Recovery of Loan – Bank cannot be permitted to take possession of the hypothecated vehicle

In a recent Judgment of the Allahabad High Court in C.M.W.P. No. 71057 of 2011 decided on 09.02.2012, reported in 2012 (3) A.W.C. 2821 it was held as under:

“The bank or financial institution cannot be permitted to take a decision on their own that there has been a default and proceed to take possession of the hypothecated vehicle without giving an opportunity to the borrower to present his case. In this manner, the banks would be judging their own cause with the right of execution, as they themselves would unilaterally determine that there has been a default and proceed to execute their own decision by taking possession of the hypothecated vehicle through their own appointed agencies, which may be muscle men. Adopting such a recourse would clearly be a blatant violation of the mandate of Hon’ble Supreme Court.

In case of default in repayment of its loan, it is always open for the Banks to get the agreement with its borrower enforced through the process of law. Even the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 which gives special power to the bank for realization of its dues also provides for certain safeguards. Section 13(2) of the act of 2002 has been interpreted by the Apex Court in the case of Mardia Chemicals Ltd. V. Union of India, (2004) 4 SCC 311 : AIR 2004 SC 2371 that the borrower has a right to submit his reply to the said notice. Pursuant to the decision of the Apex Court, sub-section (3-A) of Section 13 has been inserted making it obligatory on the financial institutions (including banks) to pass an order after considering the reply submitted by the borrower. It is only thereafter that proceedings for taking over possession can be initiated under Section 13(4) of the Act of 2002.”

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