2026 INSC 998 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO(S). OF 2026

(@ S.L.P. (C) NO(S). OF 2026)

(@ DIARY NO. 10952 OF 2026)

HARI DUTTA SHARMA … APPELLANT

VERSUS

STATE OF U.P. & ORS. … RESPONDENTS

J U D G M E N T

ALOK ARADHE , J.

1. Delay condoned.

2. Leave granted.

3. A loan may create a debt, and a debt may confer upon the

financier a right to recover what is due; but the manner in which

that right is exercised is not without significance. The present

appeal brings before this Court the contest between the right to

recover a secured debt and the right of the borrower to have that

recovery undertaken within the bounds of law.

4. This appeal is directed against the Order dated 04.04.2025

passed by the High Court of Judicature at Allahabad by which

the writ petition preferred by the appellant was dismissed.

FACTS

5. Facts giving rise to the filing of this appeal lie in narrow compass.

On 25.03.2019, the appellant obtained a commercial vehicle loan

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from Cholamandalam Investment and Finance Company Limited

(the Company) for his truck namely, Tata SFC 407 bearing

registration No. UP-16-GT-0449. Out of the sanctioned amount

of loan of Rs.10,40,080.75 (Rupees Ten Lakh Forty Thousand

Eighty Rupees and Seventy -Five Paise only) a sum of

Rs.9,36,000/- (Rupees Nine Lakh Thirty-Six Thousand only) was

disbursed. The amount of loan was to be repaid in 75 monthly

instalments, and was secured by hypothecation of the vehicle. On

12.06.2021, a further sum of Rs.1,04,080.75 (Rupees One Lakh

Four Thousand Eighty and Seventy-Five Paise only) was extended

as a supplementary loan.

6. The appellant failed to honour the repayment commitments and

did not pay the amount of instalments due under the loan

agreement. A recall-cum-demand notice dated 17.01.2022 calling

upon the appellant to discharge his outstanding liability was

issued. The appellant continued to make defaults in repayment

of loan amount. The Company repossessed the vehicle and issued

a pre-sale letter on 13.06.2022 to the appellant. The appellant

paid a sum of Rs. 86,726/- (Rupees Eighty-Six Thousand Seven

Hundred Twenty-Six only) and assured to regularise the loan

account. Thereupon, the vehicle was released.

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7. The appellant again did not pay the instalments due under the

loan agreement. Thereupon, notices dated 07.07.2022 and

22.12.2022 were issued granting an opportunity to the appellant

to clear the outstanding dues or to surrender the hypothecated

asset. The appellant was further informed that upon such

surrender of the vehicle the same shall be sold “on as is where is”

basis and the sale proceeds will be appropriated towards the

amount under the loan agreement. According to the Company,

the appellant even after issuance of said notices, did not repay

the amount of the loan, thereupon, a pre-seizure notice dated

09.04.2023 was sent to the SHO Police Station, Ayodhya Cantt.

8. According to the appellant, on 09.04.2023, while the vehicle stood

parked after making delivery of goods at a consignor’s godown

under CCTV surveillance at Ayodhya, four unidentified persons

broke the vehicle’s steering lock at about 1:00 a.m. and drove it

away. The vehicle was repossessed without issuing any notice to

the appellant. The appellant lodged a lost article Report and an e-

FIR on the same day. No action was taken on the complaint of the

appellant for tracking the said vehicle. The appellant thereupon

submitted a complaint on 08.09.2023 to the Superintendent of

Police, Ayodhya.

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9. On 30.09.2023, the appellant received a legal notice from the

Company disclosing that since the appellant had failed to make

repayment of the amount of loan due, the possession of the

vehicle has been taken and the same has been sold on

31.08.2023. It was further stated in the notice that amount

payable by the appellant as on 31.08.2023 was Rs.5,71,914/ -

(Rupees Five Lakh Seventy One Thousand Nine Hundred

Fourteen only) and a sum of Rs.4,50,000/- (Rupees Four Lakh

Fifty Thousand only) was recovered as sale proceeds. The

appellant was informed that he was required to pay a further sum

of Rs.1,25,571/- (Rupees One Lakh Twenty Five Thousand Five

Hundred Seventy One only).

