Gujarat High Court
Kunal Structure India Private Limited vs Axis Bank Ltd on 7 February, 2022
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
C/SCA/20147/2021 ORDER DATED: 07/02/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 20147 of 2021
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KUNAL STRUCTURE INDIA PRIVATE LIMITED
Versus
AXIS BANK LTD
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Appearance:
MR VISHWAS K SHAH(5364) for the Petitioner(s) No. 1
NEHA M SHAH(9218) for the Petitioner(s) No. 1
for the Respondent(s) No. 1,2
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 07/02/2022
ORAL ORDER
Heard learned advocate Mr.Vishwas K. Shah for the petitioner through video conference.
1. By this petition under Article 226 of the Constitution of India, the petitioner has prayed for the following reliefs :
"A.Be pleased to issue Writ, order or direction to Respondent No.1 to forthwith return the Vehicle to Petitioner made by Jaguar Land Rover India Limited's with Model Name RR Sport 3.00 HSE DY, more commonly known as Range Rover, bearing Registration No.GJ 01 KV 7987 which is forcibly repossessed on 22.12.2021.
B. Pending hearing, admission and final disposal of this Petition, be pleased to grant stay further transfer of the Vehicle made by Jaguar Land Rover India Limited's with Model Name RR Sport 3.00 HSE DY, more commonly known as Range Rover, bearing Registration No.GJ 01 KV 7987 owned by Petitioner and financed by Respondent No. 1 Bank.
C. Ad-interim relief in terms of Para 8 (B) may please be granted.Page 1 of 14 Downloaded on : Fri Feb 11 20:33:27 IST 2022
C/SCA/20147/2021 ORDER DATED: 07/02/2022 D. Costs of this Petition.
E. Any other relief, order or direction which Hon'ble Court may deem just, fit, proper and equitable in the facts of the case."
2.1. The brief facts of the case are that the petitioner purchased Jaguar Land Rover Car for Rs.1,69,92,000/- by availing financial assistance from the respondent No.1-Axis Bank Limited. The petitioner through Land Rover Financial Services was connected to the respondent No.1-Bank and entered into an agreement with the respondent No.1-Bank on 3rd April, 2019.
2.2. The petitioner availing the financial assistance, purchased the Jaguar Land Rover India Limited's Car with Model Name RR Sport, more commonly known as Range Rover bearing Registration No.GJ 01 KV 7987 as per the Tax Invoice issued by the M/s.Cargo Motors-dealer of Land Rover.
2.3. The Registration Certificate issued by the Road Transport Office also reflect that the petitioner has purchased the Jaguar Land Rover Car with financial assistance from the respondent No.1-Axis Bank.
2.4. The petitioner thereafter could not make payment of the installments of the loan availed for purchase of the Jaguar Land Rover Car. The Page 2 of 14 Downloaded on : Fri Feb 11 20:33:27 IST 2022 C/SCA/20147/2021 ORDER DATED: 07/02/2022 respondent No.1-Axis Bank therefore issued Notice dated 04.12.2021 upon the petitioner and its Directors for termination of the loan agreement from vehicle production.
2.5. The Notice dated 04.12.2021 issued on behalf of the respondent No.1-Bank reads as under :
"Ref: CAR LOAN - A/c No. AUR000304000428 with Axis Bank Ltd.
Under instructions from and on behalf of our client Axis Bank Ltd, I do hereby serve you with the following legal notice, which is as under:
You being the Borrower approached our client's Retail Asset Center/Branch, AHMEDABAD RAC, and requested to grant financial assistance for purchasing Vehicles, and accordingly our client has sanctioned and disbursed the said CAR LOAN Loan facility of Rs.16992000/- on 04/04/2019 on the terms and conditions as specified in the sanction letter read with loan agreement entered between you and the-bank.
Our Client state that timely payment of the EMI's is the essence of the contract and you have not been regular in honouring your contractual commitment with regards to the payment of the EMI's as and when they became due and applicable. The monthly instalments have not been regularly paid and this constitutes an event of default as per the loan agreement.
Our Client also note that despite repeated reminders, phone calls and notices regarding repayment of the overdue amount, you have failed to maintain financial discipline and repay the outstanding amount under the Loan Agreement. By reason of such failure/neglect/refusal on your part to make payment, substantial sums of money became due and payable to our client.
