M/S Magma Fincorp Ltd. VS Rajesh Kumar Tiwari

By – Simran Talan

In The Supreme Court of India

Name of the caseM/S Magma Fincorp Ltd. VS Rajesh  Kumar Tiwari
CitationCivil Appeal no. 5622 of 2019 (arising out of SLP (c) no. 33720of 2018)
AppellantM/S Magma Fincorp
RespondentRajesh Kumar Tiwari
BenchHon’Ble ms Banarjee,   Hon’ble Dr Chandrachud
Statutes involvedThe consumer protection act ,1986 section14(1)(d)   The Indian penal code Section 14 in consumer protection act ,1986 Section 2(1)(r) in consumer protection act

 INTRODUCTION:

 The consumer protection act is one of the important statutes of Indian law. this case depicts the consumer protection act, 1986. This appeal is against an order dated 2nd August 2018 passed by the national consumer disputes redressal commission, dismissing revision petition no.5 of 2018 filed by the appellant under 21(b) of the consumer protection act,1986.against an order dated 31 august,2017 passed by the states consumer dispute redressal commission, Uttar Pradesh dismissing Appeal No. 1704 0f 2008 filed by the Financier, and affirming the order dated 22nd August 2008 passed by the District Consumer Disputes Redressal Forum, Ambedkar Nagar, Uttar Pradesh [hereinafter referred to as the ‘District Forum’], whereby the District Forum allowed Complaint Case No. 105/2005 filed by the Respondent, Rajesh Kumar Tiwari [hereinafter referred to as the ‘Complainant’], and directed the Financier to pay Rs. 2,23,335/- to the Complainant, along with interest at 10% per annum, Rs 10,000/- towards physical and mental injury and Rs 1000/- as litigation expenses.

On or about 2nd August 2002, the Complainant entered into a hire-purchase agreement with the Financier, then known as Magma Leasing Ltd. for hire-purchase agreement of a Mahindra Marshal Economic Jeep bearing the Registration No. UP-42-T/1163, which is hereinafter referred to as the ‘vehicle’, the cost whereof was Rs.4,21,121/- of which the complainant made an initial payment of Rs.1,06,121/-. According to the Financier, an amount of Rs.1,04,000/- from out of the initial payment of Rs.1,06,121/- was paid by the complainant to the dealer directly. The balance amount of Rs.3,15,000/- was paid by the Financier. This was a hire purchase agreement made between the two parties. In this case, the supreme court held that 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.

BACKGROUND OF THE CASE:

In 2002 the Respondent entered into a hire-purchase agreement with the Financier – Appellant for a Mahindra Marshal Economic Jeep. Even though the Respondent was required to pay the first instalment within 1st August 2002 and the subsequent instalments within the 1st of each succeeding month, the Respondent did not adhere to the schedule of repayments, which according to the Appellant, was of the essence to the hire-purchase agreement. The Appellant took possession of the vehicle when the Respondent did not pay the remaining dues and sold it. Exactly two years after the Appellant took possession of the vehicle, the Respondent filed a complaint under Section 12 of the Consumer Protection Act, 1986. The district consumer forum decided the judgement in favour of the Respondent and directed the Appellant to pay the whole sum of the vehicle along with instalments paid by the Respondent with interest. The same was upheld by the State forum as well.

The issues raised before the court were whether the Financier-Appellant is the real owner of the vehicle which is the subject of a hire purchase agreement, and if so, whether there can be an impediment to the Financier, taking repossession of the vehicle, when the hirer does not make payment of instalments in terms of the hire purchase agreement. Another question that arose for determination in this appeal was, whether service of proper notice on the hirer is necessary for repossession of a vehicle which is the subject of a hire purchase agreement, and if so, what is the consequence of non-service of proper notice and agreement.

FACTS OF THE CASE:

The dispute arose from a hire purchase agreement between the complainant and the financier over Mahindra marshal economic jeep bearing registration number UP-42-T/1163 (jeep). the complainant defaulted through post-dated cheques which were dishonoured according to the financier. In the circumstances following repossession of goods was taken by the financier upon notice to complainant  Exactly two years after the financier took possession of the vehicle, the complainant filed the complaint under section 12 of the Consumer Protection Act, 1986, admitting that he had paid only 7 complete instalments. The District Forum allowed the complaint and directed the financier to pay Rs.2,23,335/- to the complainant, along with simple interest at 10% per annum from the date of filing of the complaint till payment, Rs.10,000 towards damages for physical and mental agony and Rs.1000/- as litigation expenses, within 45 days from the date of the order. Aggrieved, the financier appealed to the State Commission contending that the vehicle had to be sold since the complainant had not paid an outstanding amount of Rs.2,80,132/-. His appeal was dismissed which then led to the instant appeal.