10. The appellant, thereupon, filed a complaint under Section 156(3)

of the Code of Criminal Procedure before the Chief Judicial

Magistrate, Ayodhya which was dismissed on 23.09.2024 on the

ground that the vehicle had been confiscated for default.

11. The appellant filed a writ petition before the High Court. The

Division Bench by an Order dated 04.04.2025, noted that the

vehicle had already been sold on 31.08.2023 and held that the

appellant had belatedly approached the Court. It was found that

the appellant defaulted in the payment of instalments of the loan.

Accordingly, the writ petition was dismissed.

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SUBMISSIONS

12. Learned counsel for the appellant submitted that the High Court

fell into error in non-suiting the appellant on the ground of delay.

It was further submitted that the High Court ought to have

appreciated that the action of the Company in taking possession

of the vehicle was in stark violation of Article 11 of the Loan

Agreement, which mandated seven-days’ prior notice. It was

further submitted that a financier’s right of self-help repossession

under the hypothecation agreement cannot be exercised by force,

deceit or in violation of the terms of the Agreement. It was pointed

out that, even after the sale of the vehicle, the appellant was

continuously visited with traffic challans.

13. On the other hand, learned counsel for the Company submitted

that the appellant was a chronic defaulter, as is reflected in the

consolidated statement of account. It was further submitted that

on an earlier occasion, on an identical default, repossession of

the vehicle was forestalled only upon making part- payment of

the loan amount. It was also submitted that pre-seizure

intimation, inventory list, post-seizure intimation and pre-sale

notice were duly furnished to the police and the appellant. It was

contended that the vehicle was sold for Rs.4,50,000/- (Rupees

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Four Lakh Fifty Thousand only) which was fair and in accordance

with the terms of the loan agreement.

ANALYSIS

14. We have considered the rival submissions and have perused the

record.

15. It is well-settled in law that a financier’s right to take possession

of the financed vehicle in the first instance, is a matter of contract,

where an agreement confers such a right, there is no legal

impediment to its exercise unless the contract is unconscionable

or opposed to public policy

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. Such clauses of self-help

repossession are not, in themselves, an evil to be eradicated: they

are what make it commercially feasible for institutions to extend

credit, against the security of the very asset financed, to

borrowers of modest means, truck ope rators and small

transporters among them, who possess no conventional collateral

and would otherwise remain outside the reach of institutional

finance. But precisely because this right operates as an

alternative to recovery through courts or tribunals, outside the

supervision of a court at the first instance, it must be construed

with great circumspection; left unchecked, it is capable of being

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Orix Auto Finance (India) Ltd., v. Jagmander Singh and Anr., (2006) 2 SCC 598 and Sundaram Finance

Limited and Anr. v. T. Thankam, (2015) 14 SCC 444.

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read as an unbridled licence to seize property by stealth, by force

or in the dead of night, converting a facility meant to promote

financial inclusion into an instrument of oppression against the

very class it was designed to serve.

16. Section 35-A of the Banking Regulation Act, 1949, empowers the

Reserve Bank of India (RBI) to issue directions to the banking

companies. The said power can be exercised in four

contingencies, namely: (i) public interest; (ii) interest of banking

policy; (iii) interests of depositors; and (iv) interests of the banking

companies. The directions issued under Section 35-A possess a

statutory force and are binding on the banking companies

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.

17. The RBI, on 05.05.2003, with an object to protect the rights of

citizens dealing with the Non-Banking Financial Company

(NBFC)/Banks and to curb the arbitrary action on the part of

such institution in resorting to alternate modes of recovery

without approaching the courts or tribunals, issued Guidelines

on ‘Fair Practices Code for Lenders’. The said guidelines were

issued on the basis of recommendations made by Working Group

on Lenders’ Liability Laws constituted by the Government of

India. The banks/financial institutions were advised to adopt the

said Guidelines and frame the Fair Practices Code duly approved

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Internet and Mobile Association of India v. Reserve Bank of India (2020) 10 SCC 274.

