सुप्रीम कोर्ट ने RBI को निर्देश दिया: बैंकों व एनबीएफसी द्वारा बलपूर्वक वाहन जप्ती पर रोक

Supreme Court Asks RBI To Issue Directions To Prevent Forcible Repossession Of Vehicles By Banks, NBFCs

LIVELAW NEWS NETWORK

17 Sept 2026 9:05 AM IST

The Supreme Court on Wednesday (16.09.2026) has directed the Reserve Bank of India (RBI) to take effective steps to secure genuine compliance by Non-Banking Financial Companies (NBFC) and Scheduled Commercial Banks with the Guidelines, Master Circulars, and Clarifications it has issued over the years on recovery practices, observing that such instruments “have existed only on paper, and no steps have been taken by the RBI to implement it.”

Noting that despite over two decades of Guidelines, such practices continued unabated, the Court held that “the Guidelines/Master Circulars/Clarifications issued by RBI to NBFCs and Scheduled Commercial Banks have existed only on paper, and no steps have been taken by the RBI to implement it. We, therefore, direct the RBI to take effective steps to secure genuine compliance, by NBFCs and Scheduled Commercial Banks alike, with the Guidelines/Master Circulars/Clarifications, it has issued from time to time, so that incidents of the present kind, where a citizen is dispossessed of his livelihood in the dead of night, without notice and without recourse, do not recur. The Registry is directed to send a copy of this judgment to RBI.”

The bench accordingly directed the Registry to send a copy of the judgment to the RBI.

A bench of Justice PS Narasimha and Justice Alok Aradhe ruled so while ordering Rs 10 lakh compensation to a truck owner whose hypothecated vehicle was forcibly repossessed by the financier in the dead of the night without legal due process.

The appellant had availed a commercial vehicle loan in 2019 from Cholamandalam Investment and Finance Company Limited for his truck, secured by hypothecation of the vehicle, with a supplementary loan extended in June 2021. Following defaults in repayment, the company repossessed the vehicle once in 2022, released it after part-payment, and issued further notices upon continued default. In 2023, while his vehicle was parked under CCTV surveillance, four unidentified persons broke the steering lock and drove it away. He lodged an e-FIR the same day, pursuant to which no action was taken, prompting him to file a complaint before the Superintendent of Police. Still, however, no action was taken. It was through a legal notice that he learnt that the company had repossessed and sold the vehicle and that a further amount remained due from him despite sale proceeds.

A complaint filed by the appellant under Section 156(3) of the Code of Criminal Procedure, 1973 (CrPC, now Section 175(3) of the Bharatiya Nagarik Suraksha Sanhita, 2023) before the Chief Judicial Magistrate was dismissed on the ground that the vehicle had been confiscated for default. Subsequently, a writ petition was filed before the Allahabad High Court, which was also dismissed.

Aggrieved by the High Court's finding, the appellant approached the Supreme Court.

Tracing the history of RBI's regulatory interventions, the Supreme Court noted that Section 35A of the Banking Regulation Act, 1949 empowers the Reserve Bank of India (RBI) to issue binding directions in public interest, in the interest of banking policy, or in the interest of depositors and banking companies, and that “directions issued under Section 35-A possess a statutory force and are binding on the banking companies.”

The bench also recorded that the RBI issued Guidelines on Fair Practices Code for Lenders with the object of protecting the rights of borrowers dealing with NBFCs and banks curbing arbitrary recovery action, on the basis of recommendations of a Working Group on Lenders' Liability Laws. These Guidelines required that “lenders should not resort to undue harassment viz., persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans etc.”

The Court also referred to its earlier decision in ICICI Bank Ltd. v Prakash Kaur, where it had held that “ours is a country governed by rule of law and recovery of loans or seizures of vehicles could only be made through the legal means and the banks cannot employ 'goondas' to take possession of the vehicles by force. The court enumerated the suggestions to be followed by the financial institutions/banks for recovery of the amount and seizure of the vehicle and noted that even though the RBI had issued the Guidelines on 21.11.2005 which remains only on paper and is not being followed.”

