Banks Cannot Forcibly Take Possession of Loan-Default Vehicles by Engaging Musclemen: Patna HC

The Patna High Court has held that forcibly taking away vehicles from owners by musclemen engaged by financial institutions and banks for defaulting on loans is violation of the fundamental right to life and livelihood.

Justice Rajeev Ranjan Prasad, while disposing of a batch of writ petitions, said the rights of the banks and the finance companies must be exercised within the constitutional limitations and in accordance with the law.

The single bench observed that banks and finance companies “cannot act in conflict with the fundamental principles and policy of India which means that no person may be deprived of his livelihood and the right to live with dignity without following the established procedure of law”.

A Supreme Court order “completely bans taking such possession by engaging gangsters, goons and musclemen as so-called recovery agents”, the bench said in its order.

The high court said that vehicle loans should be recovered following provisions of securitisation that empower banks and financial institutions to recover bad debts by acquiring physical possession of the mortgaged properties of defaulting borrowers with the aid of the district administration and getting them auctioned in order to enforce their security interest.

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The bench directed all police superintendents in Bihar to ensure that no vehicle is seized forcefully by any recovery agent and fined erring banks and finance companies Rs 50,000 each.

“The right to recovery of these banks and financial institutions if pitted against the constitutional right of life of a person/petitioner to live with dignity and not to be deprived of without following the established procedure of law, the constitutional rights of the person/petitioners shall prevail,” it said.

In the garb of the power acquired by the financier under the loan agreement to repossess the vehicle, they cannot be allowed to take the law into their hands, the high court said in its May 19 order.

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