of NCDRC.
In Bhikaji Keshao v Brijlal Nandlal, AIR 1955 SC 610, the honourable Court held that the SC in its discretion
may allow appeal by special leave from the order of a Tribunal if it is satisfied that the order of tribunal is
erroneous.

ISSUES:
(1) Whether the Repossession Clause in any hire-purchase or lease agreement is
against the interest of society?
1. Legal validity and recognition of hire-purchase system in India.
2. Whether the agreement entitling the owner to take back the possession in
case of default, against the interest of society?
(2) Whether as per the terms of Agreement between the hirer and the owner in the
present case, the owner is entitled to repossession?
1. Whether the termination of the Agreement by ABC Bank is justified?
2. Whether repossession by the Bank amounted to deficiency in service?
3. Whether the National Commission was justified in dismissing the revision
petition?

SUMMARY OF ARGUMENTS:
1. That a clause in the hire-purchase agreements authorizing the owner to take
back possession in case of default is not against the interest of society.
The system of hire-purchase aims more on the growth of weaker sections by enabling
them buy things of necessities which otherwise would have been difficult for them to
afford. This calls for striking a balance between the interests of the hirer and the
owner. The hire-purchase agreement generally contain a re-possession clause
authorizing the owner to take back the possession of goods let on hire in case of

default by the hirer in payment of instalments as a means to safeguard the interest of
the owner. Since in Hire-Purchase Agreements, property in the goods let on hire,
passes on to the hirer only upon his option to purchase the goods on payment of last
instalment, and by such time, property in the goods vest in the owner. There is no
standard form of contract prescribing the rights and duties of the hirer and the owner
as such and the terms in hire purchase agreements vary from contract to contract and
whether any particular clause is against unconscionable or against public policy, is a
question of fact and is to be decided by the Court upon the merits of each case
separately and any general question challenging the validity of repossession clause in
hire purchase agreements should not be entertained.
It pertinent to note here that it not the repossession clause in an agreement which is
against the interests of the society but it is the manner of repossession which may be
unlawful and detrimental to the interest of public at large. As long as possession is
taken back by lawful means without derogation of any law of the land, it cannot be
said to be contrary to the interest of the society as the owner is well within his right to
take back the possession in case of default by hirer in payment of instalment. Whether
in a particular case, repossession was done forcefully or some injury or harm was
caused to any person while taking back the possession of a financed vehicle/good is
again a question of fact and needs to be adjudged on the basis of facts of individual
cases.
2. That the appellant was entitled to possession of the car by terms of the
agreement:
In clause 3 of the agreement entered into between the appellant and the respondent
specifically provided that time is the essence of the agreement and hire charges were
to be paid in the manner stipulated in the agreement. Clause 27 of the agreement also
provided that non payment of any monthly hire charges on the due date as per the
terms of the agreement would amount to an event of default and the consequence
thereof were set in clause 28 of the agreement.
The respondent out of his own discretion chose to avail hire-purchase finance services
provided by the appellant bank. He freely consented to the terms set out in the
agreement including the term providing for taking back the recovery of the financed
vehicle. Although the contract, specifically provided that even in case of default in
payment of a single instalment by the respondent, the appellant would be entitled to
terminate the agreement, the appellant kept on extending time for payment of
instalments due on the respondent. This proves that the appellant was acting in a

bonafide manner and wanted the respondent to somehow fulfil his obligations arising
out of the agreement. It was only after the repeated failures of the appellant in
securing the payment of instalments overdue by the respondent, that the appellants
had no other option but to invoke clause 27 and 28 of the agreement which were
consented to by the respondent, to safeguard its interest.
Exercising a right under a contract which has been specifically allowed and consented
to by the other party cannot be said to be a deficiency in service especially when the
contract was terminated on account of default by such other party. At the same time, it
should also not be forgotten that at no point of time before the payment of the last
instalment, the property in the goods let on hire, passed to the respondent and it is the
appellant who is the rightful owner of the car. Therefore, while directing the appellant
to pay the sale proceeds to the respondent along with compensation, the State
Commission exercised its jurisdiction with material irregularity and therefore, the
National Commission erred in exercise of its revision jurisdiction while dismissing
the revision petition filed by the appellant.

1. LEGAL SANCTITY AND VALIDITY OF HIRE PURCHASE FINANCE
SYSTEM:
The object of hire purchase finance and leasing system is to finance customers in
order to enable them to purchase goods of necessity. The Supreme Court in
Sundaram Finance vs State of Kerala & Another2 observed:
“Hire-purchase agreements have come to stay as part of the social service in the
commercial world. It enables persons of ordinary means to buy the necessities
of life which the modern scientific advancement offers. Under that system one
can buy a car, a refrigerator, furniture, cooking apparatus, and as a matter of
fact any article of utility. It enables the hirer to own the article of his choice by
paying on easy instalments, and the dealer to provide it for him for profit
without any risk to himself; it has become a common and familiar instrument of
mercantile social service.”
The Court also relied on the statement of Simonds, J., in Transport and General
Credit Corporation Ltd. v. Morgan3 i.e.
“It must be remembered that hire-purchase agreements now play a very large
part in the commercial and social life of the community, and the financing of
those hire-purchase agreements is an enormous business, both in the city of now
2 AIR 1966 SC 1178,
3 [1939] 2 All E.R 17,28

