India’s Supreme Court has directed the Reserve Bank of India to strengthen enforcement of lawful vehicle repossession processes amid concerns over unlawful methods used by lenders, emphasising constitutional protections and borrower rights.
The Supreme Court of India has told the Reserve Bank of India to do more to ensure banks and non-bank lenders follow the rules on loan recovery and vehicle repossession, warning that contractual rights do not extend to force, intimidation or other unlawful methods.
A bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe said lenders may repossess hypothecated vehicles when borrowers default, but only through lawful procedures that respect due process and RBI guidance. The court was hearing the case of Hari Dutta Sharma, who said his commercial vehicle was taken in the early hours of the morning after its steering lock was broken and without prior notice.
The judges said the seizure of a vehicle that serves as a person’s main source of income can engage constitutional protections under Articles 14 and 21, which cover equality before the law and the right to life and personal liberty. The court also pointed back to its earlier ruling in ICICI Bank Ltd v. Prakash Kaur, where it criticised the use of recovery agents and musclemen for forcibly taking vehicles and said repossession must be carried out by legal means.
According to the court, the RBI has issued master circulars, directions and clarifications over the years, but those safeguards have too often remained ineffective in practice. The bench therefore directed the central bank to take effective steps to ensure compliance by banks and NBFCs, not merely to leave borrower-protection rules on paper.
The court ordered the finance company to close both loan accounts and refund Rs 4.5 lakh, the amount for which the vehicle had been sold, with interest at 6% a year from the date of sale until payment. It also awarded Sharma Rs 10 lakh in compensation for mental agony and loss of livelihood, and imposed costs of Rs 50,000.
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