M/S Magma Fincorp Ltd. v. Rajesh Kumar Tiwari
CIVILAPPEAL NO. 5622 OF 2019 (ARISING OUT OF SLP (C) NO. 33720 OF 2018) decided on October 1, 2020
Bench: Dr. Dhananjaya Y Chandrachud, Indira Banerjee, JJ.
The Complainant entered into a hire-purchase agreement with the Financier. The Complainant agreed to repay a sum of Rs.4,38,585/- which was inclusive of finance charges of Rs.83,650/- to the Financier in 35 monthly instalments of Rs.12,531/-. The complainant paid monthly instalment till certain time and then defaulted. In the circumstances, the Financier took re-possession of the vehicle allegedly upon notice to the Complainant, and in accordance with the conditions of the hire-purchase agreement. The factum of notice is, however, disputed by the Complainant.
After taking re-possession of the vehicle, the Financier called upon the Complainant to clear his outstanding dues amounting to Rs.2,80,132.59 as on the date of the notice, failing which the vehicle would be disposed of. The Complainant did not make the repayment demanded, or even part thereof. The vehicle was sold by the Financier.
It is the case of the Complainant that the Financier had “lifted the vehicle” without any prior notice or information.
The Consumer District Forum allowed the Complaint and directed the Financier to pay Rs.2,23,335/- to the Complainant, along with simple interest at 10% per annum from the date of filing of the complaint till payment as also Rs.10,000 towards damages for physical and mental agony and Rs.1000/- as litigation expenses, within 45 days from the date of the order. Being aggrieved by the order of the District Forum allowing the complaint, the Financier filed an appeal before the State Commission. The State Commission dismissed the appeal and hence, the SLP.
(1) Whether the Financier is the real owner of the vehicle which is the subject of a hire purchase agreement, and if so, whether there can be any impediment to the Financier, taking repossession of the vehicle, when the hirer does not make payment of instalments in terms of the hire purchase agreement.
The Supreme Court while answering the said question summarized the principles regarding Hire Purchase transaction:
- Goods are let out on hire under a Hire Purchase Agreement, with an option to purchase, in accordance with the terms and conditions of the Hire Purchase Agreement. The hirer simply pays for the use of the goods and for the option to purchase them.
- Until the option to purchase is exercised by the hirer, upon payment of all amounts agreed upon between the hirer and the Financier, the financier continues to be owner of the goods being the subject of hire purchase. Till such time the hirer remains a trustee and/or bailee of the goods covered by the Hire Purchase Agreement.
- The Financier continues to remain the owner of a vehicle, covered by a hire purchase agreement till all the hire instalments are paid and the hirer exercises the option to purchase. Thus, when the Financier takes re-possession of a vehicle under hire, upon default by the hirer in payment of hire instalments, the Financier takes repossession of the Financier’s own vehicle.
- When the agreement between the Financier and the hirer permits the Financier to take possession of a vehicle financed by the Financier, there is no legal impediment to the Financier taking possession of the vehicle. When possession of the vehicle is taken, the Financier cannot be said to have committed theft.
- Whether the transaction between a Financier and a purchaser/hirer is a hire purchase transaction, or a loan transaction, might be determined from the terms of the agreement, considered in the light of surrounding circumstances. However, even a loan transaction, secured by right of seizure of a financed vehicle, confers licence to the Financier to seize the vehicle.
(2) Whether service of proper notice on the hirer is necessary for repossession of a vehicle which is the subject of a hire purchase agreement, and if so, what is the consequence of non service of proper notice?
The Supreme Court held that the service of proper notice on the hirer would be necessary for repossession of a vehicle, which is the subject matter of a Hire Purchase Agreement, would depend on the terms and conditions of the Hire Purchase Agreement, some of which may stand modified by the course of conduct of the parties. The court furthermore observed that:
- If the hire purchase agreement provides for notice on the hirer before repossession, such notice would be mandatory. Notice may also be necessary, if a requirement to give notice is implicit in the agreement from the course of conduct of the parties.
- If the hirer commits breaches of the conditions of a hire purchase agreement which expressly provides for immediate repossession of a vehicle without further notice to the hirer, in case of default in payment of hire charges and/or hire instalments repossession would not be vitiated for want of notice.
- In a case where the requirement to serve notice before repossession is implicit in the hire purchase agreement, non service of proper notice would tantamount to deficiency of service for breach of the hire purchase agreement giving rise to a claim in damages. The Complainant consumer would be entitled to compensatory damages, based on an assessment of the loss caused to the complainant by reason of the omission to give notice. Where there is no evidence of any loss to the hirer by reason of omission to give notice, nominal damages may be awarded.