ISSUES:

1)If there could be an impediment to the financier who took repossession of the vehicle when the hirer did not make payments in terms of the hire purchase agreement

2)whether the service of proper notice on the hirer was necessary for repossession of goods which was subject of the hire purchase agreement

3) what amounted to a valid complaint in accordance with the consumer protection act, 1986

4) What was the purpose of a notice required to be issued to the hirer before taking possession of a vehicle subject to a hire purchase agreement?

HELD:

1)The consumer protection act,1986 was enacted to protect the interests of the consumers, it did so by making relevant provisions for the establishment of consumer councils and others for the speedy redressal of all consumer disputes and other matters connected with it .as per its statement placed before parliament it was enacted to promote and protect the rights of consumers against marketing and fraud practices that prevail in India. It provides the right to be heard and to assure that consumers interest will receive worthy consideration at appropriate forums .it also provides the right to seek redressal against unfair trade practices.

2) The fora constituted under the Consumer Protection Act were quasi-judicial bodies, required to observe the principles of natural justice and to award relief of a specific nature and to award wherever appropriate, compensation to consumers. Section 11 of the Act conferred jurisdiction on the District Forum, having territorial jurisdiction, to entertain a complaint, subject to the pecuniary limit of the value of the goods or services and/or the compensation claimed. In the instant case, the territorial or the pecuniary jurisdiction of the District Forum, to entertain the complaint, was not in dispute. There could also be no dispute that the complainant was a consumer of services provided by the financier. The question was whether the complaint filed by the complainant was a complaint within the meaning of section 11, read with Section 2(1)(c) of the Act. The ingredients of a complaint were provided in sections 2(1)(c) (ii), (iv), (v) and (vi) of the Act. Further, there had to be a deficiency in the services availed by the complainant from the financier, within the meaning of section 2(1)(g) of the Act. The financier, as a service provider, had to have adopted any unfair trade practice within the meaning of section 2(1)(r) of the Act.

3)in the current case, the complaint only made a vague assertion that the action was taken by the financier in taking possession of the jeep, admittedly for default in payment of instalments and not releasing the vehicle to the complainant despite his assurance to clear the instalments and paying the future instalments timely. act of unfair trade practice and constituted deficiency of service.” The deficiency was been defined in section 2(1)(g) of the Act as any fault, imperfection or shortcoming or inadequacy in the quality, nature or manner of performance which was required to be maintained by or under any law, for the time being in force, or undertaken to be performed by a person, in pursuance of a contract or otherwise, in relation to any service”. Under the terms and conditions of the hire purchase agreement, the ownership of the vehicle was to stand transferred to the complainant from the financier, upon payment of all the 35 instalments and other dues, if any. Until then, the ownership was to be with the financier. As all the 35 instalments had not been paid by the complainant to the financier, the ownership of the vehicle remained with the financier.

4)The repossession of the jeep by financier under the hire purchase agreement according to the terms and conditions of the agreement, upon default of hire instalments and refusal to the releasing goods on mere assurance of the complainant to clear outstanding payments of hire instalments and promise of paying future instalments in time dis not constituted deficiency in service.

5) The hire purchase agreement enabled the financier to take possession of the vehicle, on default in payment of any of the instalments. There was no term in the hire purchase agreement, that required the financier to give notice to the complainant before the termination of the hire purchase agreement, upon breach of any term, or before taking possession of the vehicle. On the other hand, clause 15 of the hire purchase agreement expressly provides for determination of the hire purchase agreement without any notice to the complainant, upon default in hire instalments. Clause 15 enabled the financier /or its agent to enter the premises of the complainant, where the vehicle under hire may be lying, and to take possession of the same.

6)the financier claimed of issuing a notice to the complainant before taking the possession of goods and also a pre-sale notice .unfortunately there was an error in the address of the complainant in the notice that was to be issued before taking the possession of goods (jeep). therefore accordingly an obligation of giving the notice was implicit between the parties.

