'RBI must issue guidelines'; SC against forcibly seizing vehicles over loan defaults

NEW DELHI: The Supreme Court has taken a stern stance against financial institutions forcibly seizing vehicles due to loan defaults. Financial institutions have no authority to harass defaulters or seize vehicles through fraudulent means; they must follow legal procedures. A bench comprising Justices P.S. Narasimha and Alok Aradhe directed that prior notice must be given before a vehicle is sold and that the borrower must be provided an opportunity to clear the outstanding dues before the sale.

The RBI should issue guidelines to prevent the seizure of vehicles pledged as collateral.

The court intervened in a case where a truck was seized by an unidentified group appointed by Cholamandalam Investment and Finance Company. The firm must pay Rs 10 lakh in compensation to the truck owner. The vehicle was taken away at 1 AM after its steering lock was broken. The court observed that the owner was entitled to compensation, considering the loss of his livelihood and the mental distress caused. The loan accounts of the petitioner, Haridatt Sharma—a native of Uttar Pradesh—must be closed. The court also directed that the Rs 4.5 lakh released from the sale of the vehicle be paid to him, along with 6 per cent annual interest. The vehicle loan was availed in 2019, but repayments had defaulted. A four-member team took the vehicle away in 2023. An investigation revealed that the financial institution had sold the vehicle.

Although the petitioner approached the Allahabad High Court, he subsequently moved the Supreme Court after failing to secure a favourable outcome.