In view of your continuous default in the repayment of the loan instalments and breach of the terms and conditions of the Loan Agreement, our client, has decided to recall the Loan in due exercise of its rights under Loan Agreement and do hereby recall the Page 3 of 14 Downloaded on : Fri Feb 11 20:33:27 IST 2022 C/SCA/20147/2021 ORDER DATED: 07/02/2022 loan and terminate the loan agreement and further inform you that upon termination of the agreement, the entire arrears and future amount of the loan together with interest and all costs charges and expenses and other sums due and payable under the Loan Agreement have become immediately due and payable by you to our client. Pursuant to the aforesaid, as on the date of this notice, an amount of Rs.11144257/- (Rupees One Crore Eleven Lakh FourtyFour Thousand Two Hundred FiftySeven Only) is due and payable by you under the Loan Agreement as per the particulars mentioned below :
In the circumstances, we, do hereby call upon you to repay the outstanding an amount of Rs.11144257/- (Rupees One Crore Eleven Lakh FourtyFour Thousand Two Hundred FiftySeven Only) along with interest thereon (as per Loan Agreement) from the date of this notice till the date of actual payment together with accrued delayed payment and other charges etc within seven days of this notice and also to produce the hypothecated vehicles, LAND ROVER CAT D LAND ROVER CAT D RANGE ROVER, bearing no. Registration No - - GJ01KV7987, Engine No - -1240876306DT & Chassis No. - SALWA2AKXKA842627 for inspection in front our nearest loan centre, during working hours (between 10 A.M to 5 P.M) In the event of failure on your part to act as requested above, our client will be constrained to take appropriate legal action against you, including institution of Civil/Arbitration in terms of the Agreement and Criminal proceedings against you including enforcement of securities/repossession of hypothecated vehicle without further notice or demand, at your risk cost and expenses.
Please note that part payment by you and acceptance of the same by our client shall not be treated as waiver or withdrawal of this notice or of our demand under the loan agreement. Any forbearance on the part of my client for enforcing the terms of the Agreement and notice shall not in any way restrain and/or limit the right or remedies available to our client. Kindly ignore the said notice if have already paid the total outstanding dues against the aforementioned loan account.
Kindly further note, in case the vehicle details mentioned herein before, is not matching with the RC records or the vehicle details have not yet been Page 4 of 14 Downloaded on : Fri Feb 11 20:33:27 IST 2022 C/SCA/20147/2021 ORDER DATED: 07/02/2022 provided by you earlier, you are requested to supply us with the correct vehicle details along the RC Copy.
For any further clarification, please contact bank officer Dipesh Mukherjee on his mobile No. 9583956305.
This is without prejudice to our other rights in the matter."
2.6. Thus, petitioner was called upon to repay the outstanding amount of Rs.1,11,44,257/- along with interest as per the loan agreement from the date of the notice till the date of actual payment together with approved delayed payment and other charges within seven days and in event of failure, the petitioner was put to notice to take appropriate legal action including institution of civil/arbitration in terms of the agreement in criminal proceedings against the petitioner including enforcement of security/repossession of the hypothicated vehicle without further Notice or demand.
2.7. According to the petitioner, before the petitioner could reply to the notice dated 04.12.2021, the Agency engaged by the respondent No.1-Bank forcefully repossessed the hypothicated vehicle on 22.12.2021. The petitioner tried to lodge complaint at local Police Station but the Police did not registered the complaint and therefore, the petitioner has filed this petition Page 5 of 14 Downloaded on : Fri Feb 11 20:33:27 IST 2022 C/SCA/20147/2021 ORDER DATED: 07/02/2022 with the aforesaid prayer.
3.1. Learned advocate Mr.Shah for the petitioner submitted that the respondent-Bank without resorting to file original application before the Debt Recovery Tribunal under the provisions of the Recovery of Debts Due To Financial Institution Act, 1993 or resorting to the Securitisation and Reconstructions of Financial Assets and Enforcement of Security Interest Act, 2002 (the SARFAESI Act) has forcefully repossessed the vehicle which is contrary to the decision of the Supreme Court in case of ICICI Bank Limited Versus Prakash Kaur and Others 1 as well as in case of Citicrop Maruti Finance Limited Versus S. Vijayalaxmi2.
