Supreme Court directs RBI to enforce lawful vehicle seizure norms

The Supreme Court on Wednesday issued a directive to the Reserve Bank of India to ensure that scheduled commercial banks and non-banking financial companies (NBFCs) adhere to lawful methods when repossessing financed vehicles. The bench of Justices PS Narasimha and Alok Aradhe emphasised that financial institutions cannot employ force, stealth, or arbitrary tactics to recover loans, regardless of borrower default.

The court's direction stems from a judgment against Cholamandalam Investment and Finance Company Ltd, which had seized a truck owner's vehicle without following proper legal procedures. The bench ordered the finance firm to close the borrower's loan accounts and refund Rs 4.5 lakh recovered from the vehicle's sale, along with six percent annual interest.

In addition to the refund, the court imposed Rs 10 lakh in compensation for mental agony and loss of livelihood caused by the unauthorised repossession. The judgment underscores the court's concern over borrowers being dispossessed of hypothecated vehicles without adherence to due process of law.

The Supreme Court's intervention highlights the need for stricter implementation of RBI's existing directive that vehicles can only be seized through lawful means. The ruling is expected to set a precedent for how financial institutions across India handle vehicle repossession cases and borrower disputes.