Hire-Purchase Agreement | Bank Need Not Re-Issue Vehicle's Registration Certificate After Sale Due To Default By Registered Owner: Calcutta HC

The Calcutta High Court has held that in hire-purchase agreements where a bank repossesses a vehicle and re-sells it due to a default by the vehicle's registered owner, the bank cannot be compelled to re-issue the vehicle's certificate of registration under Section 51(5) of the Motor Vehicles Act (MV Act).

A single bench of Justice Rai Chattopadhyay held:

"Court finds that the petitioner or the respondent bank cannot be compelled to take steps for due adherence to the said provision of law, that is, under section 51(5) of the said Act. The financer having taken possession of the vehicle and having not complained about any non-receipt of the certificate of registration from the erstwhile registered owner and also having already sold and delivered the possession thereof to the petitioner by dint of an order of the Arbitrator, – compliance by it, of the provision under Section 51 (5) of the said Act, would actually be redundant and a futile exercise."

Section 51(5) of the MV Act states that if the person whose name has been specified in the certificate of registration as the person with whom the registered owner has entered into the said agreement, satisfies the registering authority that he has taken possession of the vehicle [from the registered owner] owing to the default of the registered owner under the provisions of the said agreement and that the registered owner refuses to deliver the certificate of registration or has absconded, such authority may...cancel the certificate and issue a fresh certificate of registration in the name of the person with whom the registered owner has entered into the said agreement.

In the present case, the petitioner challenged an order passed by the R.T.A., Tamluk, Purba Medinipur dated 17th November 2023.

The writ petitioner was the auction purchaser of a vehicle which was covered under a hire purchase agreement, executed between IDFC Bank (respondent bank) and the erstwhile registered owner.

The erstwhile registered owner of the said vehicle defaulted on the loan amount taken from the respondent bank, leading to arbitration proceedings in terms of the agreement.

By an order of the arbitrator, the bank took steps for the sale of the vehicle. The present petitioner was the auction purchaser of the said vehicle. The bank transferred the title of the vehicle to the present petitioner and reserved no right to the same any further.

After purchase, the petitioner approached the authorities i.e. respondent no. 3 for registration of his vehicle, who were directed by the High Court to consider the petitioner's prayer due to their inaction. The resultant order has been challenged in this case.

The writ petitioner as well as the bank authorities submitted that since the sale was completed between the petitioner and the bank pursuant to the direction of the arbitrator, the respondent authorities are duty-bound to register the vehicle in the name of its present owner i.e. the writ petitioner.

The counsel for the Bank submitted that the direction for compliance with the provisions under section 51(5) of the Motor Vehicles Act, 1988, as made by the respondent authority in the said impugned order, would be futile and an empty formality in such a case.

It was submitted further that the sale is already complete and the respondent bank is satisfied upon receipt of consideration money as well as being indemnified by the present petitioner, as the new purchaser of the said vehicle regarding future liabilities, if any.

Counsel for the State contended that the requirement under section 51(5) of the Motor Vehicle Act, 1988 was unavoidable, in case of a vehicle under a hire-purchase agreement. He submitted further that the vehicle was originally registered for the first time in favour of its first owner, at the Regional Transport Authority at Barasat, North 24 Parganas.

He submitted that the law required the registered owner to deposit his 'certificate of registration' to the concerned registering authority, in case of his vehicle having been possessed over by the bank, as a part of the hire-purchase agreement, owing to the default of the registered owner.

He contended that the writ petition suffers from a defect of party and that the RTA, Purba Medinipur was not a relevant party to this case.

Court's observations

Upon perusing Section 51(5) of the MV Act, which the impugned order had stressed on the compliance of, the Bench stated, "the Court cannot but help noticing the language employed in the said provision of law. The very carefully selected word “may” as appears therein, renders the said provision as directory and not a mandatory provision of the law. Therefore, in an appropriate case, the requirement of the financer approaching the registering authority with the plea, of the registered owner not providing it with the certificate of registration, in case of the vehicle being taken over by the financer due to default of the registered owner, may also be dispensed with."

It stated that in the present case, the financer sold the vehicle to the present petitioner in lieu of the consideration money and an indemnity bond, by virtue of an order of the Arbitrator.

The financer took over the possession of the vehicle from the defaulter owner, and the petitioner also did not deny having been granted the possession of the vehicle, after purchase, pursuant to the order of the Arbitrator.

Therefore, the basic ingredient, for application of the provision of section 51(5) of the said Act, is not attracted in this case. In such view of the fact, the Court finds that the petitioner or the respondent bank cannot be compelled to take steps for due adherence to the said provision of law, that is, under section 51(5) of the said Act. The financer having taken possession of the vehicle and having not complained about any non-receipt of the certificate of registration from the erstwhile registered owner and also having already sold and delivered the possession thereof to the petitioner by dint of an order of the Arbitrator, – compliance by it, of the provision under Section 51 (5) of the said Act, would actually be redundant and a futile exercise, it was held.

Accordingly, the Court rejected the arguments of the respondent and set aside the impugned order while directing that immediate steps be taken for the registration of the vehicle in favour of the petitioner, among other directions. 

Case: Nandalal Verma Vs. The State of West Bengal & Ors.  

Case No: WPA 3466 of 2024

Citation: 2024 LiveLaw (Cal) 181

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