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by their Board of Directors. Paragraph (v)(c) of the said Guidelines

provides that in the matters of recovery of loans, the lenders

should not resort to undue harassment viz., persistently

bothering the borrowers at odd hours, use of muscle power for

recovery of loans etc.

18. Another set of Guidelines were issued on 21.11.2005, by the RBI

which covered a wide area pertaining the rights of the customers,

right to privacy and confidentiality, practice of debt collections,

redressal of grievances and monetary systems to be implemented

by Banks. Thereafter, on 28.09.2006, the Guidelines on Fair

Practices Code for NBFCs were issued, wherein, it was reiterated

that NBFCs should not resort to undue harassment viz.

persistently bothering the borrowers at odd hours and use of

muscle power for the recovery of loans, etc.

19. A two-Judge Bench of this Court had occasion to consider the

2003 Guidelines in ICICI Bank Ltd. v. Prakash Kaur and Ors.

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where registration of First Information Report against the

recovery agents of ICICI Bank Ltd. for forcibly taking possession

of a vehicle fell for consideration. This Court emphasised that the

rights of financial institutions in employing alternate means of

recovery other than the due process of law either through courts

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(2007) 2 SCC 711

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or tribunals has to be viewed from the angle of common man no

less than that of financial institutions. It was observed that once

a loan is taken and there is a default, the witch-hunt begins and

the bank is an aggressor whereas the public is the victim. It was

also noted that financial institutions employ recovery agents to

trace the defaulter and recover the amounts of loans and a

person’s self-respect and stature in the society is immaterial to

such an agent. This Court held in terms which bear reiteration

that ours is a country governed by rule of law and recovery of

loans or seizures of vehicles could only be made through the legal

means and the banks cannot employ ‘goondas’ to take possession

of the vehicles by force. The court enumerated the suggestions to

be followed by the financial institutions/banks for recovery of the

amount and seizure of the vehicle and noted that even though the

RBI had issued the Guidelines on 21.11.2005 which remains only

on paper and is not being followed.

20. Following Prakash Kaur (supra), and having regard to the rising

volume of disputes and litigations arising from conduct of

recovery agents and to the reputational risk such conduct visits

upon the banking sector as a whole, the RBI, issued successive

Master Circulars, Guidelines and Clarifications, on 24.04.2008,

24.04.2009, 01.07.2009, 01.07.2010, 01.07.2011, 26.03.2012,

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02.07.2012, 18.02.2013, 01.07.2013, 01.07.2014 and

01.07.2015, to all NBFCs and the Scheduled Commercial Banks.

These instruments taken together address the following aspects:

(i) formulation and display of Fair Practices Code duly approved

by the Board of Directors, (ii) right of customers and their right to

privacy and confidentiality, (iii) practice of collection of debts, (iv)

methods of recovery to be followed by recovery agents and their

training, (v) provisions to be contained in the repossession

clauses, (vi) the need of creating a grievance redressal system in

relation to complaints against the banks and its recovery agents;

and (vii) utilisation of credit counsellors.

21. A careful reading of the Master Circulars, the Guidelines and the

clarifications issued by the RBI, discloses the following position

which we consider necessary to set out for the guidance of

financial institutions and of the Courts dealing with similar

controversies in future:

(i) Lenders shall not, in the recovery of loans, resort to undue

harassment of borrowers, whether by persistently

bothering them at odd hours or by the deployment of

muscle power.

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(ii) Seizure of a vehicle can only be effected through lawful

means; banks and financial institutions cannot employ

‘goondas’ to take possession by force.

(iii) Banks must maintain a due diligence process, conforming

to RBI Guidelines on outsourcing of financial services, for

the engagement of recovery agents.

(iv) A repossession clause incorporated in a loan contract must

be legally valid and must conform, in letter and in spirit, to

the provisions of the Indian Contract Act, 1872.