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 question thus, was whether the financier could have been directed to return the entire amount paid by the complainant, by way of instalment, Rs 1,04,000 included that was paid by the complainant directly to the dealer and also compensation of Rs 10,000foe physical and mental sufferings .this all was just because of an error in the address of the complainant.

7) A notice also drew the attention of the hirer to the alleged breaches of agreement on the part of the hirer, on the basis of which, the financier claimed to be entitled to take possession. Such notice gave the hirer an opportunity to show that the hirer had not, in fact, committed any breach of the agreement. For example, the hirer could 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.

8)Many self-employed hirers, operated vehicles taken on hire, to earn a livelihood. Such vehicles were often driven over long distances. A notice ensured that the hirer was not taken by surprise and had time to stop operating the vehicle so that third persons using the vehicle on payment of charges were not put to sudden inconvenience by reason of repossession of the vehicle

9)the object of notice before taking possession of the jeep that was on hire under a valid hire purchase agreement was enabled to the hirer to make a written request to the financial to revive the hire purchase in terms of clause 12 of the said agreement.

  1. 10) A District Forum constituted under the Consumer Protection Act, 1963, derived its power to grant relief from its section 14. If the District Forum was satisfied that the allegations contained in the complaint about the services were proved, it could direct the service provider to;

a) return the charges paid by the complainant [section 14(1)(c)];

b) to pay such an amount, as could be awarded by District Forum as compensation to the consumer for any loss or injury suffered by the complainant/consumer, due to the negligence of the service provider [section 14(1)(d)];

c) to pay punitive damages in such circumstances as the District Forum deemed fit [proviso to section [14(1)(d)];

d) to remove the deficiencies in the service in question [section 14(1)(a)]; and, e) to discontinue the unfair trade practice [section 14(1)(f)].

  1. Before a District Forum could grant relief to the consumer of a service, it had to be satisfied that the allegations in the complaint, and or the allegations which constituted a valid complaint were proved, i.e;

a) allegations of unfair or restrictive trade practice adopted by the service provider; or

b) the allegations of deficiency in the service hired, or availed of or agreed to be availed of by the complainant from the service provider; or,

c) the allegations of the service provider charging a price in excess of the price fixed for the service, under any law, for the time being in force or agreed between the parties; or,

d) allegations of offering spurious services or services hazardous to life or safety.

  1. Section 13(2)(b) of the Consumer Protection Act, 1986 obligated the District Forum to decide a complaint on the basis of the evidence brought to its notice by the complainant and the service provider. Irrespective of whether the service provider adduced evidence or not, the decision of the District Forum had to be based on evidence relied upon by the complainant. The onus of proof was on the complainant making the allegation. Section 27 of the Consumer Protection Act required the District Forum, the State Commission or the National Commission to dismiss frivolous complaints with costs not exceeding Rs.10,000/-.
  2. The evidence to which the complainant drew the attention of the District Forum was apparent from its judgment and order. The complainant produced a delivery receipt in respect of the vehicle, some payment receipts, Insurance papers in respect of the vehicle, an FIR unconnected with the financier and/or copies thereof and some documents relating to the filing of the complaint and payment of court fees etc., none of which established any deficiency of service or unfair trade practice on the part of the financier.
  3. The District Forum drew adverse inference against the financier for not producing the hire purchase agreement and assumed that there was no provision in the hire purchase agreement for taking the vehicle back or selling it to a third party. Significantly, it was not even the case of the complainant in his complaint, that the hire purchase agreement, which the complainant had signed, did not authorize the financier to take possession of the vehicle upon default, or to sell the same to a third party. No adverse inference could have been drawn against the financier for not producing the hire purchase agreement before the District Forum, when there was no allegation in the complaint of breach by the financier of the hire purchase agreement, in taking possession of the vehicle. The District Forum did not exercise its power under section 13(4)(ii) of the Act to call upon the financier to produce the hire purchase agreement. Even otherwise, the District Forum did not direct the financier to produce the hire purchase agreement.

Brief facts :

1)the complainant entered into a hire purchase agreement with the financier

2)the complainant paid monthly instalment till certain and then defaulted .in the circumstances financier took repossession of the jeep allegedly upon notice to the complainant and in accordance with the conditions of the hire purchase agreement

3)the factum of notice is however disputed by the complainant

4)after taking the repossession of the vehicle, the financier called upon the complainant to clear his dues.