a recognized mercantile service, as carrying on the business of a money-lender
is, as I have said before, an abuse of language."
The Law Commission of India has dedicated its 20 th and 168th Report completely on the
emerging hire purchase system in India. 168 th report affirms the development of hire purchase
system in India by providing that during the past few decades there had been a mushroom
growth of hire-purchase transactions in India. The complexities surrounding such transaction
prompted the Law Commission to undertake a study of the subject. Indian society primarily
being transformed from an agricultural society to industrialized society requires the agency of
law to protect the interest of parties. In metropolitan cities, there is a vast increase in
commercial activities such as purchase of motor vehicles, houses etc., through the system of
‘hire-purchase’.4
The Constitution (46th amendment) Act, 1982 also contains an expressed mention of HirePurchase system. Article 366(29A) of the Constitution now includes delivery of goods on
hire-purchase or any system of payment by instalments within the scope of tax in the
expression in ‘tax on the sale or purchase of goods’. Similarly Art 286 was also amended to
include within its scope hire purchase system. 5 This implies that the system of hire-purchase
derives its constitutional validity from Arts 286 and 366 of the Constitution.
The enactment of Hire-Purchase Act 1972, to define and regulate the rights and duties of
parties to hire purchase agreements and matters connected or incidental thereto, 6 in itself
evidences the importance of hire-purchase transactions in socio economic development of the
community at large.
Section 2(d) of the Consumer Protection Act in the definition of “consumer” includes “any
person who hires or avails of any services for a consideration which has been paid or
promised or partly paid and partly promised.7 Section 2(o) of the CPA defines “service” as
service of any description which is made available to potential users and includes the
provision of facilities in connection with banking, financing insurance etc. This again
4 168th Law Commission of India Report
5 Inserted by The Constitution (46th Amendment) Act, 1982
6 Preamble, Hire Purchase Act. 1972
7 Section 2(d), Consumer Protection Act, 1986

proves that the hire-purchase system is legally valid and therefore any person who avails hire
purchase services from banks is a consumer entitled for protection under the Act.
Section 6(1) of the Banking Regulation Act, 1949 permits banks to engage in hire-purchase
business. Regulation of hire-purchase activities undertaken by banks finds mention at various
places in the Reserve Bank of India Act 1934 as well.
A brief overview of these statutes, cases and reports proves beyond reasonable doubt that the
system of hire-purchase has become an essential feature of Indian money market and has
contributed to a great extent in the transformation of Indian societies from agriculture
oriented to industrialized societies. Hence, hire-purchase finance system per se in valid and is
not contrary to the interests of the society.
2. WHETHER

REPOSSESSION

CLAUSE

IN

ANY

HIRE

PURCHASE

AGREEMENT IS AGAINST THE INTEREST OF SOCIETY?
As per s. 2(c) of the Hire-Purchase Act, 1972, "hire purchase agreement" means an
agreement under which goods are let on hire and under which the hirer has an option to
purchase them in accordance with the terms of the agreement and the property in the
goods passes to the hirer on the payment of last of such instalments.
Therefore, it is to be noted that in hire-purchase agreement the sale takes place only after the
last instalment has been paid. Till then, all the rights concerning the goods vest with the
owner i.e. the financier in the present case.” 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.8
S. 2(f) of Hire Purchase Act, 1972 defines owner as the person who lets or has let, delivers or
has delivered possession of goods, to a hirer under a hire-purchase agreement.
In case the default is committed by the hirer and possession of the vehicle is resumed by the
financier, such case/dispute is required to be resolved on the basis of terms incorporated in
the agreement and the owner having all the property in the goods is rightly entitled to do so.
Mere repossession does not make the act of the financier illegal, unless it is demonstrated and
proved that the same has been done by use of force. The Division Bench in case of Bhanu
Pratap Singh vs. State of West Bengal9 held:
“ In a case, where a borrower has committed undisputed default in payment of instalments
and there is a specific stipulation that in the case of default, the lender will have the right to
8 Citicorp.Maruti Finance Ltd. vs S.Vijayalaxmi, Civil Appeal No 9711 of 2011
9 2007 (3) CHN 975

take possession of the vehicle, in our view, the writ petitioner, cannot come up before the
High Court for direction upon the police authority to return the vehicle from the lender who
has taken possession of the vehicle for breach of terms of the agreement”
If the hirer himself has conceded to give right to the financer to take possession in case of
default in payment of instalment, the financier can take possession in exercise of such right
provided, it does not commit any offence or violates any law of the land.10
Therefore, if while taking possession, the financier or his agent commits any offence, such as,
murder, grievous hurt, hurt etc., they cannot escape their liability for violating the law. But
without committing any offence prescribed under the law, the financier has every right to take
possession of the vehicle in case of default if the hirer at the time of taking loan agreed to
surrender possession in such a situation, because such agreement gives right to the financier
to hold possession of the vehicle and right of the hirer to retain possession of the vehicle is
lost on committing default.11 There cannot be any generalisation in such matters. 12 The
Supreme Court while emphasising on the importance of outsourcing of recovery agents for
banks held in Manager, ICICI Bank Ltd vs Prakash Kaur & Ors13:
“Though there are voices raised stating that the agency system should be abolished, this has
to be examined from the view of the bank for whom this system has proved to be extremely
productive in view of chronic and regular defaulters and customers who have a premeditated
intention of cheating the bank. Such people are identified easily by the agents and produced
physically before the bank who resort to all means including the local police help to force
such customers to repay their dues. The delay in the Courts and the in-effective and corrupt
police structure enables the bank to seek the help of such agencies which proves to be cost
effective and less cumbersome. Abolition of the system is not the answer but effective control
over the agency by the respective banks is essential.”

