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Old 17th November 2011, 09:23   #1
GTO
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Default Finance companies cannot forcibly take possession of loan-default vehicles

According to the Supreme Court, any and all recovery has to be in accordance with law.

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NEW DELHI: The Supreme Court has warned financial institutions and banks against forcible taking away of vehicles under hire-purchase agreement when there is a default in payment of loans and said they could be saddled with punitive costs if they did so.

"Even in case of mortgaged goods subject to hire-purchase agreements, the recovery process has to be in accordance with law and the recovery process referred to in the agreements also contemplates such recovery to be effected in due process of law and not by use of force," said a bench of Justices Altamas Kabir, Cyriac Joseph and S S Nijjar.
Source & Full Article : Times of India
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Old 17th November 2011, 10:12   #2
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

This could lead to banks being more stringent in their lending norms for vehicle loans. May also lead to higher interest rates since risk of lenders probably has increased?

Considering how long it takes the law to run its course in our country, I am not sure any lender wants to wait for 3 to 5 years to take possession of a vehicle for loan default. It would virtually amount to writing off the loan! Lenders could become very choosy or could ask for guarantors before disbursing loans.

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Old 17th November 2011, 10:26   #3
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

I take somebody else's money to buy a car, then do not repay the loan. When he tries to recover his money, I ward him off using "Excuses 101". When he comes to take the vehicle, I gather my friends and beats him up and drives him away, calling him "quotation team" (in Kerala- other states might have other phrases), and make the police take action against them by invoking the Goonda Act.

If the lender has to go through a lengthy legal process to recover his money, invariably his costs go up, and the vehicle shall depreciate by then, and he loses more money than me as I took 90% loan. If I live in a state with regulated interest rates, this becomes all the more difficult.

So he has to screen every applicant strictly, so I find it difficult to get a loan for my new car, I curse them all finance companies.

Why can't I repay my loan according to the terms that I agreed to? Why should I take a loan to buy a car, of all things, if I cannot afford the EMI? I should take the bus or the train, shouldn't I?

If some bank or finance company takes my deposit and runs, I make a big noise, don't I?

Mirror, mirror on the wall...can't you show me my true colours?

With all the talk on predatory lending, microfinance, occupy Wall Street, bank bailout, CAG's scam live newswire,... I am now an unruly citizen who belies and questions everything, and an irresponsible borrower, amn't I? I do not repay my loans not because of my fault, but due to the lender not writing off my loan, and subsidizing my interest, right?

Last edited by Yeldo : 17th November 2011 at 10:31.
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Old 17th November 2011, 10:47   #4
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

^^ I echo your thoughts. Willful defaulters will be encouraged to default more. The monetary consequences of their default will have to be borne by those who want to repay their loans by way of higher interest rates.

P.S: I do not know what the "due process of law" is in case of a default. But the judgement sounds populist to me.
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Old 17th November 2011, 13:03   #5
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

NOM but I think the Supreme Court can do better things like bringing the culprits of several scams in the country to shame, rather than take up a case like this.

If I am not wrong, doesn't the hypothecation process mean that I pledge my car as a collateral? Then why should the lender not take away the car if I default?

If the lender is employing some strong-arming WITHOUT giving the borrower a notice and a grace period (I guess this is there in the loan agreemnt), then I would think the borrower needs the help of the law. Otherwise not.
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Old 17th November 2011, 13:09   #6
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

Even though the judgement might sound popular, I'm sure there are a lot of people out in the market who have been treated quite roughly with the recovery agents. These so called recovery agents are mostly hired by the private banks with the incentive of 20% commission of the recovered amount. This large incentive just makes them give rat's a** to the law. I'm sure the recovery agents need some control.

BTW I firmly believe that Credit is not a right and is at the sole discretion of the lender.
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Old 17th November 2011, 15:44   #7
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

Quote:
Originally Posted by Yeldo View Post
With all the talk on predatory lending, microfinance, occupy Wall Street, bank bailout, CAG's scam live newswire,... I am now an unruly citizen who belies and questions everything, and an irresponsible borrower, amn't I? I do not repay my loans not because of my fault, but due to the lender not writing off my loan, and subsidizing my interest, right?
Here's the bitter truth; in the bid to save a few hundred who didn't have an intention to not repay, this rule might just be exploited by the lakhs who are out there to cheat in the first place.