3.2. Learned advocate Mr.Shah did not place on record the loan agreement and therefore by order dated 03.01.2022 he was requested to place on record the loan agreement executed by the petitioner with the respondent No.1-Bank and thereafter the petitioner by filing Additional- Affidavit dated 20th January, 2022 has placed on record the loan agreement which starts from page No.39 of the paper-book.
4. On perusal of the terms and conditions of the loan agreement it appears that the petitioner has 1 (2007) 2 SCC 711 2 (2012) 1 SCC 1 Page 6 of 14 Downloaded on : Fri Feb 11 20:33:27 IST 2022 C/SCA/20147/2021 ORDER DATED: 07/02/2022 agreed upon the following terms for default to make the regular payment of installments as under:
"Notice on the happening of an Event of Default If any event of default or any event which, after the notice or lapse of time or both would constitute an event of delay it shall have happened, the Borrower shall forthwith give the Bank notice thereof in writing specifying such event of default, or such event.
(B) Consequences of default:
i. In the event of any default as stated above the Bank shall have the right:
a) To recover the entire dues of the Loan.
b) To suspend any withdrawal to be effected in the Loan account.
c) Take possession of the vehicle whether by itself or through any of the Recovery Agents or Attorneys as may be appointed by the Bank.
d) Take any other actions as may deem fit for recovery of its dues and enforcement of the securities.
e) Further the Bank shall after giving notice be entitled to forthwith take physical possession of the Vehicle and affected soil, transfer the Vehicle either by itself or through its agents and seal or otherwise deal with the same to enforce the bank's security and recover the dues, without the observation of the Court. In the exercise of the power herein contained, the Bank shall not be bound or liable for any losses the Borrower may suffer as a result of the said realization and sale, in the event of the Bank or its authorized representatives being prevented from securing possession of the Vehicle the representatives of the bank shall be entitled to break open the lock and enter the premises for the purpose herein stated.
b) The Borrower agrees to the procedure for recovery or for enforcement of he security which shall be as Page 7 of 14 Downloaded on : Fri Feb 11 20:33:27 IST 2022 C/SCA/20147/2021 ORDER DATED: 07/02/2022 follows ;
1) The Bank shall be giving normally a notice of 7 (seven) days to repay the entire dues of the Loan, failing upon which the bank shall be entitled to repossess the vehicle through Bank's representative or any other person as may be appointed by the bank from time to time. However illegible of emergency and non-availability of borrower's details and/or whereabouts, the Bank shall be entitled to take possession of the vehicle without any notice. After repossession of the vehicle the bank shall endeavor to give off the requisite information and chances to the borrower to repay as dues before actual fails of the vehicle.
2) That the Bank shall after taking the possession send a final notice of 7 (Seven) days to the borrower to repay the entire dues along with the interest, repossession charges and any other charges as may be applicable lending upon which the Bank Shall be entitled to safe the said vehicle be public or illegible as it may deem fit.
3) The sale conducted by the Bank shall be valid and complots on the due of sale and the same will be conclusive as regards to the terms of the sad sole and so the sale consideration and the Borrower shall not have any dispute/claim on the same.
4) The Bank illegible to give all reasonable chances to illegible the vehicle possession and if the Borrower pays off the entire dues before the actual illegible, the Bank shall lose requisite steps to redeem the possession to the Borrower.
iv) The Borrower agrees and undertakes not to prevent of obstruct the Bank from taking possession of the Vehicle irrespective of whether the Loan has been recalled whenever in the opinion of the Bank, there is an apprehension any illegible Banks security is being or private illegible, without being liable for any loss, and to apply the net proceeds thereof as specified in these presents. And in such of likely circumstances the notices as aforesaid shall be waived.
v) The Borrower shall pay any deficiency, Forthwith to the Bank. The Bank shall also be entitled to adjust and a right of set-off on all moneys belonging to the Borrower standing to their credit in any Page 8 of 14 Downloaded on : Fri Feb 11 20:33:27 IST 2022 C/SCA/20147/2021 ORDER DATED: 07/02/2022 account whatsoever with the Bank, towards payment of such deficiency. Nothing as in this clause shall oblige the bank to sell, hire or deal with the Vehicle and the Bank shall be entitled to proceed against the Borrower independently of such or any other security, The Borrower agrees to accept the Bank's accounts in respect of such sale, hire, dealing or otherwise as conclusive proof of the correctness of any sum claimed to be due from the Borrower. In case of any deficit, the deficit amount shall be recovered by the Bank from the Borrower
vi) The Bank may at the nsk and cost of the Borrower engage one or more person(s) to collect the Borrower's outstanding and for to enforce the security and may furnish to such person the night and authority to perform and execute all acts, deeds, mutters and things connected therewith of incidental thereto as the Bank thinks fit.