10 Charanjit Singh Chadha vs. Sudhir Mehra 2001 (7) SCC 417.; Manipal Finance
Ltd. vs. T. Bangarappa, 1994 Sup 1 SCC 507; Sardar Trilok Singh vs. Satyadeo
Tripati, reported in 1979 (4) SCC 396. (d) K.A. Mathai vs. Kora Bibbikutti, reported
in 1996 (7) SCC 212.
11 The Operation Manager, Auto Loan ... vs Praveen Khaitan & Anr on 7 March,
2012
12 Orix Finance (India) Ltd. v. Jagmandar Singh & Anr., reported in (2006) 2 SCC
598
13 Citation

Section 6(1) (o) of the Banking Regulation Act authorizes banks to deal in hire purchase
finance. Banking Regulations Act does not, in any way, provide the details of the conduct of
the bank business. It only contemplates the registration of a bank, incorporation of a bank and
thereafter puts the bank under the control of RBI. Section 35A of Banking Regulation Act
empowers RBI to give directions to banks from time to time in public interest or to prevent
the affairs of any banking company being conducted in a manner detrimental to the interests
of the depositors or in a manner prejudicial to the interests of the banking company. The
Supreme Court in ICICI Bank Limited V/S Official Liquidator of APS Star Industries
Ltd & Ors14 held:
“The above analysis of the various provisions of the 1949 Act shows that RBI
is empowered to regulate the business of the banking companies. That, RBI is
empowered to control management of banking companies in certain
situations.” Thus, in exercise of the powers conferred by Sections 21 and 35A
of the said Act, RBI can issue directions having statutory force of law. When a
delegate is empowered by the Parliament to enact a Policy and to issue
directions which have a statutory force and when the delegatee (RBI) issues
such guidelines having statutory force, such guidelines have got to be read as
supplement to the provisions of the BR Act, 1949.
The question as to whether the guidelines issued by the Reserve Bank of India are binding or
not now stands concluded by reason of a Constitution Bench Judgment of the Supreme Court
in Central Bank of India v.Ravindra and Others15 in the following terms:
"The power conferred by Sections 21 and 35-A of the Banking Regulation Act, 1949
is coupled with duty to act. The Reserve Bank of India is the prime banking
institution of the country entrusted with a supervisory role over banking and
conferred with the authority of issuing binding directions, having statutory force, in
the interest of the public in general and preventing banking affairs from
deterioration and prejudice as also to secure the proper management of any banking
company generally. The Reserve Bank of India is one of the watchdogs of finance
and economy of the nation. It is, and it ought to be, aware of all relevant factors,
including credit conditions as prevailing, which would invite its policy decisions. It
14 Citation
15 , 2002 1 SCC 367

should continue to issue such directives. Its circulars shall bind those who fall
within the net of such directives. RBI directive have not only statutory flavour, any
contravention thereof or any default in compliance therewith is punishable under
sub- section (4) of S. 46 of the Banking Regulation Act, 1949"
In furtherance of this power, RBI has issued various directions in the form of circulars and
notifications from time to time.” On April 24, 2008, RBI has issued guidelines to all
scheduled commercial banks in engaging recovery agents for the recovery of their dues.
Paragraph 2(ix) of the said Circular directs all the commercial banks to strictly adhere to the
paragraph 6 of the Code of Bank's Commitment to Customers' (BCSBI Code), prescribing
a Collection of Dues and Security Repossession Policy for the banks. Paragraph 2(xiii) of the
Circular requires:
“Where banks have incorporated a re-possession clause in the contract with the
borrower and rely on such re-possession clause for enforcing their rights, they should
ensure that the re-possession clause is legally valid, complies with the provisions of
the Indian Contract Act in letter and spirit, and ensure that such repossession clause
is clearly brought to the notice of the borrower at the time of execution of the
contract. The terms and conditions of the contract should be strictly in terms of the
Recovery Policy and should contain provisions regarding (a) notice period before
taking possession (b) circumstances under which the notice period can be waived (c)
the procedure for taking possession of the security (d) a provision regarding final
chance to be given to the borrower for repayment of loan before the sale / auction of
the property (e) the procedure for giving repossession to the borrower and (f) the
procedure for sale / auction of the property.”
Paragraph 2(xi) prescribes that it is desirable that banks rely only on legal remedies
available under the relevant statutes while enforcing security interest without
intervention of the Courts.
Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial
Services by banks issued by the RBI on November 3, 2006, in paragraph 5.7 provide:
“Banks should ensure that the Recovery Agents are properly trained to handle with
care and sensitivity, their responsibilities particularly aspects like soliciting
customers, hours of calling, privacy of customer information and conveying the
correct terms and conditions of the products on offer etc.
The bank and their agents should not resort to intimidation or harassment of any kind
either verbal or physical against any person in their debt collection efforts, including