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Originally Posted by MileCruncher View Post
These so called recovery agents are mostly hired by the private banks with the incentive of 20% commission of the recovered amount. This large incentive just makes them give rat's a** to the law. I'm sure the recovery agents need some control.
True that. IIRC ICICI Bank and another one was particularly famous for this practice.
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Old 17th November 2011, 16:04   #8
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

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Originally Posted by MileCruncher View Post
BTW I firmly believe that Credit is not a right and is at the sole discretion of the lender.
+1

Even with this new law, I doubt banks will stop doing this. Most of the people who buy cars (including me) can be frightened pretty easily when people come to rough them up. In addition these so called 'Goondas' will know Police quite well. And most people buying the car might prefer not to deal with them at all. So even if the person buying the car complaints it will be of no use. But there will be one off case where such incidents suddenly become nationwide news. But they wont deter the banks from continuing the acts. So for most people this law will be of no use.

The problem comes with the some minority of people who try to make most of this law by taking loans and not repaying them back. They generally know how to get out of situations like this in case someone comes to force the money out of them (say like going to media or have some contacts at top level). Now the law just aids them with getting out of such situations.
However, due to this law, the banks too dont loose out much because these minority people might be doing it earlier as well as even now.

So IMO, this law does not affect anything after the loan is processed, but banks will be a bit more careful in lending money and loan approval will involve more hassles for the common man.
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Old 17th November 2011, 16:42   #9
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

Yep this is the sad bit, the right decision but most of the Loan defaulters (who default for 2 or more months) should just not have gone for the vehicle in the first place.

It will not shoot up the loan rates as the % of vehicle defaulters who finally do not pay is low and the interest rates are already quite high. Yet this plays in to the hands of -ve elements in society.

There are some rare cases of genuine customers getting harrassed so the govt should have instead fixed a period like say 3 months on non payment afterwhich the banks can repossess the vehicle rightfully (taking the police like for demolishing unauthorized structures. (Though not by force as that uses antisocial elements and sends the wrong message to society)
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Old 17th November 2011, 17:14   #10
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

IMHO,

Supreme court has NOT done the right by bringing this rule. ICICI and other banks use force ONLY if the loan emi is not paid on time. Before using force, Reminders through letters are sent to the individual then polite & humble telephone calls are made then little strong telephone calls, threatening to seize the vehicle are made. They infact even visit the customer's house and request payment. Only when the customer does not respond to any of the above, they use force.

My favorite vehicle was the Toyota Innova G1 8 seater petrol in 2007. I was also eligible for a loan for nearly 8 lacs. Sense in me prevailed and i settled for a 3 lac loan for a Hyundai Santro. Why i did not buy the innova is that i felt i may not be able to repay the emi.

If i am not able to repay the emi, at least i am okay with surrendering my vehicle. So for all those who could not repay the emi, i have no sympathy. Why take a loan for a vehicle when you cannot repay the same. When the lender comes to take the money, we do not pay and then find fault with the means used to recover the same. unlike USA if the borrower listens to polite words and makes the payment, i do not see a need to have recovery agents using force.

This law is paving the way to more exploitation. It is similar to a situtation, where if a BMW travelling at 60 kmph on the highway, hits a 2 wheeler travelling on the wrong side on the rightmost lane in a blind curve, the BMW is at fault.
If you abuse someone in a bus for stamping your feet, the person will find fault with the abuse made and the act of stamping your leg goes to the background.

On similar grounds, instead of digging the root cause of why force is being used for recovery(not paid the emi) and punishing the defaulter, the means of recovery is being questioned.