vii) The Borrower hereby agree as a pre-condition of the said credit facility granted to it by the Bank that in case the Borrower commits default in the repayment of the credit facility or in the repayment of interest thereon or any of the agreed Installment of the credit facility on due date's the Bank and/or Reserve Bank of India will have an unqualified right to disclose or publish the name of the Borrower or the name of the Borrower's company illegible and the directors / partners / proprietors as defaulter in such manner and through such medium as the Bank of Reserve Bank of India in their absolute discretion may think fit.
viii) The Borrower comments a default in repayment of dues and consequently the account is to be classified as NPA, all other borrower accounts of the Borrower with the Bank also shall be classified as NPA as per the guidelines issued by RBI."
5. Thus, there is an agreement between the petitioner and the respondent No.1-Bank and accordingly, the respondent No.1-Bank has given a notice of seven days to repay the entire dues of the loan as per condition No.1 of clause (b) of Clause B which prescribes consequences of default Page 9 of 14 Downloaded on : Fri Feb 11 20:33:27 IST 2022 C/SCA/20147/2021 ORDER DATED: 07/02/2022 and the petitioner has agreed to the procedure for recovery or for enforcement of the security as stated hereinabove in terms of the agreement.
6. Therefore, it cannot be said that the respondent No.1-Bank has forcibly taken possession of the Jaguar Land Rover Car for which the petitioner has defaulted to pay the regular installments or even failed to pay the outstanding dues of Rs.1,11,44,257/- as demanded by the respondent No.1-Bank as per the seven days notice issued to the petitioner. Nor the petitioner has taken any steps from the date of receipt of the notice dated 04.12.2021 by approaching the respondent No.1-Bank with any proposal to make the outstanding dues of more than Rs.1 Crore payable by the petitioner to drive a luxury Car Jaguar Land Rover by availing financial assistance.
7. The Apex Court in the case of Citicrop Maruti Finance Limited (Supra) has held as under :
"20. Appearing for the Finance Industry Development Council (FIDC), Ms.Haripriya Padmanabhan, learned Advocate, submitted that the Council is a self- regulatory organization registered with the Reserve Bank of India and is governed by the guidelines issued by the Reserve Bank of India from time to time. Ms. Padmanabhan submitted that on 26.10.2007 this Court had in the present proceedings expressed concern over the manner in which loans by financial institutions were being recovered. Learned counsel submitted that this Court was particularly concerned with the procedure adopted for recovery of such loan Page 10 of 14 Downloaded on : Fri Feb 11 20:33:27 IST 2022 C/SCA/20147/2021 ORDER DATED: 07/02/2022 amounts by financial institutions by alleged use of force, despite the directions given by this Court in ICICI Bank Ltd. Vs. Prakash Kaur.
21. It was submitted that the Reserve Bank of India had formulated operational guidelines for adoption by all commercial banks. Pursuant to the guidelines of July, 2009, relating to Debt Collections Standards in India, the Citibank had updated its Code for collection of dues and re-possession of security. It was submitted that the said guidelines were detailed and expansive and attempted to cover all the shortcomings in the earlier guidelines in order to ensure that no force was used for the purpose of effecting recovery of the dues.
22. Mr. Prashant Kumar, learned Advocate, appearing for the Appellants in the four Special Leave Petitions filed by Mahindra & Mahindra Financial Services Ltd., adopted the submissions of Mr. Ashok Desai and Ms. Padmanabhan. He added that from the month of September, 2009, the financial institutions were following the process of arbitration in order to recover its dues. Mr.Prashant Kumar submitted that the matters in which he was appearing do not contemplate the financial institutions as the owner of the goods and the transaction was a loan simplicitor. Consequently, the said matters could not be treated on the same footing as those which involved Hire-Purchase Agreements.