acts intended to humiliate publicly or intrude the privacy of the debtors’ family
members, referees and friends, making threatening and anonymous calls or making
false and misleading representations.”
Paragraph V of the Guidelines on fair practice Code for Lenders issued by the
RBI on May 5, 2003 specifically prohibit the lenders from resorting to undue
harassment viz. persistently bothering the borrowers at odd hours, use of muscle
power for recovery of loans, etc.
Sections 38, 44A and 45 of the Banking Regulation Act, act as a deterrent for banks and
prevent them from making breach of the directions issued by RBI. The said provision
empower RBI to apply for winding up or reconstruction of a banking company in public
interest or in the interest of banking system of the country as a whole. Paragraph 173 of the
Mid-term review of the Annual Policy for the year 2007-08 provides:
“Complaints received by the Reserve Bank regarding abusive practices followed by a bank’s
recovery agents would invite serious supervisory disapproval. The Reserve Bank would
consider imposing a temporary ban (or even a permanent ban in case of persistent abusive
practices) for engaging recovery agents on those banks where strictures have been passed/
penalties have been imposed by a High Court/Supreme Court or against its
Directors/Officers with regard to the abusive practices followed by their recovery agents. An
operational circular in this regard would be issued by November 15, 2007.”
Therefore, as long as the guidelines issued by RBI in this regard are duly complied with and
embodied in the model hire-purchase agreements by various banks and banks act in
accordance with such provisions, the repossession cannot be said to be invalid and against
public policy.
Recently, Mr. P. Chidambram made a statement that Gross NPA of PSU banks jumped to Rs
1,84,193 cr in Dec 2012 compared to Rs 1,37,102 cr in March 2012.16 This proves the amount
of money that has been blocked because of Non-performing Assets. Therefore, adequate
steps are to be taken and alternative means for speedy realization of securities and recovery
of debts should be promoted under the supervision and control of the Reserve Bank of India.
Therefore, repossession clause in a hire-purchase agreement is in no way contrary to the
interest of the society until and unless repossession is strictly in adherence to the guidelines
issued and the code of conduct for lenders prescribed by the RBI. It is detrimental to the
interest of society only when the element of forceful repossession comes into picture. It is
detrimental when there is an absence of an overseeing body. When it comes to striking a
16 http://www.business-standard.com/article/economy-policy/govt-rbi-stepsimproved-recovery-of-npas-chidambaram-113022200333_1.html.

balance between the interests of the hirers and the interests of the banks (financier), providing
reasonable powers of repossession to the banks subject to the limits and standards prescribed
by RBI needs to be encouraged otherwise slow and expensive judicial process will block the
flow of capital in the economy and may adversely affect the banking sector of the Country.
Therefore, setting the Repossession procedure in motion only after all attempts made by the
bank to discuss with the borrower the ways and means to overcome financial hurdles have
failed is in the interest of the financial institutions at large and is not likely to affect the
interests of the hirer as well.
After the judgment of the honourable Court in ICICI Case, the RBI is exercising its
function of control and overseeing of the activities of all the scheduled banks, more
efficiently than ever before and has issued a number of circulars for the purposes of
strengthening its supervision.
Whether repossession is by means of force or not is a question of fact and depends from case
to case and no generalizations can be drawn. Hence, any repossession clause in general is
valid. The same has been upheld by the hon’ble Supreme Court in The Managing Director,
Orix Auto ... vs Shri Jagmander Singh & Anr,17 wherein the Court held:
“Essentially these are matters of contract and unless the party succeeds in showing that the
contract is unconscionable or opposed to public policy the scope of interference in writ
petitions in such contractual matters is practically non-existence. If agreements permit the
financier to take possession of the financed vehicles, there is no legal impediment on such
possession being taken. Of course, the hirer can avail such statutory remedy as may be
available. But mere fact that possession has been taken cannot be a ground to contend that
the hirer is prejudiced. Stand of learned counsel for the respondent that convenience of the
hirer cannot be overlooked and improper seizure cannot be made. There cannot be any
generalization in such matters. It would depend upon facts of each case.”
As long as the agreement entered into between the parties is for a lawful consideration and is
not in contravention with any of the provisions of Chapter III of the Contract Act, 1872, it
cannot be said to be unconscionable and opposed to public policy. Whether a particular
contract is opposed to public policy will therefore vary from contract to contract and a
repossession clause complying with the provisions of Chapter III of the Contract Act and not
providing for anything to the contrary, cannot be said to be against the interest of society. Any
sort of generalization in this regard will serve no good and it should be left open for the court
to decide such issue upon the merits of each case.
17 Citation

