Dhananjay Seth vs Union of India - 2023 Supreme(Pat) 368

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2023 Supreme(Pat) 368

IN THE HIGH COURT OF JUDICATURE AT PATNA
RAJEEV RANJAN PRASAD, J.
CWJC No.3456, 16155, 19461 of 2021 with 7944, 8056 of 2022
(19.5.2023)
Dhananjay Seth (in 3456)
Mr. Ram Ayodhya Singh (in 16155)
Janam Jay Kumar (in 19461)
Geetanjali (in 7944)
Shashi Kant Kumar (in 8056) ... Petitioners
vs.
Union of India & Ors. (in 3456, 1961)
State of Bihar
(in 16155, 7944, 8056) ... Respondents

Advocates:
For the Petitioners: M/s Sanjay Kumar Pandey, Badri Narayan Singh (in all), Manoj Kumar, Sushan Kumar Keshari (in 3456, 19461); Anil Kumar Verma (in 16155); Indira Kumari(in 7944, in 8056).
For the Respondents: M/s Anuj Kumar (Adv.), Manoj Kumar, AC to GP 24 (in 3456); Anil Kumar Singh (Gp26)(in 16155); Dr. Krishna Nandan Singh (ASG) (in 19461); Md. Nadim Seraj (Gp5) (in 7944); Divya Verma AC to AAG-3 (in 8056); Rajiv Kumar and Manoj Priydarshi (in 3456); Y.V. Giri, Sr. Adv., Prabhakar Nath Rai(in 16155).

Headnote:
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Section 13(2) & 13(4) – grievance of the petitioners is that their respective vehicles which they had purchased with the financial assistance from the respondent – financial institutions have been forcibly seized with the help of goons and musclemen of the contesting financial institutions – the loan agreement which are available on the record are at best creating a security interest in the vehicle which would be covered within the meaning of the words "Secured Asset" under the Act of 2002 – the covenants of the loan agreement providing for re-possessing the vehicle do not provide for a procedure in accordance with the provisions of the Act of 2002 and the Rules framed thereunder – in the grab of a power acquired by the financier under the loan agreement to re-possess the vehicle, they cannot be allowed to take the law into their hands and enforce the loan agreement by violating the legislative mandate and the regulatory law such as as the Act of 2002 – the contesting Bank and the Financial companies who are contesting these matters are under a constitutional obligation not to act in violation of law – they cannot act in conflict with the fundamental principles and policy of India which means that no person may be deprived of his livelihood and the right to live with dignity without following the established procedure of law – the action of the contesting respondents in seizure/re-possess the vehicle without following the RBI guidelines and the law as also the judicial pronouncements on the subject is wholly illegal – however, it is left upon to the Investigating Agency to look into the complaints of the petitioners and investigate them independently and in accordance with law – the superintendent of police of all the districts in the state of Bihar directed to ensure that within their jurisdiction no recovery agent of the Bank and Financial Institution may take the law into their own hands – where the vehicles have not been sold, the petitioner(s) and Bank/Financial Institution directed to sit together and reconcile the amount to determine the amount of loan due – where the vehicle has been sold to a third party and the Bank/ Financial Institution is not in a position to restore the vehicle, they would be liable to pay the petitioner(s) to the extent of the value of the vehicle(s) as per their insurance value on the date of their seizure and the said amount to be adjusted against the outstanding vehicle loan – petitioners to be paid Rs. 5000/- as the cost of litigation. (Paras 59 to 70)
(2008)7 532, 2020 (1) PLJR 583, (2020) 10 SCC 399, (1974) 2 SCC 402, (2023) 4 SCC 1, (1951) SCC 1237, AIR 1956 SC 108, (1975) 1 SCC 421, (1982) 3 SCC 235, (1989) 2 SCC 574, (1993) 2 SCC 746, (1994) 1 SCC 243, (1996) 1 SCC 490, (1997) 1 SCC 388, (1996) 5 SCC 647, (2000) 6 SCC 213, (1995) 3 SCC 42, (1997) 6 SCC 241, (1999) 2 SCC 228, (2011) 7 SCC 179), (2012) 6 SCC 1, (2016) 7 SCC 761, (2005) 4 SCC 649, (2015) 16 SCC 530, (2017) 10 SCC 1, 2011 SCC Online JACC 13 = (2011) 8 VCLR 61, (2007), 2 SCC 711, (2020) 10 SCC 399. – Referred.

