By – Kirtika Chakraborty

In Supreme Court of India

NAME OF THE CASE	M/S Magma Fincorp Ltd. v. Rajesh Kumar Tiwari
CITATION	Civil Appeal No. 5622 Of 2019
DATE OF THE CASE	1 October 2020
APPELLANT	M/S Magma Fincorp Ltd
RESPONDENT	Rajesh Kumar Tiwari
BENCH/JUDGE	Dr. Dhananjaya Y Chandra Hud, Indira Banerjee, JJ.
STATUTES/CONSTITUTION INVOLVED	The Consumer Protection Act, 1986; The Indian Penal Code
STATUTES/CONSTITUTION INVOLVED	Section 14(1)(d) in the Consumer Protection Act, 1986; Section 14 in the Consumer Protection Act, 1986, Section 2(1)(r) in the Consumer Protection Act, 1986

ABSTRACT

The disagreement stemmed from a hire-purchase arrangement between the lender and the plaintiff about the hire purchase of a “Mahindra Marshal Economic Jeep” with the “registration number UP-42-T/1163 (vehicle)”. The complainant defaulted due to post-dated checks that were dishonoured, according to the financier. In these circumstances, the lender reportedly seized ownership of the vehicle without notifying the complaint and sold it following the terms of the hire-purchase agreement. The complainant submitted the lawsuit under section 12 of the Consumer Protection Act of 1986, exactly two years after the financier took possession of the automobile, acknowledging that he had only paid 7 complete instalments. The District Forum upheld the complaint and ordered the creditor to reimburse the complainant Rs.2,23,335/- within 45 days of the date of the order, plus simple interest at 10% per annum from the date of the complaint until payment, Rs.10,000 for losses for physical and mental agony, and Rs.1000 for litigation expenses. Angry, the financier filed a complaint with the State Commission, claiming that the automobile had to be sold because the complainant had not paid a balance of Rs.2,80,132/-. His appeal was dismissed, resulting in the current appeal.

INTRODUCTION

As can be seen from the terms and conditions of the agreement signed by and between the Financier and the Complainant in this matter, it is a Hire Purchase Agreement. In any case, the Consumer Protection Act’s fora have not reached any explicit conclusions to the contrary. The substance of the arrangement between the Financier and the Complainant is not discussed. The agreement expressly allows the Financier to take control of the car if the payments are not paid on time.

In this case, there is no proof that the complainant has incurred any loss as a result of the notice’s non-receipt. Admittedly, several instalments remained unpaid. After re-possession, the complainant contacted the Financier and was informed of the reasons for the re-possession. He merely offered to pay past-due instalments and promised to pay subsequent instalments on schedule. If the Financier refused to accept the offer, he or she was within his or her legal rights under the hire buy agreement. This is not a situation where the hirer has offered payment but the Financier/lender has refused to accept it. The Complainant had not tendered payment.

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 is set aside. The appeal is accordingly allowed.

BACKGROUND

In the case of M/S Magma Fincorp Ltd Vs Rajesh Kumar Tiwari [SLP (C) NO. 33720 OF 2018] the Supreme Court ruled that until all of the hire payments are paid and the hirer exercises the option to buy, the financier remains the owner of the vehicle secured by a hire purchase agreement. In 2002, the Respondent signed a hire-purchase arrangement for a Mahindra Marshal Economic Jeep with the Financier – Appellant. Although the Respondent was obligated to pay the first instalment on August 1, 2002, and subsequent instalments on the first of each subsequent month, the Respondent did not follow the repayment plan, which the Appellant said was essential to the hire-purchase agreement.

The Respondent filed a complaint under Section 12 of the Consumer Protection Act of 1986, exactly two years after the Appellant gained possession of the automobile. The district consumer forum upheld the Respondent’s judgment and ordered the Appellant to pay the full amount of the vehicle, plus any instalments made by the Respondent, plus interest. The State Forum agreed with this as well.

The court was asked whether the Financier-Appellant is the true owner of the vehicle that is the subject of a hire purchase agreement, and if so, whether there is an impediment to the Financier repossessing the vehicle if the hirer fails to make instalment payments as required by the hire purchase agreement. Another issue in this appeal was whether appropriate notice to the hirer is required for repossession of a vehicle that is the subject of a hire purchase agreement, and if so, what are the consequences of failure to provide proper notice.