In Charanjit Singh Chadha & Ors. v. Sudhir Mehra,18, the Supreme Court held:
“recovery of possession of the vehicle by financier-owner as per terms of the hire is an
agreement is an executory contract of sale conferring no right in rem on the hirer until the
transfer of the property to him has been fulfilled and in case the default is committed by the
hirer and possession of the vehicle is resumed by the financier, it does not constitute any
offence for the reason that such a case/dispute is required to be resolved on the basis of terms
incorporated in the agreement.”
In Anup Sarmah vs Bhola Nath,19 the SC held:
“The Court further held that in such a contract, element of bailment and element of sale are
involved in the sense that it contemplates an eventual sale. The element of sale fructifies
when the option is exercised by the intending purchaser after fulfilling the terms of the
agreement. When all the terms of the agreement are satisfied and option is exercised a sale
takes place of the goods which till then had been hired.”
In Suryapal Singh vs Siddha Vinayak Motors20 the Supreme Court held:
“Under the hire-purchase agreement, it is the financier who is the owner of the vehicle and
the person who takes the loan retains the vehicle only as bailee/trustee, therefore taking
possession of the vehicle on the ground on non payment of instalment has always been
upheld to be a legal right of the financier.”
wherein it has been held that where the party, bound by provisions of agreement contravened
a provision of the contract, cannot subsequently make any complaint against the other
availing itself of the rights enjoined in the agreement, and if the agreed means are used by
one of the parties to the contract in the event of the other party committing breach thereof the
party committing breach cannot complain.
There is Andhra Pradesh Decision also in the State Bank of India v. S.B. Shah Ali 21 to the
effect that when the goods are hypothecated by creating a charge the hypothecatee can take
18 (2001) 7 SCC 417
19 citation
20 (2012) 12 SCC 355
21 AIR 1995 AP 134

action to enforce the charge according to law and he need not approach the Court as the deed
provides for taking possession of the property in case of default of the hypothecator.
Hence, the Supreme Court in several decisions had the occasions to deal with this type of
cases and has come to the conclusion that the financier had every right to take possession of
the vehicle, in case of default but in the process of taking possession they should not use any
excessive force which would result in an offence punishable under the law. If as per the terms
of the agreement, the owner (financier) has a special right to recover its dues in the event of
default by the borrower, if needed by the sale of the vehicle and the said right can be
exercised without intervention of the Court. If a right requires intervention of Court for its
enjoyment, it is no right at all. If intervention of Courts is much compulsory for enjoyment of
a right, it amounts to denial of a right. Intervention of Court arises only if there is any
infringement of right. When there is no infringement, there is no lis and no suit lies.
Therefore, in case of hire-purchase agreements by the financiers, the hirer has freely
consented to the terms of the agreement and the nothing contrary to public policy has been
contained in the agreement, the right of the owner to repossess property let on hire, arising
out of such agreement cannot in any way be said to be against the interest of the society until
the repossession is by legal means and no law of the land been violated while repossessing
the property by the owner.
WHETHER AS PER THE TERMS OF AGREEMENT BETWEEN THE HIRER AND
THE OWNER IN THE PRESENT CASE, THE OWNER IS ENTITLED TO
REPOSSESSION?
In the present case, hire-purchase facility was granted to Mr. X by ABC Bank for a sum of
Rs. 15,92,396 which was repayable, along with interest, in 60 equal monthly hire charges of
Rs. 30000 each.22 Clause 3.1 of the HPA provided for the payment of hire charges in the
manner stipulated in the schedule to the agreement and indicated that timely payment of hire
charges was the essence of the Agreement.23
On failure of Mr. X to pay the hire charges in terms of repayment schedule, the bank sent a
legal notice to Mr X requesting him to make payment of total amount of Rs. 1,50,000 within

22 Para 2 of the factsheet
23 Para 3 of the factsheet

7 days from the receipt of the notice. 24 Therefore, it is evident that payment of five
instalments was defaulted by Mr. X. Thereafter, pursuant to a request made by Mr. X,
the Bank, by its letter dated 15th February, 2012, made a onetime offer of settlement for
liquidating the outstanding dues of Rs. 1800000 for Rs. 1600000 by 15th January, 2013. It
was also specifically mentioned in the offer that in the event Mr. X delayed in making the
payment of the said sum of Rs. 1600000 for whatever reason, the offer would stand voided
and Bank would be entitled to claim from Mr. X the total dues as on that date 25. This implies
two things:


The hirer i.e. Mr. X has either not paid even a single instalment or has paid one or two



instalments.
He was given sufficient time of almost a year to pay the hire amount.

It was only on the expiry of the onetime settlement offer period, that the Bank took
possession of the financed vehicle from the residence of Mr. x with the help of a recovery
agent company on 18th January 2013. An inventory sheet prepared by the bank was also duly
countersigned by the wife of Mr. X. The owner derived the power to repossess the vehicle
from the terms of agreement entered into between Mr. X and the bank.
Clause 27.1.1 of the said agreement provides that non-payment of any monthly hire
charges on the due date as per the terms of the agreement, would amount to an default
and the consequences thereof set out in clause 28 will ensue.
Clause 28.1 of the agreement entitles the owner to terminate the agreement on which the
entire sum of money and other charges of whatsoever nature which would have been
payable by the hirer if the Agreement had run on its terms shall become due.
Clause 28.2 of the Agreement empowers the owner to take the repossession of the
vehicle through its authorised representatives by entering any time and without notice
to the hirer the premises, garage or godown, where the vehicle shall be lying or kept and
if necessary break or open any such place.
This implies that the repossession was with the consent of wife of Mr. X and there is no
element of force involved here. Also, on 18th January 2013, 21 instalments were overdue
from Mr. X.
24 Para 4 of the factsheet
25 Para 5 of the factsheet