(v) Recovery agents engaged by banks and financial

institutions must strictly adhere to the applicable

Guidelines and instructions, including the Banking Codes

and Standards Board of India (BCSBI) Code.

(vi) Complaints received regarding violation of the Guidelines,

or the adoption of abusive recovery practices, are to be

viewed seriously by the RBI.

(vii) The RBI may impose, and in cases of persistent breach

extend, a ban upon a bank engaging recovery agents within

a particular jurisdiction or function.

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(viii) A repossession clause may contain: (a) the notice period

before possession is taken; (b) the circumstances in which

such notice may be waived; (c) the procedure for taking

possession; (d) a final opportunity to the borrower to repay

before sale or auction; (e) the procedure for restoring

possession to the borrower; and (f) the procedure for sale

or auction.

(ix) Banks are encouraged to maintain a mechanism of credit

counsellors to extend sympathetic consideration to

deserving borrowers, and NBFC-Microfinance Institutions

are required to display the Fair Practices Code, in the

vernacular language, at their branch premises, with a

corresponding declaration of accountability for staff

conduct and grievance redressal incorporated into the loan

agreement itself.

(x) Recovery is ordinarily to be made at a central designated

place; recourse to the borrower’s residence or place of work

is permissible only where he fails to appear at the

designated place on two or more occasions, and field staff

must possess the minimum q ualifications and training

prescribed by the Fair Practices Code.

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22. It is against this regulatory framework; relevant part of Article 11

of the Agreement needs to be examined which is extracted below

for the facility of reference:

“11. REPOSSESSION, TERMINATION AND

COMPANY'S OTHER RIGHTS:

a) On the occurrence of any of the aforesaid Events Of

Default contained in Article 10, the rights of the

Borrower over the Asset shall stand determined void

ipso facto without any notice and the Borrower shall be

bound to deliver forthwith the Asset to the Company in

the same condition in which it was originally received

by him with all accessories/modifications done by

Borrower whatsoever, ordinary wear and tear accepted

and if the Asset is a vehicle, original Certificate of

Registration with applicable Forms as prescribed in the

statutes and/or rules made thereunder shall also be

delivered to the Company along with the Asset. Failure

or refusal of the Borrower to surrender the Asset shall

constitute unlawful retention for which the Company

shall be entitled to initiate legal action, without

prejudice in other rights/legal remedies available to the

Company.

i) Notice: In case of any default in repayment including

an occurrence of any of the aforesaid Events of Default

and/or failure to surrender the Asset as mentioned

herein above, the Company shall cause a 7-day notice

to be issued to the Borrower at his address as

registered with the Company. The notice shall be

deemed me to be served on the Borrower within 24

hours of posting, the notice by the Company even if the

notice so served returns unserved for whatever reason

and the confirmation from any authorized offer of the

Company for having posted the notice to the Borrower

shall be final and binding in this regard.

ii) Repossession: In case the Borrower fails to make

payment of the dues or surrender the asset to the

Company and/or rectify the breach of the terms of the

contract in compliance with the notice mentioned

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above, to the satisfaction of the Company, without

prejudice to its other rights available under the

Agreement, the Company may be entitled to take

possession of the Asset (referred to as “repossession”)

and for the said purpose, enter any place or places

where the Asset may than be or is likely to be, remove

or take possession of the same. The Borrower agrees

and undertakes not to prevent or obstruct the

Company from exercising its right of repossession of

the Asset in the event of default by the Borrower. It

shall be the sole responsibility of the Borrower to

remove any goods (perishable, non -perishable)

available in the Asset at the time of its repossession by

the Company and the Borrower shall make his/their

own arrangements to transfer such goods from the said

Asset to and transport it back at his own cost and

expenses and the Company shall not be liable to the

Borrower for any damage, depreciation value, lose in

transit etc. or for any damages arising on account of

non-delivery of the same to anyone during or after such

repossession.

