[Hire-Purchase Agreement] Repossession of a vehicle upon default in payment of instalments and refusal to release the same, does not constitute ‘deficiency’ in service: SC

The SC on October 01, 2020 {M/S Magma Fincorp Ltd. vs Rajesh Kumar Tiwari} held that the Consumer Protection Act, 1986 has been enacted to protect the interests of consumers, by making provisions for the establishment of Consumer Councils and other fora for speedy redressal of consumer disputes and for matters connected therewith.

It was held by the SC Bench, comprising of Justice D Y Chandrachud and Justice Indira Banerjee, that the fora constituted under the Consumer Protection Act, 1986 are quasi judicial bodies, required to observe the principles of Natural Justice and to award relief of a specific nature and to award wherever appropriate, compensation to consumers.

The short question raised by the Financier in this appeal before the SC was, 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.

Another question which arose for determination in this appeal before the SC was, 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.

It was held by the SC that the Complainant has only made a vague assertion that the action of the Financier in taking possession of the vehicle, admittedly for default in payment of instalments, and in not releasing the vehicle to the Complainant, in spite of the Complainant’s assurance to the Financier to clear outstanding instalments and pay future instalments timely, amounts to an act of unfair trade practice and constitutes deficiency of service.

It was held that the repossession of a vehicle under hire, in accordance with the terms and conditions of a hire purchase agreement, and refusal to release the same on mere assurance of the Complainant to clear outstanding arrears of hire instalments, and pay future instalments in time, does not constitute ‘deficiency’ in service.

It was further held that the object of a notice before taking possession of a vehicle on hire under a Hire Purchase Agreement, is to enable the hirer, to make a written request to the Financier to revive the hire purchase agreement in terms of Clause 12 of the said agreement, upon payment of all outstanding dues together with damages, as might be mutually agreed upon.

The SC held that irrespective of whether the service provider adduces evidence or not, the decision of the District Forum has to be based on evidence relied upon by the Complainant. It was held that the onus of proof is on the Complainant making the allegation. It was held that Section 27 of the Consumer Protection Act casts an obligation on the District Forum, the State Commission or the National Commission to dismiss frivolous complaints with costs not exceeding Rs.10,000/-.

It was held that no adverse inference could have been drawn against the Financier for not producing the Hire Purchase Agreement before the District Forum, when there was no allegation in the complaint of breach by the Financier of the Hire Purchase Agreement, in taking possession of the vehicle. It was further held that the District Forum did not exercise its power under Section 13(4)(ii) to call upon the Financier to produce the Hire Purchase Agreement. It was also held that even otherwise, the District Forum did not direct the Financier to produce the Hire Purchase Agreement.

It was held that in the Complaint, there is not a whisper of application of any force in taking possession of the vehicle. It was held that the finding of the District Forum, of the vehicle having been lifted “forcefully” or “snatched” is, with the greatest of respect, contrary to the Complainant’s own case made out in the Complaint, and therefore perverse. It was held that it is well settled that a new case cannot be made out by way of evidence, when there are no pleadings to support the same.

It was held that the Financier remains the owner of the vehicle taken by the complainant on hire, on condition of option to purchase, upon payment of all hire instalments. It was held that the hire instalments are charges for use of the vehicle as also for the exercise of option to purchase the vehicle in future. It was held that the Financier being the owner of the vehicle, there was no obligation on the part of the Financier, to divulge details of the sale of that vehicle, and that too on its own, without being called upon to do so.

It was also held that the error and/or discrepancy in the address is minor and there are no materials on the basis of which the State Commission concluded that the error was deliberate. It was held by the SC that the finding of the State Commission, of the error in the address being deliberate, is unsubstantiated.

It was held that the Consumer Protection Act, 1986 does not override the Contract Act, 1872, and other enactments in force, applicable to the service availed by the consumer from the service provider.

It was also held that a Hire Purchase Agreement is an executory contract of sale, conferring no right in rem on the hirer, until the conditions for transfer of the property to him have been fulfilled. It was held that the Financier continues to be the owner of the goods under a hire purchase agreement. It was held that the hirer simply pays for use of the goods and for the option to purchase them. It was held that the finance charge, representing the difference between the price and the hire purchase price represents the sum which the hirer has to pay for the privilege of being allowed to pay the purchase price in instalments. It was also held that where the hirer had defaulted in payment of instalments and the agreement specifically provided that the Financier was entitled to repossess the vehicle in case of default, no case was made out against the Financier.

The SC held 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. It was held that if the hire purchase agreement provides for notice on the hirer before repossession, such notice would be mandatory. It was held that notice may also be necessary, if a requirement to give notice is implicit in the agreement from the course of conduct of the parties.

It was held that 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. It was held that 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. It was held that where there is no evidence of any loss to the hirer by reason of omission to give notice, nominal damages may be awarded.

The SC concluded that the impugned orders of the National Commission, the State Commission and the District Forum, under the Consumer Protection Act, 1986 cannot be sustained and the same are set aside. The appeal was accordingly allowed by the SC. It was held by the SC that the Financier shall, however, 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.