Also, subsequent to a request of Mr. X’s wife, the time period of one time settlement offer
was also extended by the bank as a special case, but despite the same Mr. X failed to pay the
amount even within the extended period.
This factual position gives rise to the following questions:
1. Whether the termination of the Agreement by ABC Bank is justified?
2. Whether repossession by the Bank amounted to deficiency in service?
3. Whether the National Commission was justified in dismissing the revision
petition?
1. Termination of Agreement:
Clause 3.1 of the HPA provided that timely payment of the hire charges was the essence
of the Agreement. Section 55 of the Indian Contract Act 1872 provides as follows:
Effect of failure to perform at a fixed time, in contract in which time is essential: When
a party to a contract promises to do a certain thing at or before a specified time, or
certain things at or before a specified time, the Contract , or so much of it as has not been
performed, becomes voidable at the option of the promise, if the intention of the parties
was that time should be of the essence of the Contract.
Therefore, where a party has not performed his obligations under the contract at the
specified time, time being of the essence of the Contract, the Contract becomes voidable
at the option of the other, thus giving to the other party an option as at an end.
S.64 of the Contract Act provides for the consequences of rescission of voidable
contract as follows:
When a person at whose option a contract is voidable rescinds it, the other party thereto
need not perform any promise therein contained in which he is the promisor. The party
rescinding a voidable contract shall, if he have received any benefit there under from
another party to such contract, restore such benefit, so far as may be, to the person from
whom it was received.
In Hindustan Construction Co vs State of Bihar26Patna High Court held:
“It will be noticed, even such a contract, when time is of the essence of the contract, is
only voidable at the option of the promisee and does not come to an end ay itself after the
expiry of the period. The promisee has to terminate it by proper notice, as provided in
26 AIR 1963 Pat 254

Section 66 of the Act, otherwise the option to avoid the contract will be deemed to have
been waived and the contract subsisting. Such an intention to make time of the essence of
the contract must be expressed in explicit and unmistakable language in the agreement
itself.”
The contract in question is a commercial contract. In commercial contracts, the need for
certainty is of great importance and it is this aspect of the matter that compels courts
generally to construe time as of the essence of commercial contracts. The law relating to time
being of the essence of contract has been neatly summarised in the passage in Halsbury's
Laws of England - IV edition - Vol. IX - at para 481 :
"The modern law, in the case or contracts M all types, may be summarised as follows: Time
will not be considered to be of the essence unless
(1) the parties expressly stipulate that conditions as to time must be strictly complied with; or
(2) the nature of the subject matter of the contract or the surrounding circumstances show
that time should be considered to be of the essence; or
(3) A party who has been subjected to unreasonable delay gives notice to the party in default
making time of the essence."
In the present case, it was expressly made clear to the hirer that time is the essence of the
Contract in expressed in explicit and unmistakable language in Clause 3.1 of the HPA itself
and on failure of Mr. X to pay the hire charges in terms of repayment schedule he was served
a notice by the bank to make payment of total amount of Rs 1,50,000 within 7 days from the
receipt of the notice (for payment of 5 monthly charges which were overdue);
Section 63 provides:
"Every promise may dispense with or remit wholly or in part, the performance of the promise
made to him, or may extend the time for such performance, or may accept instead of it any
satisfaction which he thinks fit."
In Venkateswara Minerals, Firm vs Jugalkishore Chiranjitlal, Firm 27 the Karnataka Hich
Court held:
“Under S. 63 the promisee may make certain concession to the promisor and one of them is
that he may extend the time specified for the performance of the contract. But it cannot be a
unilateral extension on the part of the promisee alone. It is only at the request of the promisor
that the promisee may agree to extend the time of performance and thereby bring about an
27 AIR 1986 Kant 14

agreement for extension of time. Therefore, it is only as a result of the operation of S. 63,
Contract Act, that the time for the performance of the contract can be extended and that time
can only be extended by an agreement arrived at between the promisor and the promisee."
In addition to the abovementioned provisions, S. 153 of the Indian Contract Act provides
for termination of bailment by bailee's act inconsistent with conditions as follows:
“A contract of bailment is voidable at the option of the bailor, if the bailee does any act with
regard to the foods bailed, inconsistent with the conditions of the bailment.”
Subsequently, in the present case, on a request made by Mr. X, the Bank made a onetime
settlement offer. Again, deadline as prescribed by the offer was 15 th January, 2013. Failure to
pay the one time settlement amount prescribed in one time settlement offer made by the bank
on the date stipulated in the offer, the consequences prescribed for default in the offer can
very well be treated as notice of termination to the hirer as provided in s.66 and consequences
of recession of voidable agreement shall become available with the owner.
In rescinding a contract under s.64, the courts act on the principle that, as the transaction
ought never to have been made, the parties are to be placed, as far as possible, in a situation
in which they would have stood, if there had never been any such transaction.28 Therefore, the
appellant is rightly entitled to terminate the contract and take back the possession of the car
on account of the various provisions of the Indian Contract Act, 1872.
2. Repossession resulted in deficiency in service:
From the facts it is clear that the consumer had been given ample opportunity in terms
of time to fulfil the obligation of the agreement. This can be gathered from the
following facts:
 The hire-purchase agreement was entered in between ABC Bank and Mr. X on
10th April 2011. On 11th December, 2011, as many as 5 instalments were
overdue. This implies that the respondent has just paid 2/3 instalments from
the date of entering into the agreement.
 Even after expiry of the notice period served by the appellant, the respondent
failed to make the payment of the amount overdue for 5 instalments.
 Even during the period between the expiry of the 7 days notice period and the
date on which one time settlement offer was made (approx 2 months period),
no attempt was made by the respondent to make the payment.