Further, the bench observed that following Prakash Kaur, and “having regard to the rising volume of disputes and litigations arising from conduct of recovery agents and to the reputational risk such conduct visits upon the banking sector as a whole,” the RBI issued successive Master Circulars, Guidelines, and Clarifications between 2008 and 2015 to all NBFCs and Scheduled Commercial Banks, addressing aspects such as the Fair Practices Code, customer privacy, debt collection practices, training of recovery agents, repossession clauses, grievance redressal, and use of credit counsellors.

Perusing the Master Circulars, Guidelines, and Clarifications, the bench laid down ten principles “for the guidance of financial institutions and of the Courts dealing with similar controversies in future,” as follows:

Firstly, for the purpose of recovery of loans, lenders shall not resort to undue harassment of borrowers, whether by persistently bothering them at odd hours or by the deployment of muscle power.

Secondly, seizure of a vehicle can only be effected through lawful means; banks and financial institutions cannot employ 'goondas' to take possession by force.

Thirdly, banks must maintain a due diligence process, conforming to RBI Guidelines on outsourcing of financial services, for the engagement of recovery agents.

Fourthly, a repossession clause incorporated in a loan contract must be legally valid and must conform to the provisions of the Indian Contract Act, 1872.

Fifthly, recovery agents engaged by banks and financial institutions must strictly adhere to the applicable Guidelines and instructions, including the Banking Codes and Standards Board of India (BCSBI) Code.

Sixthly, complaints received regarding violation of the Guidelines, or the adoption of abusive recovery practices, are to be viewed seriously by the RBI.

Seventhly, the RBI may impose, and in cases of persistent breach extend, a ban upon a bank engaging recovery agents within a particular jurisdiction or function.

Eighthly, a repossession clause may contain the notice period before possession is taken; the circumstances in which such notice may be waived; the procedure for taking possession; a final opportunity to the borrower to repay before sale or auction; the procedure for restoring possession to the borrower; and the procedure for sale or auction.

Ninthly, banks are encouraged to maintain a mechanism of credit counsellors to extend sympathetic consideration to deserving borrowers, and NBFC-Microfinance Institutions are required to display the Fair Practices Code, in the vernacular language, at their branch premises, with a corresponding declaration of accountability for staff conduct and grievance redressal incorporated into the loan agreement itself.

Lastly, recovery is ordinarily to be made at a central designated place; recourse to the borrower's residence or place of work is permissible only where he fails to appear at the designated place on two or more occasions, and field staff must possess the minimum qualifications and training prescribed by the Fair Practices Code.

Applying the framework to the facts of the present case, the bench found that no seven-day notice had been issued to the appellant prior to repossession, and therefore “the right of repossession, being conditional upon such notice, never accrued to the Company in the first place. The appellant's specific and unrebutted case is that possession was taken at about 1:00 a.m. on 09.04.2023 by breaking open the steering lock of the vehicle, a mode of taking possession that is, by no stretch, peaceful, and one which bears every mark of the very 'goondaism' that this Court, in Prakash Kaur (supra), and the RBI, in its successive Guidelines, have condemned in unambiguous terms.”

It also observed that where a“financier steps outside that framework, breaks open a lock in the dead of night, takes possession without notice and without a signed memorandum, and thereafter treats the borrower merely as a source of residual liability, it forfeits the protection that the contract and the law would otherwise have afforded it, and exposes itself to the consequences in law of an unauthorised and arbitrary seizure.”

While setting aside the High Court's order, the Court declined to reverse the sale of the vehicle. It, however, directed the company to close both loan accounts of the appellant and refund Rs 4,50,000 (sale price of the vehicle) with 6% interest per annum from the date of sale till payment. The appellant was also held entitled to compensation of Rs 10,00,000 “in lieu of mental agony caused to him and loss of his livelihood for a considerable period.”

In the light of above, the appeal was allowed with costs quantified at Rs 50,000.

Case: Hari Dutta Sharma v State of UP & Ors

Citation : 2026 LiveLaw (SC) 942

Click here to read the judgment

For Appellant: Mr Shashank Singh, AOR; Mr Gaurav Agarwal, Adv.; Ms Shristi Gupta, Adv.; Mr Anusthrapha Pratap Singh, Adv.

For Respondent: Ms Aishwarya Mishra, AOR; Mr Anuj Chauhan, Adv.; Mr S.surender, Adv.; Ms Akansha Singh, Adv.; Mr Shubham Garg, Adv.

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