5)It is the case of the complainant that the financier had lifted the vehicle without any prior notice

Judgement :

The Financier was ordered to pay a composite sum of Rs.15,000/- to the complainant towards damages for ‘deficiency’ in service and costs for omission to give the complainant a proper notice before taking repossession of the vehicle.

The District Forum concluded that “snatching” the vehicle, without notice, was in breach of the hire purchase agreement and was a deficiency in service. The State Commission dismissed the appeal of the financier on the ground of delay and also on merits, on the ground of non-service of notice at the correct address of the complainant. The State Commission assumed that the error in the address of the complainant in the notice despatched by the financier was deliberate, in order to sell the vehicle without the knowledge of the complainant. Such assumption was not based on any materials on record but patently conjectural. The State Commission observed that the complainant had been deprived of the opportunity to deposit the amount, due from him to the financier, which again was contrary to the complainant’s own pleadings in his complaint.

The state commission further found that there was no mentioning of the amount due that was to be paid by the complainant to the financier in the written statement that was filed before the district forum .also the amount for which the vehicle had been sold and when the vehicle had been sold was not mentioned in the written complaint before the district forum.  Observing that the silence on the part of the financier in not divulging anything about the sale rendered the sale dubious, the State Commission concluded that the financier had surreptitiously sold the vehicle, without the knowledge of the Complainant, without notice to the complainant, and without disclosing the details of the sale. That observation overlooked the terms and conditions of the hire purchase agreement and did not consider the law governing hire purchase agreements. Section 14 of the Consumer Protection Act, 1986 empowered the District Forum to award compensation to the party not in breach by directing the party in breach to return the price or the charges as could have been paid by the complainant. That provision also enabled the District Forum to award compensatory damages to the consumer for loss or injury suffered by the consumer due to negligence of the party in breach. The Forum could direct removal of the deficiency in service if the deficiency could be removed and it could direct discontinuation of unfair trade practices or restrictive practices.

The proviso to section 14(1)(d) of the Consumer Protection Act, 1986 empowered the District Forum to grant punitive damages in such circumstances as it deemed fit. Punitive damages were not generally awarded in cases of breach of contract unless the act was so reprehensible that it called for punishment of the party in breach. Compensation which was compensatory had to be assessed taking into account relevant factors, such as the loss incurred by the claimant, through some amount of guesswork/estimation.

  The District Forum did not even undertake the exercise of assessment of the loss/damages, if any, suffered by the complainant by reason of non-service of notice before taking possession of the vehicle. The District Forum, the State Commission and the National           Commission did not consider the law relating to hiring purchases as enunciated by the instant court in a plethora of past judgments. The law emerging from those precedents was that; goods were 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. The hirer simply paid for the use of the goods and for the option to purchase them.

The financier continued to remain the owner of a vehicle covered by a hire purchase agreement until all the hire instalments were paid and the hirer exercised the option to purchase. Thus, upon default by the hirer in payment of instalments, the financier could take re-possession of the vehicle. When the agreement between the financier and the hirer permitted the financier to take possession of a vehicle, there was no legal impediment to the financier doing so. When possession of the vehicle was taken, the financier could not be said to have committed theft. Whether the transaction between a financier and a purchaser/hirer was a hire purchase transaction or a loan transaction, could be determined from the terms of the agreement, considered in the light of surrounding circumstances. However, even a loan transaction, secured by the right of seizure of a financed vehicle, conferred licence to the financier to seize the vehicle.

STATUTES INVOLVED:

COMMERCIAL LAW: the hire purchase agreements and the default in the payment when a purchaser defaulted in the payment of instalments and upon repossession merely gave assurance of future and past instalments

(CONSUMER PROTECTION ACT ,1986 SECTION 2(1)(g))

“Consumer Protection – consumer complaint – hire purchase agreement – failure to produce a copy of the hire purchase agreement before the District Consumer Disputes Redressal Forum – whether adverse inference could be drawn against a financier for failure to produce a hire purchase agreement – Consumer Protection Act 1986, section 13(4)(iii).