23. It was urged that although the provisions of the SARFAESI Act, 2002, could be applied in similar cases, the same would not apply as far as the present cases were concerned, since they constituted loan agreements in respect of which either the normal civil or the arbitration law would have application. It was further submitted that if a loan had been taken against a mortgage, the remedy on account of recovery would be with the Civil Court in regard to the mortgaged properties. In this regard, reliance was placed on the decision of this Court in Sundram Finance Ltd. Vs. State of Kerala. Reliance was also placed on a decision of this Court in Civil Appeal No.5993 of 2007 (Commissioner of Central Excise Vs. Bajaj Auto Finance Ltd.), where similar views have been expressed.
24. Reference was also made to Section 51 of the Motor Vehicles Act, 1988, which makes special provision in regard to motor vehicle which was Page 11 of 14 Downloaded on : Fri Feb 11 20:33:27 IST 2022 C/SCA/20147/2021 ORDER DATED: 07/02/2022 subject to a Hire-Purchase Agreement in cases covered under a Hire-Purchase Agreement. In cases covered under Hire-Purchase Agreements, provision has been made for the Registering Authority to make an entry in the Certificate of Registration regarding the existence of such agreement. Clause (b) of Section 51 provides for cancellation of such an endorsement on proof of termination of the agreement by the parties.
25. The last person to address us was Shri Dharampal Yadav, Respondent No.1 in Special Leave Petition (Civil) No.9550 of 2009 and Special Leave Petition (Civil) No.10544 of 2009, who appeared in person. He submitted that in most cases, the various guidelines framed by the Reserve Bank of India and the Bank themselves, were not followed and more often than not the hypothecated goods, mostly vehicles were forcibly taken possession of by Recovery Agents hired by the financiers. Mr. Dharampal Yadav submitted that the methodologies adopted by the Recovery Agents were contrary to the guidelines laid down by the Banks themselves and in the decisions of this Court in several other matters, where it has been uniformly indicated that recovery would have to be effected in due process of law and not by the use of muscle power.
26. Since during the pendency of the Special Leave Petitions before this Court, the Appellant had complied with the orders of the District Forum and the National Commission had already set aside the punitive damages imposed by the State Commission, the reliefs prayed for on behalf of the Appellant had been rendered ineffective and the submissions were, therefore, channeled towards the question of whether the fora below were right in holding that the vehicles had been illegally and/or wrongfully recovered by use of force from the loanees. The aforesaid question has since been settled by several decisions of this Court and in particular in the decision rendered in ICICI Bank Ltd. Vs. Prakash Kaur (supra). It is, not, therefore, necessary for us to go into the said question all over again and we reiterate the earlier view taken that 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.Page 12 of 14 Downloaded on : Fri Feb 11 20:33:27 IST 2022
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27. 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 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.
28. 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. In the instant case, the situation is a little different, since after the vehicle had been seized, the same was also sold and third party rights have accrued over the vehicle. It is possibly on such account that the Appellant Bank chose to comply with the directions of the District Forum notwithstanding the pendency of this case. Since the Appellant Bank has already accepted the decision of the District Forum and has paid the amounts as directed, no relief can be granted to the Appellant and the Appeals are disposed of in the light of the observations made hereinabove.
29. The application filed in Special Leave Petition (Civil) No.10547 of 2009 on 26th August, 2011, for bringing on record the legal heirs of the sole respondent Shiv Nath Sareen is no longer relevant on account of the aforesaid decision and the same is, therefore, dismissed. The Appeals are also disposed of in terms of the observations made hereinabove. There shall, however, be no order as to costs."
8. Thus, the Supreme Court has not precluded the financial institution from enforcing the terms and conditions of the higher purchase agreement for recovery process. The Apex Court has only placed the rider that such recovery process has to be in accordance with law and recovery process referred to in the agreement has to be effected by due process of law and not by use of force.
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9. In the facts of the case it cannot be said that the respondent No.1-Bank by appointing the Agency has taken a forceful possession of the hypothicated vehicle contrary to the guidelines laid down by the Reserve Bank of India and there is no violation by the respondent No.1-Bank of the principles laid down by the Apex Court and therefore, such action cannot be strucked down as held by the Apex Court in the aforesaid decision.
10. In view of the foregoing reasons, the petition is devoid of any merit and is accordingly dismissed.
(BHARGAV D. KARIA, J) PALAK Page 14 of 14 Downloaded on : Fri Feb 11 20:33:27 IST 2022