Last edited by scopriobharath : 17th November 2011 at 17:22.
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Old 17th November 2011, 17:52   #11
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

For God's sake, think before going hyper critical of Supreme Court.
Just Imagine, if due to certain exigency (not financial distress) like you being away and not in access to your banker for some period, Or, there is a genuine dispute between you and the bank for overcharging inerest/levies or hidden charges, and you want them to sit & sort out the differences. your wife, kids, old parents are travelling by car, whose EMI remains unpaid due to you being away, and the recovery agent waylays them and physically throws them out of the vehicle and takes it away without even bothering to drop them at a safe place......
Then, imagine a situation where your car has been taken away by the recovery agents... you go to the bank to repay the instalments due alongwith (steep) recovery charges, but the bank refuses saying that now you have to repay the entire remaining loan amount of xxx lacs in one go within 7 to 15 days as your loan agreement has been cancelled, else youe vehicle will be sold off, irrespective of the fact that you took a loan of e.g. Rs.5 lacs for a Rs.8 lac car for 5 yrs and only 2 lacs principle was due when you defaulted in 2/3 EMIs...
Even if you somehow pay the entire balance amount & get the car back, be ready to face the horror because, most often than not, you'll find the accessories missing and the vehicle in damaged condition...courtesy recovery agents & then yard managers.

I've been a lawyer for 10 years and have been rendering my service to one of the 'most reputed' private banks of India, where all the aforesaid things are common practice, despite my strong advice against & disapproval of the same.
Yeah, they used to grease the palms of local SHOs etc & placated the higher ups by offering them snatched vehicles at miniscule prices/almost free...
There's a perfect legal system in place for non-payment of EMIs. All bankers (including nationalized) now take BLANK security Post Dated Cheques and also the regular EMI cheques in advance for entire loan period. Once a loan is in default, they can, & they do, proceed with criminal prosecution of the defaulter by filing a case under section 138 of Negotiable Instruments Act.
However, the process is a bit lengthy, and also incurs costs like lawyer's fees & litigation expenses, so they are lured into taking the easier & quicker but illegal way of snatching away the vehicle.....
Please try to see the things in right legal perspective. Supreme Court has taken laid down the right law and saved the citizens of India from unscrupulous ways of these money mongers. And also try to read the full text of the judgments you all are criticizing.

Last edited by GTO : 17th November 2011 at 18:31. Reason: Please avoid discussing Moderator action on the forum
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Old 17th November 2011, 18:09   #12
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

Quote:
Originally Posted by scopriobharath View Post
IMHO,

Supreme court has NOT done the right by bringing this rule. ICICI and other banks use force ONLY if the loan emi is not paid on time. Before using force, Reminders through letters are sent to the individual then polite & humble telephone calls are made then little strong telephone calls, threatening to seize the vehicle are made. They infact even visit the customer's house and request payment. Only when the customer does not respond to any of the above, they use force.

My favorite vehicle was the Toyota Innova G1 8 seater petrol in 2007. I was also eligible for a loan for nearly 8 lacs. Sense in me prevailed and i settled for a 3 lac loan for a Hyundai Santro. Why i did not buy the innova is that i felt i may not be able to repay the emi.

If i am not able to repay the emi, at least i am okay with surrendering my vehicle. So for all those who could not repay the emi, i have no sympathy. Why take a loan for a vehicle when you cannot repay the same. When the lender comes to take the money, we do not pay and then find fault with the means used to recover the same. unlike USA if the borrower listens to polite words and makes the payment, i do not see a need to have recovery agents using force.

This law is paving the way to more exploitation. It is similar to a situtation, where if a BMW travelling at 60 kmph on the highway, hits a 2 wheeler travelling on the wrong side on the rightmost lane in a blind curve, the BMW is at fault.
If you abuse someone in a bus for stamping your feet, the person will find fault with the abuse made and the act of stamping your leg goes to the background.

On similar grounds, instead of digging the root cause of why force is being used for recovery(not paid the emi) and punishing the defaulter, the means of recovery is being questioned.
do remember that in any application based disbursement(loans, houses, colleges), there will be some who should logically not be cleared.
ICICI was at one stage clearing 10x more applications, out of all received than other banks with similar number of apps.
a lot of others followed suit to some extent to generate similar volumes of business.

a majority of these should not have been given out.
and now these banks have become an acclimatised animal, in that, the practice of dealing with hard-core defualters is applied to all and sundry.

you dig your own grave, you will lie in it.
you got to have the proper screening in place, and more importantly , active.
throwing people out of their cars in markets, calling up at home and forcibly taking away the vehicle.....are anarchic.
i am surprised to see you are actually defending this behaviour.