28 Pollock & Mulla, “Indian Contract and Specific Relief Acts, thirteenth edition,
volume 1, Lexis Nexis, p.no 1286

 The respondent further defaulted in making payment of the amount of
1600000 provided by the Bank in the one-time settlement offer made by the
Bank on the request of the respondent even after the outstanding dues of Rs.
1800000 were liquidated for Rs. 1600000 and a sufficient time period of 11
months was allotted to the respondent to make the payment.
 Also from the facts, it is clear that from 11th December, 2011 to 18th January
2013, not even a single instalment had been paid by the respondent even
though he was enjoying the possession of the car.
 Even after the repossession of the car, on the request of respondent’s wife, the
date of one time settlement offer was extended as a special case but despite the
same, the respondent failed to pay the amount within the extended period.
This implies that the appellant was compelled by the respondent to take back the car on
account of his failure to make the payment despite several opportunities being given to him
from time to time by the appellant and appellant was acting in a bonafide manner to enable
the respondent to make the payment. While doing so, the appellant duly complied with the
guidelines issued by the RBI pertaining to the requirements of serving notice upon the hirer
before initiating any legal or other recovery measures and a seven days notice was served
upon the hirer.29
In Sanjoy Roy and Anr. v. State of West Bengal and Anr30, the Calcutta High Court held:
“The question was raised on behalf of the complainant as to why no notice was served upon
the hirer complainant before repossession of the vehicle and Mr. Roy answers the question
with reference to the decision of Madras High Court in Shriram Machinery Corporation
Ltd. v. Standard Chartered Bank, Madras AIR 1999 Mad 137 (supra) where it was held that
principle of natural justice or prior notice before seizure has no manner of application and is
not necessary when default is committed by the hirer and the terms of contract is breached. It
has been observed that if the prior notice is issued before seizure of the vehicle naturally the
plaintiff will take away the vehicle from the jurisdiction of the State and the very purpose of
exercising the power of seizure will be taken away.”
Nothing contained in the facts herein, proves that the appellant acted contrary to law or
resorted to any unfair means or used force to take back the possession of the car. In fact, the
29 http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=1237;
30 2000 C. Cr. LR (Cal) 114

fact that the inventory sheet prepared while taking possession of the financed vehicle was
duly countersigned by wife of the respondent underlies the fact that the vehicle was
peacefully repossessed by the recovery agent from the resident of the respondent with the
consent of his wife.
Also, as per the fact sheet, the sale process followed by the Bank after taking possession of
the vehicle was in consonance by the regulations issued by the RBI. The vehicle was sold
after undergoing a proper bidding process for the vehicle and was sold to highest bidder.
While taking back the possession of the vehicle and selling the vehicle the appellant was
acting duly with the scope of powers conferred on him by the terms of the agreement entered
into between the appellant and the respondent. Clause 28.1 of the said agreement entitled the
appellant to retake the possession of the financed vehicle upon termination of contract as per
clause 27 without notice to the hirer i.e. the respondent in the present case by entering the
premises, garage or godown where the vehicle shall be lying. By consenting to the said
clause, the hirer had agreed that he shall not obstruct or prevent the owner from taking the
possession of the vehicle. Clause 28.3 entitled the appellant to sell the vehicle by public
auction. In the present factual scenario, the one-time settlement offer clearly provided that
upon failure to make the payment for whatsoever reason by 15 th January, 2013, the offer
would stand voided and therefore the contract could be terminated. Therefore, everything
done by the appellant was agreed to previously by the hirer.
The Patna High Court in Enayatullah Khan V/S Jalan Trading Co (P) Ltd31 held:
“it is clear that on 3-6-52, when the car was seized the appellant had defaulted in making
payments of the instalments money as undertaken under the hire purchase contract, and
therefore, it was open to the plaintiff to seize the car and deal with it as his own property and
at the same time to sue the appellant for the recovery of the instalments that were -still left
unpaid up to the date of seizure.”
In Sardar Tirlok Singh vs Satyadeo32 the Supreme Court held:
“Even assuming that the appellants either by themselves or in the company of some others
went and seized the truck on July 30, 1973 from the house of the respondent they could and
31 1964 LawSuit(Pat) 178
32 1980) Cri LJ 822