FACTS

The Complainant and the Financier engaged in a hire-purchase agreement. The Complainant agreed to reimburse the Financier a total of Rs.4,38,585/- in 35 monthly instalments of Rs.12,531/-, which included finance costs of Rs.83,650/-. The complainant made monthly payments until a specific date, after which he defaulted. The Financier reportedly took control of the car after giving the Complainant notification and by the terms of the hire-purchase agreement. The Complainant, on the other hand, disputes the factum of notice. After reclaiming custody of the car, the Financier demanded that the Complainant pay his outstanding debts, which amounted to Rs.2,80,132.59 as of the notice’s date, or the vehicle would be repossessed. The Complainant did not pay the full amount owed or even a portion of it. The Financier was the one who sold the automobile.

The Complainant claims that the Financier “lifted the vehicle” without providing any prior notification or information. The Consumer District Forum upheld the complaint and ordered the Financier to charge the Complainant Rs.2,23,335/- plus simple interest at 10% per annum from the date of filing the complaint until payment, as well as Rs.10,000 in damages for physical and mental anguish and Rs.1000 in legal costs, all within 45 days of the order’s date. The Financier filed an appeal with the State Commission after being offended by the District Forum’s decision to approve the complaint. The appeal was dismissed by the State Commission, resulting in the SLP.

ISSUE

• • Whether the financier would be able to repossess the car if the hirer failed to make installment payments as stipulated in the hire purchase agreement.
•  Whether appropriate notice to the hirer was required for recovery of a vehicle subject to a hire purchase agreement, and if so, what the consequences of failure to serve proper notice were?
•  What constituted a legitimate complaint under the 1986 Consumer Protection Act?
•  What was the objective of the notice that had to be given to the hirer before he or she could take possession of a vehicle that was the subject of a hire purchase agreement?

ARGUMENTS FROM THE APPELLANT SIDE

“As admitted by the Complainant in Paragraph (4) of his complaint, the Complainant had received possession of the vehicle from the dealer on 29.7.2002. It is the case of the Complainant in his complaint at Paragraph (7) that the Financier had “lifted the vehicle” on 14.07.2003 without any prior notice or information. The vehicle was taken away by the Financier on 14.7.2003, almost a year after the Complainant received possession of the vehicle. Twelve instalments were payable within 14.07.2003, but the Complainant had, on his admission in Paragraph (6) of the complaint, paid only 7 complete instalments.”

“ According to the Complainant, he could not pay instalments after the 7th, timely, due to his illness. Later, an accident case was registered against the vehicle, which was detained by the Police. After the Complainant got the vehicle released from the police and started plying the vehicle, the Financier took repossession of the vehicle. According to the Complainant he paid Rs.1,19,335/- towards instalments. It is not the case of the Complainant in his complaint, that the Financier took forcible possession of the vehicle through so-called recovery agents, by threat or by use of muscle power.”

 The Complainant has alleged that” even though, the Complainant had deposited Rs.1,19,335/- towards instalments, the Financier took possession of the vehicle without notice. The Complainant has also alleged that the Financier refused to concede to the request of the Complainant to release the vehicle, even though the Complainant had sought the opportunity to clear the outstanding instalments and pay future instalments within time. “

ARGUMENTS FROM THE RESPONDENT

“The Financier has claimed to have issued notice to the Complainant before taking possession of the vehicle and also a pre-sale notice. Unfortunately, there was an error in the address of the Complainant in the notice purported to be issued to the Complainant before taking possession. It may thus, reasonably be assumed that an obligation to give notice to the Complainant was implicit in the Hire Purchase Agreement. The Financier also construed the Hire Purchase Agreement to contain an implicit requirement to give notice to a hirer before taking possession of the vehicle covered by the Hire Purchase Agreement. “

“The Financier continues to remain the owner of a vehicle, covered by a hire purchase agreement till all the hire instalments are paid and the hirer exercises the option to purchase. Thus, when the Financier takes repossession of a vehicle under hire, upon default by the hirer in payment of hire instalments, the Financier takes repossession of the Financier’s own vehicle.

The Financier claims to be entitled to take possession. Such notice allows the hirer to show that the hirer had not committed any breach of the agreement. For example, the hirer might be able to show that the Financier had erroneously omitted to give credit to the hirer for payments made, or had not presented a cheque in its possession for payment, even though there were sufficient funds in the concerned bank account of the hirer, to honour the cheque.”

