Bank uses recovery agents to seize borrower's vehicle over loan dispute, Uttarakhand high court says that's illegal

NEW DELHI: The Uttarakhand high court has ruled that banks and finance companies cannot forcibly repossess vehicles through recovery agents without following due legal procedure, holding that such actions violate constitutional protections and the borrower's right to livelihood.

Justice Pankaj Purohit delivered the ruling while hearing a writ petition filed by Savitri Devi, who alleged that her commercial vehicle, which was financed by ICICI Bank for Rs 17,60,000 — was taken into possession by recovery agents without notice and without following any legal process.

The petitioner claimed that the loan had stood fully settled and sought issuance of a No Objection Certificate (NOC) from the bank. She further challenged the repossession of the vehicle, which she said constituted her primary source of livelihood.

ICICI Bank, in its response, raised an objection arguing that the dispute was purely contractual and that no writ lay against a private bank. The court rejected this argument, holding that the present case was not a mere contractual dispute.

"Petitioner has made specific allegations regarding repossession of the vehicle through recovery agents, allegedly in violation of the applicable guidelines governing recovery practices. Such allegations, if established, cannot be treated as mere breaches of contract, but would amount to arbitrary and high-handed action," the court observed.

The court was told that on April 30, 2024, an amount of Rs. 7,45,109 was paid by respondents 2 and 3 to ICICI Bank, following which the loan account was treated as subrogated in their favour and the vehicle was subsequently seized by a recovery agent acting on their behalf.

The high court found that no material had been placed on record to show that possession was taken in accordance with due process, including issuance of prior notice or giving an opportunity to the borrower.

"The existence of a repossession clause in the loan agreement does not authorize the respondents to take law into its own hands. Contractual terms cannot override the requirement of legality and due process," the court stated.

Relying on the Supreme Court's rulings in ICICI Bank Ltd. vs. Prakash Kaur & Ors. (2007) and Citicorp Maruti Finance Ltd. vs. S. Vijayalaxmi & Anr. (2012), the court reiterated that employing recovery agents or "musclemen" for repossession is impermissible in a society governed by the rule of law.

The court further noted that disputes over outstanding dues cannot justify unilateral action.

"Such disputes require adjudication by competent forums on the basis of evidence and cannot justify unilateral action in the nature of repossession without following due process," it said.

The court held the repossession to be in violation of Article 300A of the Constitution of India, which protects persons from being deprived of their property without authority of law.

Accordingly, the writ petition was allowed. The high court declared the repossession illegal, directed the respondents to forthwith release and restore possession of the vehicle, and restrained them and their agents from interfering with the petitioner's peaceful possession except in accordance with due process of law. The court clarified that the order shall not preclude the respondents from recovering their legitimate dues, if any, through the appropriate forum.