The Supreme Court has held that a financier's right of self-help repossession of a hypothecated vehicle cannot be exercised through force, deceit, or in breach of the loan agreement's own terms, after Cholamandalam Investment and Finance Company repossessed the appellant's commercial truck at 1 a.m. by breaking its steering lock without prior notice, following a loan default.
The Court directed the financier to close the loan account, refund Rs. 4.5 lakh realised from the vehicle's sale with 6% annual interest, and pay Rs. 10 lakh in compensation for mental agony and loss of livelihood. Separately, and more sweepingly, the Court directed RBI to ensure that banks and NBFCs actually comply with its existing recovery and repossession guidelines, observing pointedly that those guidelines have 'existed only on paper.'
The ruling sharply raises the litigation and compensation exposure for banks and NBFCs — and their recovery agents — that repossess vehicles or other hypothecated assets without following RBI's fair-practice and due-process norms, and places RBI under a fresh judicial mandate to supervise actual compliance rather than merely issuing circulars that go unenforced in practice.