Financier Continues To Be Owner Of Goods Which Are Subject Of Hire Purchase Agreement Until Hirer Pays All Installments: SC [Read Judgment]

The financier continues to be owner of the goods being the subject of hire purchase, until the option to purchase is exercised by the hirer, upon payment of all amounts agreed upon between the hirer and the Financier, the Supreme Court has reiterated in a judgment passed on Thursday.

The bench comprising Justices DY Chandrachud and Indira Banerjee observed that there is no impediment to the Financier taking possession of the vehicle when the hirer does not make payment of instalments/hire charges in terms of the Hire Purchase Agreement.

" However, such repossession cannot be taken by recourse to physical violence, assault and/or criminal intimidation. Nor can such possession be taken by engaging gangsters, goons and muscle men as so called Recovery Agents", the court added.

The bench was considering an appeal against National Consumer Disputes Redressal Commission order. In this case, the NCDRC and SCDRC had upheld District Forum's order directing the Financier to pay the Complainant the entire amount paid by the Complainant to the Financier towards instalments.

In the appeal, the issues considered was (1) whether the Financier is the real owner of the vehicle which is the subject of a hire purchase agreement, and if so, whether there can be any impediment to the Financier, taking repossession of the vehicle, when the hirer does not make payment of instalments in terms of the hire purchase agreement. (2) Whether service of proper notice on the hirer is necessary for repossession of a vehicle which is the subject of a hire purchase agreement, and if so, what is the consequence of non service of proper notice

Answering this issue, the bench, referring to various precedents, summarized the principles regarding Hire Purchase transaction

1. Goods are let out on hire under a Hire Purchase Agreement, with an option to purchase, in accordance with the terms and conditions of the Hire Purchase Agreement. The hirer simply pays for the use of the goods and for the option to purchase them.
2. Until the option to purchase is exercised by the hirer, upon payment of all amounts agreed upon between the hirer and the Financier, the financier continues to be owner of the goods being the subject of hire purchase. Till such time the hirer remains a trustee and/or bailee of the goods covered by the Hire Purchase Agreement.
   
3. The Financier continues to remain the owner of a vehicle, covered by a hire purchase agreement till all the hire instalments are paid and the hirer exercises the option to purchase. Thus, when the Financier takes re-possession of a vehicle under hire, upon default by the hirer in payment of hire instalments, the Financier takes repossession of the Financier's own vehicle.
   
4. When the agreement between the Financier and the hirer permits the Financier to take possession of a vehicle financed by the Financier, there is no legal impediment to the Financier taking possession of the vehicle. When possession of the vehicle is taken, the Financier cannot be said to have committed theft.
5. Whether the transaction between a Financier and a purchaser/hirer is a hire purchase transaction, or a loan transaction, might be determined from the terms of the agreement, considered in the light of surrounding circumstances. However, even a loan transaction, secured by right of seizure of a financed vehicle, confers licence to the Financier to seize the vehicle.

Answering the second issue, the bench said that, whether the service of proper notice on the hirer would be necessary for repossession of a vehicle, which is the subject matter of a Hire Purchase Agreement, would depend on the terms and conditions of the Hire Purchase Agreement, some of which may stand modified by the course of conduct of the parties. The court observed:

1. If the hire purchase agreement provides for notice on the hirer before repossession, such notice would be mandatory. Notice may also be necessary, if a requirement to give notice is implicit in the agreement from the course of conduct of the parties.
   
2. If the hirer commits breaches of the conditions of a hire purchase agreement which expressly provides for immediate repossession of a vehicle without further notice to the hirer, in case of default in payment of hire charges and/or hire instalments repossession would not be vitiated for want of notice.
   
3. In a case where the requirement to serve notice before repossession is implicit in the hire purchase agreement, non service of proper notice would tantamount to deficiency of service for breach of the hire purchase agreement giving rise to a claim in damages. The Complainant consumer would be entitled to compensatory damages, based on an assessment of the loss caused to the complainant by reason of the omission to give notice. Where there is no evidence of any loss to the hirer by reason of omission to give notice, nominal damages may be awarded.
   

Allowing the appeal, the bench set aside orders of the Consumer Forum/Commissions. The Financier was, however, directed to pay a composite sum of Rs.15,000/- to the Complainant towards damages for 'deficiency' in service and costs for omission to give the Complainant a proper notice before taking repossession of the vehicle.

Case no.: M/S Magma Fincorp Ltd. vs. Rajesh Kumar Tiwari 

Case name:  CIVIL APPEAL NO. 5622 OF 2019 

Coram: Justices DY Chandrachud and Indira Banerjee

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