iii) Post Repossession: Upon taking possession of the

Asset, as a final chance to rectify the default, a 7 days

notice that be caused by the Company to the Borrower

to repay the termination price (which includes the

charges and expenses incurred for taking possession

of the Asset including the legal expenses). The notice

shall be deemed to be served on the Borrower within

24 hours of posting the notice by the Company even if

the notice is served returns unserved for whatever

reason and the confirmation of any authorised officer

of the Company for having posted the notice to the

Borrower shall be final and binding in this regard.

iv) Waiver of Notice: The said notice (before and after

taking possession of the Asset) mentioned here in

above can be waived at the discretion of the Company,

in case the Company is of opinion that such action is

likely to jeopardize the Asset or the interest of the

Company.

v) On payment of the termination price within the time

and manner stipulated in the notice mentioned above,

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the Company shall return the repossessed Asset to the

Borrower or his autho rized representative to be

specified in writing by the Borrower. In case of failure

on the part of the Borrower to make payment of the

termination price within the time and manner

stipulated in the notice mentioned above, the Company

shall sell, dispose of the asset in the manner it may

deem fit without any further notice to the Borrower

notwithstanding exercising any other legal remedy or

right against the Borrower available to it.

vi) The Borrower hereby irrevocably authorizes the

Company to sell/transfer/assign the Asset without

the Intervention of Court either by private treaty of

public auction in such other manner as the Company

may deem fit. The Borrower shall not be entitled to

raise any objection regarding the regulatory of the sale

and/or actions taken by the Company nor shall the

Company be liable/responsible for any loss that may

occasion by the exercise of such power and/or may

arise from any act or default on the part of any broker

or auctioneer or other person or body engaged by the

Company for the said purpose.

vii) The Borrower shall forthwith deliver to the Company

all original certificates and policies of insurance

including Certificate of Registration (where the Asset is

a vehicle), keys and all other documents relating to the

Asset in the event of the failure of the Borrower to do

so, the Company be entitled immediately apply to the

concerned authorities and obtain the documents

afresh, expenses for which shall be charged to the

account of the Borrower and shall form part of the

amount payable on the determination of this

Agreement. The Borrower agrees and undertakes that

he shall not raise any objection for such application by

the Company.

viii) Upon sale of the Asset and adjustment of the said

proceeds towards the Loan dues (which includes the

expenses/charges incurred for parking, sale of Asset,

in addition to the termination price), if there is any

shortfall amount due and payable, the same shall be

made good by the Borrower and/or the Guarantor. If

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there is any surplus amount available after such

adjustment, the Company shall, subject to the right of

lien and Set-off against the Borrower and Guarantor,

refund the balance, if any to the Borrower.

b) Termination:

On the surrender of the Asset by the Borrower or

repossession thereof by the Company, notwithstanding

the Term of Loan specified in the Schedule, the

Agreement shall stand terminated without any notice.

Without prejudice la the foregoing and/or any of the

terms contained in this Agreement on termination, this

Agreement may also stand terminated:

i) by efflux of time an expiry of the Term of Loan

specified in Agreement; or

ii) earlier by a notice in writing from the Company to

the Borrower and Guarantor, of is decision to do so.

On such termination, the Company shall have like

powers of repossession of the Asset as in a case where

any Event of Default had occurred. On termination in

any manner as above:

iii) The Borrower and Guarantor shall not thereafter

be entitled to the benefit: of payment by instalments of

the amounts remaining payable which shall fall due

immediately together with amount already in arrears,

whether by way of instalments, additional interest or

on any other account whatsoever.

iv) The Borrower shall be liable to pay Additional

Interest or the termination price at the rate mentioned

in the Schedule, calculated from data of termination

until realisation of the payment in full.

23. Thus, Article 11 in substance provides as follows:

(i) On occurrence of an event of default as prescribed in Article

10, the rights of borrowers over the asset shall stand

determined and the borrowers shall be bound to deliver

forthwith the asset to the Company.

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(ii) Failure or refusal of borrowers to surrender the asset shall

constitute unlawful retention for which the Company shall be

entitled to initiate legal action.

(iii) In case of default in repayment including an occurrence of

the event of the defaults or failure to surrender the asset, the

Company shall cause a seven-day notice to be issued to the

borrower at his address registered with the Company.