did claim to have done so in exercise of their bona fide right of seizing the truck on the
respondent's failure to pay the third monthly instalment in time.”
In The Managing Director, Orix Auto vs Jagminder Singh33, the SC held:
If agreements permit the financier to take possession of the financed vehicles, there is no
legal impediment on such possession being taken. Of course, the hirer can avail such
statutory remedy as may be available. But mere fact that possession has been taken cannot be
a ground to contend that the hirer is prejudiced. Stand of learned counsel for the respondent
that convenience of the hirer cannot be overlooked and improper seizure cannot be made.
In Manipal Finance Corpn Ltd vs. T Bangarappa & Another34, the SC held:
“In the facts and circumstances mentioned above we think that the learned Magistrate was
not right in passing the impugned order and thereby giving relief to a party which had
invoked jurisdiction on false accusations. The appellant had, under the terms of the hirepurchase agreement, taken possession of the vehicle. While observing that prima facie this
action could be supported by the contract, the learned Magistrate directed the vehicle to be
returned to the hirer on a mere indemnity bond.”
In Manager ICICI Bank vs Prakash Kaur35, the SC held:
“In conclusion, we say that we are governed by a rule of law in the country. The recovery of
loans or seizure of vehicles could be done only through legal means. The Banks cannot
employ goondas to take possession by force.”
In Citicorp.Maruti Finance Ltd. vs S.Vijayalaxmi36 the Supreme Court held:
“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
33 Supra
34 1994 SCC, Supl. (1) 507
35 Supra
36 Civil Appeal no 9711 of 2011 in the Supreme Court of India

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.”
Even the Hire Purchase Act, 1972, (repealed by the Hire-purchase (repeal) Act) which aimed
at governing the hire purchase business empowers the owner to take back the possession of
goods otherwise that the intervention of Court if the statutory proportion of the hire
purchase price has not been paid.37 Therefore, there is no impediment if the possession is
taken by the financier amicably. Mere repossession does not make the act of the financier
illegal, unless it is demonstrated and proved that the same has been done by use of force.
In the present case, there is nothing to prove that the Contract was unconscionable or opposed
to public policy or force was employed by the recovery agent to take the possession of
financed vehicle or that the appellant acted in violation of the guidelines and code of conduct
prescribed by RBI. Therefore, the repossession by the appellant has in no way prejudiced the
interests of the respondent is legally justified.
3. Validity of the order of dismissal of revision petition by the National
Commission:
As per the terms of the hire-purchase agreement in the present case, the appellant is the
owner of the financed vehicle. He was very well empowered by the terms of the agreement to
which the respondent himself had freely consented, to take back the possession of the
financed vehicle and further sell the same.
From the facts it is clearly visible that the appellant accorded the respondent to pay back the
hire amount. He was also sent a 7 days’ notice to pay back the overdue instalments and a onetime settlement offer was also made at his request. It was only because of the repeated
failures on the part of the respondent that forced the appellant to terminate the agreement and
invoke the consequences set out in clause 28 of the agreement.

37 S. 20 provided statutory proportion in case of Motor Vehicles as “Threefourths or such higher proportion not exceeding nine-tenths as the Central
Government may, by notification in the, Official Gazette, specify, where the hirepurchase price is not less than fifteen thousand rupees.

The NCDRC in matter of M/S Magma Fincorp Ltd vs Sh. Shubhankar Singh 38 while
allowing the revision petition held:
Under the circumstances, it is clear that the respondent is having the benefit of both the
worlds. He has used the vehicle for one-and-a-half years’. He has been the defaulter and
wants the award as well. He has failed to prove that the vehicle was forcibly repossessed.
The statement advanced by him does not just stack up.
Similarly, in Rpg Itochu Finance Ltd. And Ors. vs Ramesh Chand And Anr.39, the
NCDRC while dismissing a writ petition under s. 22 of the CPA held:
“It is clear from the records that there was default in payment of instalment. Further, parties
had signed the contract, which included the crucial Clause No. 11 which authorises the
financier to repossess the vehicle in case of default. What the complainant basically wants is
rewriting of the whole order. We do not see any error apparent on the face of the record. In
view of the above, the review petition is dismissed.”
In the present case, the appellant was the owner of the financed vehicle. Also, the respondent
was making repeated defaults in payment of instalments. Clause 28 of the contract created a
private right in favour of the appellant which entitled him to take possession of the car in case
of default. Therefore, this was clearly a case of termination breach of terms of contract and
the appellant being the owner of the vehicle was entitled to the amount of Rs. 15, 50,000
received from the sale proceeds of the car (it being included in the agreement). By the order
directing the bank to pay a sum of Rs. 15,50,000 along with interest 18% per annum, the
district forum as well as the state commission have acted in exercise of the jurisdiction with
material irregularity. And therefore, the order of the NCDRC dismissing the revision petition
filed under s. 21(b) of the CPA is not valid and should be set aside. The consumer
commission was not entitled to modify the terms of the agreement which had been arrived at
between the parties, and should not have gone behind the terms of the contract and should
have instead referred the parties to civil court.

38 Revision Petition No. 1552 OF 2011 (From the order dated 29.10.2010 in FA
No. 372/2010 of the State Commission, WEST BENGAL )
39 II (2007) CPJ 325 NC