Last edited by mayankk : 17th November 2011 at 18:11.
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Old 17th November 2011, 18:20   #13
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

Because of this lenience shown to willful defaulters, the honest law-abiding borrowers, who pay their EMI promptly, will suffer as they have to bear the cost of the so-called non-productive asset as the banks will raise the cost of lending so as to recover the bad debt.

Last edited by J.Ravi : 17th November 2011 at 18:25.
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Old 17th November 2011, 18:28   #14
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

The Supreme Court is not setting up a new rule - it is merely reiterating the existing laws as they are !

From Reserve Bank of India :

... the recovery of loans or seizure of vehicles could be done only through legal means. In this connection it may be mentioned that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Security Interest (Enforcement) Rules, 2002 framed thereunder have laid down well defined procedures not only for enforcing security interest but also for auctioning the movable and immovable property after enforcing the security interest

...
Where banks have incorporated a re-possession clause in the contract with the borrower ...they should ensure that the re-possession clause is legally valid, comply with the provisions of the Indian Contract Act in letter and spirit

Last edited by sdp1975 : 17th November 2011 at 18:29.
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Old 17th November 2011, 19:26   #15
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Default Re: Finance companies cannot forcibly take possession of loan-default vehicles

Quote:
Originally Posted by mayankk View Post
do remember that in any application based disbursement(loans, houses, colleges), there will be some who should logically not be cleared.
ICICI was at one stage clearing 10x more applications, out of all received than other banks with similar number of apps.
a lot of others followed suit to some extent to generate similar volumes of business.

a majority of these should not have been given out.
and now these banks have become an acclimatised animal, in that, the practice of dealing with hard-core defualters is applied to all and sundry.

you dig your own grave, you will lie in it.
you got to have the proper screening in place, and more importantly , active.
throwing people out of their cars in markets, calling up at home and forcibly taking away the vehicle.....are anarchic.
i am surprised to see you are actually defending this behaviour.
Well, I am supporting the claim process using goons when i am a defaulter. This applies to me also if i am a defaulter.
ICICI is also to be blamed, but 75% of the blame is also on the applicant. If one cannot pay the emi why take / apply for a loan. Take a lesser amount or dont take a loan at all or do something else, but why cheat the bank ?

If i am the son of an affluent father, say with my 50,000 per month income, i can fund a bmw. My complete salary could go to the emi. If i am earning 50,000 per month, and i have a family to run, i cannot spend more than 5,000 for emi. Bank will not know what i do or how i will run. Bank just needs the emi. How you pay is immeterial to the bank.

Quote:
Originally Posted by sdp1975 View Post
The Supreme Court is not setting up a new rule - it is merely reiterating the existing laws as they are !

From Reserve Bank of India :

... the recovery of loans or seizure of vehicles could be done only through legal means. In this connection it may be mentioned that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Security Interest (Enforcement) Rules, 2002 framed thereunder have laid down well defined procedures not only for enforcing security interest but also for auctioning the movable and immovable property after enforcing the security interest

...
Where banks have incorporated a re-possession clause in the contract with the borrower ...they should ensure that the re-possession clause is legally valid, comply with the provisions of the Indian Contract Act in letter and spirit
I will still support the banks only. Indian judiciary system is so slow that it would be ages and by the time the vehicle is recovered, it would have vintage value. Kasab's case is pending with the judiciary, forget some common man's case of not paying emi for a 2 wheeler.

Imagine you are a politician. You have deposited some white money in Cheat Fund (Chit Fund) offering you 40% interest. You notice that after 3 months, the company is closed. You have lot of influence and connections. Will you wait for the Police and indian judiciary to do thier job, or would you use goons to track down the owner and beat him to hell.
When people catch a pickpocket who has robbed you, would you expect that he is taken to a police station and the court punishes him with a fine of 100/- or would you expect he is beaten black and blue.
Now just replace the "you" with bank. Answers will be evident. Not paying the money due to the bank is a form of glorified robbery / cheating only IMHO

Last edited by scopriobharath : 17th November 2011 at 19:28.
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