(iv) In case, borrower fails to make payment of dues or surrender

asset to the Company or to rectify the breach of terms of

contract in compliance with the notice mentioned above, the

Company may be entitled to take possession of the asset and

for the said purpose may enter any place or places where the

asset may then be or is likely to be, removed or take

possession of the same.

(v) Upon taking possession of the asset, as a final chance to

rectify the default, a seven-day notice shall be sent by the

Company to the borrower to repay the termination price,

which includes charges and expenses incurred for taking

possession of the asset including legal expenses.

(vi) On payment of termination price within the time and manner

indicated in the notice the Company shall return the

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repossessed asset to the borrower or his authorized

representative to be specified in the writing by the borrower.

(vii) In case of failure on the part of the borrower to make the

termination price within the time and manner stipulated in

the notice, the Company shall sell, dispose of the asset in the

manner it may deem fit, without any further notice to the

borrower.

(viii) The borrower irrevocably authorises the Company to

sell/transfer/assign the asset without the intervention of the

Court either by private treaty or public auction in such

manner as the Company may deem fit.

(ix) The borrower shall forthwith deliver to the Company, all

original certificates and policy of insurance including

certificates of registration where asset is a vehicle.

(x) Upon sale of the asset and adjustment of the sale proceeds

toward the dues, if there is any shortfall in the amount due

and payable, the same shall be made good by the borrower

and/or the guarantor.

24. Thus, Article 11 places the borrower entirely at the mercy of

financier’s unilateral discretion, both as to whether notice will be

given at all and as to the manner and timing of the sale. On a

careful scrutiny of Article 11 of the Loan Agreement read with

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Guidelines issued by the RBI, we are of the view that Article 11 is

neither in consonance with the Guidelines issued by the RBI nor

the provisions of the Indian Contract Act, 1872 for the reasons

which follow.

25. Firstly, the stipulation that the borrower’s rights over the asset

stand determined “ipso facto without any notice” upon the mere

occurrence of an Event of Default is directly at variance with the

requirement that a repossession clause must provide for a notice

period before possession is taken. Secondly, the authorisation to

recovery agents to “enter any place or places” in search of the

asset is itself contrary to the RBI’s Guidelines and offends the

requirement of a fair, lawful procedure for taking possession.

Thirdly, the clause nowhere prescribes a procedure for taking

possession or for sale and auction of the asset, leaving both

wholly to the discretion of the Company. And fourthly, the power

reserved to the Company to waive the notice altogether, at its own

discretion, on its own assessment of jeopardy to its interest,

converts what ought to be a floor of minimum protection into an

illusory promise, defeasible at the will of the very party against

whom it is meant to protect the borrower. A contractual term

which permits one party unilaterally to dispense with the

procedural safeguards designed to protect the other cannot be

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regarded as being in conformity with either the RBI Guidelines or

the general contractual requirement of fairness; to that extent,

Article 11 does not meet the standard the law requires of a valid

repossession clause.

26. Turning to the facts, the action taken against the appellant is

shown to be in contravention both RBI Guidelines, which carry

statutory force, and of the very terms of Article 11 on which the

Company relies. No seven-day notice, as contemplated by Article

11(a)(i), was in fact issued to the appellant prior to repossession;

the right of repossession, being conditional upon such notice,

never accrued to the Company in the first place. The appellant’s

specific and unrebutted case is that possession was taken at

about 1:00 a.m. on 09.04.2023 by breaking open the steering lock

of the vehicle, a mode of taking possession that is, by no stretch,

peaceful, and one which bears every mark of the very ‘goonda-

ism’ that this Court, in Prakash Kaur (supra), and the RBI, in its

successive Guidelines, have condemned in unambiguous terms.

The possession memorandum does not even bear the appellant’s

signature which reinforces the conclusion that the vehicle was

taken by the Company’s recovery agents without following the

due process of law. The High Court failed to advert to this aspect

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of the matter, which had a direct and material bearing on the

controversy before it.