“The question raised by the Financier in this appeal, that is, whether the Financier is the real owner of the vehicle, which is the subject of a Hire Purchase Agreement, has to be answered in the affirmative because of the law enunciated by this Court in Haranjit Singh Chadha (supra), K.L. Johar & Co. (supra) and Anup Sarmah (supra). The Financier being the owner of the vehicle which is the subject of a Hire Purchase Agreement, there can be no impediment to the Financier taking possession of the vehicle when the hirer does not make payment of instalments/hire charges in terms of the Hire Purchase Agreement. However, such repossession cannot be taken by recourse to physical violence, assault, and/or criminal intimidation. Nor can such possession be taken by engaging gangsters, goons and musclemen as so-called Recovery Agents.”

RELATED PROVISIONS

• Section 14(1)(d) in the Consumer Protection Act, 1986

“(d) to pay such amount as may be awarded by it as compensation to the consumer for any loss or injury suffered by the consumer due to the negligence of the opposite party: 56 [Provided that the District Forum shall have the power to grant punitive damages in such circumstances as it deems fit;]”

• Section 14 in the Consumer Protection Act, 1986

“14. Finding of the District Forum. —

(1) If, after the proceeding conducted under section 13, the District Forum is satisfied that the goods complained against suffering from any of the defects specified in the complaint or that any of the allegations contained in the complaint about the services are proved, it shall issue an order to the opposite party directing him to 1[do] one or more of the following things, namely:—

(a) to remove the defect pointed out by the appropriate laboratory from the goods in question;

(b) to replace the goods with new goods of similar description which shall be free from any defect;

(c) to return to the complainant the price, or, as the case may be, the charges paid by the complainant;

(d) to pay such amount as may be awarded by it as compensation to the consumer for any loss or injury suffered by the consumer due to the negligence of the opposite party: 56 [Provided that the District Forum shall have the power to grant punitive damages in such circumstances as it deems fit;]

57 [(e) to 58 [remove the defects in goods] or deficiencies in the services in question;

(f) to discontinue the unfair trade practise or the restrictive trade practice or not to repeat them;

(g) not to offer the hazardous goods for sale;

(h) to withdraw the hazardous goods from being offered for sale;

56 [(ha) to cease manufacture of hazardous goods and to desist from offering services which are hazardous in nature;

(hb) to pay such sum as may be determined by it, if it believes that loss or injury has been suffered by a large number of consumers who are not identifiable conveniently: Provided that the minimum amount of sum so payable shall not be less than five per cent. of the value of such defective goods sold or services provided, as the case may be, to such consumers: Provided further that the amount so obtained shall be credited in favour of such person and utilized in such manner as may be prescribed;

(hc) to issue corrective advertisement to neutralize the effect of misleading advertisement at the cost of the opposite party responsible for issuing such misleading advertisement;]

(i) to provide for adequate costs to parties.]

 [(2) Every proceeding referred to in sub-section (1) shall be conducted by the President of the District Forum and at least one member thereof sitting together: 60 [Provided that where a member, for any reason, is unable to conduct a proceeding till it is completed, the President and the other member shall continue the proceeding from the stage at which it was last heard by the previous member.]

(2A) Every order made by the District Forum under sub-section (1) shall be signed by its President and the member or members who conducted the proceeding: Provided that where the proceeding is conducted by the President and one member and they differ on any point or points, they shall state the point or points on which they differ and refer the same to the other member for hearing on such point or points and the opinion of the majority shall be the order of the District Forum.]

(3) Subject to the foregoing provisions, the procedure relating to the conduct of the meetings of the District Forum, its sittings, and other matters shall be such as may be prescribed by the State Government.”

• Section 2(1)(r) in the Consumer Protection Act, 1986

“22 [(r) “unfair trade practice” means a trade practice which, to promote the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice including any of the following practices, namely: —

(1) the practice of making any statement, whether orally or in writing or by visible representation which, —

(i) falsely represents that the goods are of a particular standard, quality, quantity, grade, composition, style or model;

(ii) falsely represents that the services are of a particular standard, quality, or grade;

(iii) falsely represents any re-built, second-hand, renovated, reconditioned, or old goods as new goods;

(iv) represents that the goods or services have sponsorship, approval, performance, characteristics, accessories, uses, or benefits which such goods or services do not have;

(v) represents that the seller or the supplier has a sponsorship or approval or affiliation which such seller or supplier does not have;

(vi) makes a false or misleading representation concerning the need for, or the usefulness of, any goods or services;

(vii) gives to the public any warranty or guarantee of the performance, efficacy or length of life of a product or of any goods that are not based on an adequate or proper test thereof:”

JUDGEMENT

The Supreme Court held that 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. The court furthermore observed that:

“If the hire purchase agreement provides for notice on the hirer before repossession, such notice would be mandatory. Notice may also be necessary if a requirement to give notice is implicit in the agreement from the course of conduct of the parties.