Consumer Protection – consumer complaint – hire purchase agreement of a vehicle – repossession of vehicle by financier due to default in payment – plea of purchaser taking possession without pre-sale notice – whether a financier was obliged to divulge details of the sale of the vehicle to the complainant where all instalments had not been paid – what was the effect of error in the address of the complainant in the notice for repossession – whether repossession of a vehicle subject of hire purchase by the financier could amount to theft – Consumer Protection Act 1986, sections 11, 17 & 21(b).

Commercial Law – hire purchase – damages for breach of hire purchase agreements – taking repossession of a vehicle by financier where the complainant was admittedly in default – whether depreciation of the vehicle could be considered where the complainant had been given free use of a vehicle for a considerable period of time – whether a court could award complainant damages for an error in the notice of repossession without considering the prejudice caused to him and without making any assessment of loss – Consumer Protection Act 1986, sections 11, 14(1)(c), 14(d), 17 & 21(b).”

Relevance to Kenya’s legal system

In Kenya hire purchase transactions are governed by the Hire Purchase Act, cap 507 of the Laws of Kenya. Section 3(1) of the Hire Purchase Act provides that the Act applies to and in respect of all hire-purchase agreements in which the hire purchase price does not exceed the sum of four million shillings. The amount may only be varied by the relevant cabinet secretary after taking into account market forces from time to time prevailing except for the case of a hire purchase agreement in which the hirer is a body corporate.

Hire purchase agreements are agreements whereby, an owner of goods allows a person, known as the hirer, to hire goods from him or her for a period of time by paying instalments. The hirer has an option to buy the goods at the end of the agreement if all instalments are being paid. However, it is not a contract of sale but the contract of bailment as the hirer merely has an option to buy the goods and although the hirer has the right of using the goods, he is not the legal owner during the term of the agreement, the ownership of the goods remains with the owner.

“Section 15 of the Hire Purchase Act prohibits repossession of goods under a Hire Purchase Agreement when two thirds (2/3) of the Hire Purchase price has been paid whether in pursuance of the agreement or of a judgment or otherwise. It is specific that under such circumstances, the owner of the goods shall not enforce any right to recover possession of the goods from the hirer other than by a suit. That is the position of the law as held by the High Court in Civil Appeal No 24 of 2013 David Karobia Kiiru v Leverage Company Ltd [2017] eKLR Section 15 (ii) further states if an owner retakes possession of the goods in contravention of subsection (1), the Hire Purchase agreement if not previously terminated shall terminate and the hirer shall be released from all liability under the agreement and shall be entitled to recover from the owner by suit all sums paid by the hirer under the agreement or under any security given by him in respect thereof.

Therefore, if the owner breaches provisions under section of the Hire Purchase Act, then the agreement is treated as terminated and the hirer is released from liability and can recover all payments made under the Agreement as was so found in David Karobia Kiiru v Leverage Company Ltd [2017] eKLR. Upon hearing the request for an order to repossess the goods, the court can either order for the specific delivery of the goods to the owner or part thereof and to the hirer title to the remaining goods or suspect repossession on condition the hirer pays the balance”

CONCLUSION

In my opinion, the judgement was correct. consumer protection act is one of the greatest gifts of our constitution which protects and empowers all the consumers in India against fraud marketing and other malpractices followed by different traders in the mere hope of profits. The financier admittedly paid Rs.3,15,000/- for the acquisition of the vehicle, out of which the financier had been able to realize Rs.1,19,000/- inclusive of all charges. There was depreciation in the value of the vehicle by reason of usage by the complainant for about a year. The District Forum did not even notionally assess the depreciation in the value of the vehicle.

The District Forum was not justified in directing the financier to pay the complainant Rs.2,23,335/- being the entire amount paid by the complainant to the financier from the inception as well as the payment of Rs.1,04,000/- made by the complainant to the dealer along with the damage of Rs.10,000/- and litigation costs of Rs.1,000/- after the complainant had held and used the vehicle for almost a year. The complainant, admittedly a defaulter, had in effect been allowed free use of the vehicle for about a year plus damages for an error in the notice of repossession without considering the prejudice, if any, caused to the complainant by the error and consequential no receipt of the notice. Moreover, that award was made without making any assessment of the loss, if at all, to the complainant by reason of the error/omission. Thus, the impugned orders of the National Commission, the State Commission and the District Forum, could be sustained and the same ought to be set aside.

It was a just decision.