27. As regards the finding of the High Court that the writ petition was

liable to be dismissed on the ground of delay, we find that this

finding was arrived at without reference to the material on record.

The appellant had lodged a First Information Report on the very

day of the incident, 09.04.2023, and thereafter filed a complaint

under Section 156(3) of the Code of Criminal Procedure, 1973 on

08.11.2023, in the bona fide belief that his vehicle had been

stolen. He continued, moreover, to receive traffic challans on

18.01.2024, 18.11.2024 and 18.02.2025 in respect of a vehicle

the Company claims to have sold as far back as 31.08.2023, a

circumstance which, at the very least, called for explanation and

ought to have weighed with the High Court. In these

circumstances, we are unable to sustain the finding that the writ

petition was liable to be thrown out on the ground of delay alone,

without an examination of its merits and in the absence of any

demonstrated prejudice to the Company.

28. Financial institutions, particularly those operating under the

regulatory umbrella of the RBI, hold their repossession clauses

on the implicit condition that they will be exercised within the

four corners of the procedural safeguards, the RBI has, over two

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decades, painstakingly, built, notice, an opportunity to cure, a

fair mode of taking possession, and a transparent mode of sale.

Where a financier steps outside that framework, breaks open a

lock in the dead of night, takes possession without notice and

without a signed memorand um, and thereafter treats the

borrower merely as a source of residual liability, it forfeits the

protection that the contract and the law would otherwise have

afforded it, and exposes itself to the consequences in law of an

unauthorised and arbitrary seizure. It is the balance discussed

earlier in this judgment, between the legitimate need of the

financier for an efficient recovery mechanism and the equally

legitimate entitlement of the borrower to be treated fairly, with

notice and due process, before he is deprived of the very asset by

which he earns his bread, that the Company failed to observe on

the facts before us.

29. For the foregoing reasons, impugned order dated 04.04.2025

passed by the High Court is quashed and set aside. The vehicle

of the appellant has already been sold on 31.08.2023. Therefore,

even though we do not approve of the unauthorised and arbitrary

action of the Company in repossessing the vehicle and in selling

the same, at this point of time, we are not inclined to set aside

the sale.

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30. The appellant is a man of modest means and was solely

dependent on the vehicle for his livelihood by engaging it in the

business of transportation. The appellant has been deprived of

his right to livelihood in an arbitrary and an unfair manner. The

impugned action of the Company constitutes a violation of

Articles 14 and 21 of the Constitution. Therefore, the appellant is

entitled to compensation.

31. The Guidelines/Master Circulars/Clarifications issued by RBI to

NBFCs and Scheduled Commercial Banks have existed only on

paper, and no steps have been taken by the RBI to implement it.

We, therefore, direct the RBI to take effective steps to secure

genuine compliance, by NBFCs and Scheduled Commercial

Banks alike, with the Guidelines /Master Circulars

/Clarifications, it has issued from time to time, so that incidents

of the present kind, where a citizen is dispossessed of his

livelihood in the dead of night, without notice and without

recourse, do not recur. The Registry is directed to send a copy of

this judgment to RBI.

CONCLUSION

32. We, therefore, issue following directions:

(i) The company shall close both the loan accounts of the

appellant.

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(ii) The Company shall refund the sum of Rs. 4,50,000/-

(Rupees Four Lakh Fifty Thousand only) that is the

sale price for which the vehicle of the appellant was

sold. The said amount shall carry interest at the rate

of 6% per annum from the date of sale till the payment

is made to the appellant.

(iii) The appellant is held entitled to a sum of

Rs.10,00,000/- (Rupees Ten Lakhs only) as

compensation in lieu of mental agony caused to him

and loss of his livelihood for a considerable period.

33. In the result, the appeal is allowed with costs which are quantified

at Rs. 50,000/- (Rupees Fifty Thousand only).

34. Pending applications, if any, shall stand disposed of.

……………..……………………………….J.

[PAMIDIGHANTAM SRI NARASIMHA]

…….…………………………………………J.

[ALOK ARADHE]

NEW DELHI;

SEPTEMBER 16, 2026.