SUPREME COURT REITERATES PRINCIPLES OF TRANSFER OF OWNERSHIP IN HIRE-PURCHASE CONTRACTS

The #SupremeCourt has in a matter of M/S Magma Fincorp Ltd. vs Rajesh Kumar Tiwari passed a Judgment dated 01-10-2020 and reiterated the principles of transfer of #ownership in #hirepurchase #agreements.

In this case, the Complainant-Respondent had entered into a Hire-Purchase Agreement (the Agreement) with the Appellant- then known as M/S Magma Fincorp Ltd for hire-purchase of a Mahindra Marshal Economic Jeep (the Vehicle). The cost of the Vehicle was Rs. 4,21,121/- out of which Rs. 1,06,121/- had been paid by the Respondent. The balance amount of Rs. 3,15,000/- was paid by the Appellant-Financier to the vendor. The Respondent then received possession of the #Vehicle from the dealer/vendor on 29-07-2002.

As per the Agreement, the Respondent had to repay a sum of Rs. 4,38,585/- including finance charges, to the Appellant-Financier in 35 monthly instalments commencing from 01-08-2002 till 01-06-2005 (the Amount). But the Respondent only paid the first 7 instalments and failed to pay the monthly instalments thereafter. As a result, the Appellant took re-possession of the Vehicle from the Respondent on 14-07-2003 allegedly by giving a prior Notice dated 26-07-2003 to the Respondent. But as the Respondent still did not pay the instalments, the Appellant sold the Vehicle in November 2003 and recovered the dues from the sale proceeds.

Aggrieved by the actions of the Appellant, the Respondent filed a Complaint on or about 15-07-2005 under Section 12 of the Consumer Protection Act 1986 for deficiency of services, before the District Consumer Dispute Redressal Commission (District Forum). The Complaint was made on the ground that he could not repay the instalments due to illness and that the Appellant did not allow any further time for repayment.

The District Forum passed an Order dated 22-08-2008 allowing the Complaint on the ground that the prior sale Notice dated 26-07-2003 was not sent to the Respondent at the address mentioned in the Agreement and thus, it would not be deemed to have been served upon the Respondent. Further, the Appellant-Financier was directed to pay compensation and damages to the Respondent.

Aggrieved by the Order of the District Forum dated 22-08-2008, the Appellant-Financier filed an Appeal before the State Consumer Dispute Redressal Commission (State Commission), which passed an Order dated 31-08-2017 and upheld the Order of the District Forum.

Aggrieved by the Order of the State Commission dated 31-08-2017, the Appellant filed a Revision Petition before the National Consumer Dispute Redressal Commission (National Forum), which passed an Order dated 02-08-2018 and upheld the Order of the State Commission.

Aggrieved by the Order dated 02-08-2018 of the National Forum, the Appellant filed an Appeal before the Supreme Court. The Apex Court made the following observations in the said case:

1- Hire-purchase contracts:

i) A hire purchase agreement is an executory contract of sale, conferring no right in rem on the hirer (purchaser), until the conditions for transfer of the property to him have been fulfilled. The financier continues to be the owner of the goods under a hire purchase agreement until all the instalments are paid or otherwise as mentioned in the hire-purchase agreement.

ii) Thus, when the financier takes re-possession of a vehicle under hire, upon default by the hirer in payment of instalments, it is deemed that the financier has taken repossession of its own vehicle.

iii) In this case, as per the Hire-Purchase Agreement, ownership of the Vehicle was to remain with the Financier until all the instalments were repaid by the Respondent-Purchaser.

iv) So as the Respondent had defaulted in repayment of the monthly instalments, the Financier was entitled to take re-possession of the Vehicle and sell it to recover the unpaid dues from the sale proceeds.

2- Deficiency of services:

i. Section 2 (g) of the Consumer Protection Act 1986 (the Act) defines “deficiency” as any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.

ii. In this case the Agreement did not provide that the Financier had to issue a mandatory prior sale notice to the Respondent-Purchaser before terminating the Agreement or taking re-possession of the Vehicle.

iii. But as the Appellant had issued a Notice prior to the sale of the Vehicle, it is deemed that the obligation for issue of a prior notice was implicit in the Agreement.

iv. Thus, in the present case, as there was an error in the address of the Respondent in the said Notice, the Appellant was liable for deficiency only to the extent that it omitted to give the Respondent a proper notice before taking re-possession and selling the Vehicle.

3- Erroneous Orders of the District Forum, the State Commission and the National Forum

The District Forum, the State Commission and the National Forum had erred in passing their respective Orders on the following grounds:

(i) The District Forum has held the Appellant liable for deficiency in services as it had taken possession of the Vehicle “forcefully” or by “snatching” upon default and then, sold it to third parties. But the Respondent did not make any allegation in his Complaint about breach of the Agreement due to Appellant’s act of taking possession of the Vehicle “forcefully”. The District Forum erred in making out a new case when there were no pleadings/submissions to support the same.

(ii) The State Commission and the National Forum made unsubstantiated assumptions that the Appellant had deliberately sent the Notice to a wrong/different address so that it can sell the Vehicle without the knowledge of the Respondent. But it was not the case of the Respondent that the Vehicle was sold without notice or knowledge.

(iii) Further, the District, State and National Forums did not properly assess the loss/damages, if any, suffered by the Respondent due to non-service of Notice before determining the amount of compensation and damages in the said case.

Thus, the Apex Court held that the Appellant in this case cannot be held liable for deficiency in service on account of entering the premises of the Respondent to take re-possession of the Vehicle upon default of payment of instalments, as the Agreement had authorized the Financier to do so. Therefore, the Supreme Court set aside the Orders of the District Forum, the State Commission and the National Forum.

But the Apex Court directed the Appellant to pay a composite sum of Rs. 15,000/- to the Respondent for deficiency on account of failure to serve a proper notice before taking re-possession of the Vehicle.

Harini Daliparthy

Senior Legal Associate

The Indian Lawyer