If the hirer commits breaches of the conditions of a hire purchase agreement which expressly provides for immediate repossession of a vehicle without further notice to the hirer, in case of default in payment of hire charges and/or hire instalments repossession would not be vitiated for want of notice. In a case where the requirement to serve notice before repossession is implicit in the hire purchase agreement, non-service of proper notice would be tantamount to deficiency of service for breach of the hire purchase agreement giving rise to a claim in damages. The Complainant consumer would be entitled to compensatory damages, based on an assessment of the loss caused to the complainant because of the omission to give notice. Where there is no evidence of any loss to the hirer because of omission to give notice, nominal damages may be awarded.”

According to the court, the Consumer Protection Act of 1986 enables the District Forum to decide a complaint based on the facts presented to it by the complainant and the service provider. The Complainant who makes the claim bears the burden of proof. The Complainant delivered a delivery receipt for the vehicle, some transaction receipts, vehicle insurance papers, an FIR unrelated to the Financier and/or copies thereof, and documents relating to the filing of the Complaint and payment of Court Fees, among other things, none of which establish any shortfall in service or unethical business practice on the part of the Financier.

The court further highlighted that the District Forum drew a negative inference against the Financier for failing to produce the Hire Purchase Agreement, assuming that the Hire Purchase Agreement did not include a provision for returning the car or selling it to a third party.

The court cited Charanjit Singh Chadha & Ors. v. Sudhir Mehra [(2001) 7 SCC 417], which held that a “Hire Purchase Agreement is an executory contract of sale, conferring no right in rem on the hirer until the requirements for the transfer of the property to him have been met.” Under a hire purchase deal, the Financier retains ownership of the goods. The hirer only pays for the usage of the products as well as the possibility to buy them. The finance charge, which represents the difference between the price and the hire purchase price, is the fee that the hirer must pay in exchange for the ability to pay the purchase price in instalments. No case was made out against the Financier where the hirer had defaulted in payment of instalments and the agreement clearly stipulated that the Financier was allowed to repossess the vehicle in the event of default.”

“The law which emerges from the judgement is that goods are let out on hire under a Hire Purchase Agreement, with an option to purchase, in accordance with the terms and conditions of the Hire Purchase Agreement,” according to the case of Sundaram Finance Ltd. v. The State of Kerala & Anr [AIR 1966 SC 1178]. The hirer just pays for the products’ use and the possibility to purchase them. The financier remains the owner of the commodities subject to hire buy until the hirer exercises the option to purchase and pays all sums agreed upon between the hirer and the Financier.”

CONCLUSION

The agreement is an executory contract of sale that gives the hirer no right in rem until the requirements for the transfer of the property to him are met. Under a hire purchase deal, the Financier retains ownership of the goods. The hirer only pays for the usage of the products as well as the possibility to buy them. The finance charge, which represents the difference between the price and the hire purchase price, is the fee that the hirer must pay in exchange for the ability to pay the purchase price in instalments. 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.”

Referring to the case of Sundaram Finance Ltd. v. The State of Kerala & Anr [AIR 1966 SC 1178] it was inferred that, “the law that emerges from the ruling is that items are rented under a Hire Purchase Agreement with the option to purchase, following the Hire Purchase Agreement’s terms and conditions. The hirer just pays for the products’ use and the possibility to purchase them. The financier remains the owner of the commodities subject to hire purchase until the hirer exercises the opportunity to purchase and pays all sums agreed upon between the hirer and the Financier. “Supreme Court while setting aside the judgment of the National Commission, the State Commission and the District Forum held that, “The Financier being the owner of the vehicle which is the subject of a Hire Purchase Agreement, there cannot impede the Financier taking possession of the vehicle when the hirer does not make payment of instalments/hire charges in terms of the Hire Purchase Agreement. However, such repossession cannot be taken by recourse to physical violence, assault, and/or criminal intimidation. Nor can such possession be taken by engaging gangsters, goons, and musclemen as so-called Recovery Agents.”