The Patna High Court Single Judge Bench comprising Justice Rajeev Ranjan Prasad was hearing miscellaneous petitions and held that the banks and financial institutions are prohibited from forcefully seizing and repossessing vehicles without following legal procedures, directs an independent investigation into allegations of forceful seizure, and outlines guidelines for the reconciliation of loan accounts and compensation for illegally seized vehicles.
In the present case, the petitioners are aggrieved by the action of the contesting respondents. Their common grievance is that their respective vehicles which they had purchased with financial assistance from these institutions have been forcibly seized with the help of goons and musclemen of the contesting respondents during odd hours.
The High Court observed allegations against banks and financial institutions regarding the forceful seizure and repossession of vehicles. The High Court decided to leave the investigation of these allegations to the appropriate investigating agency, allowing them to look into the complaints and conduct an independent investigation.
The High Court focused on the plea made by the banks and financial institutions regarding their ability to seize and repossess vehicles without following the proper legal procedures outlined in the SARFAESI Act, 2002 and the rules framed under it. The High Court concluded that the covenants in the loan agreements create a "security interest" in the vehicle in favour of the banks and financial institutions, but they must exercise their power to seize and repossess the vehicle by the provisions of the Act, rules, and RBI guidelines. The High Court noted that the banks and financial institutions cannot continue to seize and repossess vehicles illegally.
The High Court directed the Superintendent of Police of all districts in the State of Bihar to ensure that recovery agents of banks and financial institutions do not take the law into their own hands. They should not intercept vehicles and seize them without a court order. Any seizure or repossession of a defaulting vehicle should only be done by the law and the established legal procedure.
For cases where the vehicles have not been sold, the High Court ordered the petitioner(s) and the bank/financial institution to reconcile the loan account and determine the outstanding amount due. The bank/financial institution should not charge interest for the period during which the vehicle remained in seizure, and the Covid-19 lockdown period should be considered. The petitioner(s) should pay 30% of the outstanding amount and receive the release of the vehicle, with an undertaking to pay the remaining 70% with an applicable interest in suitable instalments decided by the banks/financial institutions. The petitioner(s) should also continue to pay the current EMI, and failure to do so may result in the bank/financial institution proceeding to repossess the vehicle.
In cases where the vehicle has been sold to a third party and cannot be restored, the bank/financial institution is liable to pay the petitioner(s) the value of the vehicle as per its insurance value on the date of seizure. This amount should be adjusted against the outstanding vehicle loan, and any surplus should be made available to the petitioner(s). The petitioners have the option to challenge the accounts provided by the banks/financial institutions and claim compensation for the loss arising from the seizure of their vehicles in the appropriate court/forum.
Since the actions of the banks/financial institutions were deemed illegal, the High Court ordered the contesting respondents to pay Rs. 50,000/- (fifty thousand) as the cost of litigation to each of the respective writ petitioners within 30 days from the date of receipt/production of a copy of the judgment.
Finally, the High Court disposed of the writ applications and instructed the Director General of Police, Bihar, to issue necessary instructions to all the Senior Superintendents of Police/Superintendents of Police in the state to comply with the directions provided in the judgment.