Judgement Key Points

The legal document emphasizes that private financial institutions, such as banks and finance companies, are not considered state actors or instrumentalities of the State within the meaning of constitutional provisions that enforce fundamental rights against the State. However, the courts have recognized that certain fundamental rights, particularly those related to life, liberty, and livelihood, can be enforced horizontally against non-State actors if their actions violate constitutional principles or fundamental rights.

The document underscores that the actions of these financial institutions in repossessing vehicles must strictly adhere to the procedures established under relevant laws, notably the SARFAESI Act, 2002, and the RBI guidelines. Repossession cannot be carried out through force, violence, or illegal means, such as using goons or musclemen, as such conduct is in direct violation of the law and fundamental rights. The institutions have a constitutional obligation to act within the bounds of legality and not to infringe upon individuals’ rights to live with dignity and livelihood.

Furthermore, the loan agreements creating security interests in vehicles do not inherently grant the right to repossess by illegal or violent means. The enforcement of security interests must follow the statutory procedures, including proper notices, valuation, and auction processes, and must respect the rights of the borrower. Any deviation from these procedures, especially acts of force or illegal seizure, is deemed unlawful and contrary to constitutional mandates.

The courts have directed law enforcement authorities to prevent illegal repossessions and to investigate complaints of forceful seizures independently and lawfully. They have also emphasized that private actors, including banks and financial institutions, must exercise their rights within constitutional limitations and cannot override the rule of law.

In conclusion, while private financial institutions have the right to recover dues through lawful means, they are constitutionally bound to follow the legal processes prescribed by law. Violations, especially involving force or illegal methods, are illegal, violate fundamental rights, and may lead to legal consequences, including contempt proceedings. The courts have also ordered that in cases where vehicles have not yet been sold, the parties should reconcile accounts, and in cases of illegal seizure, the petitioners are entitled to compensation and costs.

Rajeev Ranjan Prasad, J.—Heard learned counsel for the petitioners led by Mr. Y.V. Giri, learned Senior Advocate, learned counsel for the contesting respondents and Mr. Abhinav Srivastava, learned Amicus Curiae in all these writ applications.

2. Let it be recorded at the outset that in this batch of six writ applications, earlier five of them were tagged and heard on different dates by the Hon’ble Division Bench as per the then Roster. In the light of the change of Roster, these writ applications were listed before this Court. Vide order dated 18.04.2023 passed by the learned predecessor Court, CWJC No. 2808 of 2023 (Shivram Singh vs. The State of Bihar and Others) has also been tagged with the lead case being C.W.J.C. No. 3456 of 2020. In this case no counter affidavit on behalf of the State Bank of India has been filed, hence, this Court thinks it just and proper to de-tag this case from the batch of cases in which the Bank and Finance Companies have taken a stand by filing a counter affidavit. It is once again placed on record that in C.W.J.C. No.3456 of 2021 and C.W.J.C. No. 8056 of 2022 the same and one Finance Company is the contesting respondent. Counter affidavit has been filed in C.W.J.C. No. 3456 of 2021 and the same stand has been taken in both the cases.

3. On the request of learned counsel for the parties, all these writ applications have been taken up together and are being disposed of by this common judgment.

Brief facts of the case

4. In all these writ applications, the petitioners are aggrieved by the action of the contesting respondents, namely, Tata Motor Finance Limited, IndusInd Bank Limited, Shri Ram Finance Company, ICICI Bank and the State Bank of India. Their common grievance is that their respective vehicles which they had purchased with the financial assistance from these institutions have been forcibly seized with the help of goons and musclemen of the contesting respondents during odd hours.

5. In CWJC No. 3456 of 2021, the allegations is that the vehicle was forcibly seized in the month of February, 2020 but the petitioner got the same released after payment of Rs.3,80,000/-. It is stated that soon thereafter the unprecedented pandemic Covid- 19 came because of which the entire country went under a lockdown as a result of which the vehicle could not be run during the period 23.03.2020 to 03.06.2020 so no installment was paid for this period. It is stated that this was the exempted period declared by the Government of India but the Financer (respondent no. 4) seized the truck near village Rahnam through two persons, namely, L.H. Pandit and Kavindra Tiwary along with some goons who were armed. The truck was taken away. It is stated that a sum of Rs.40,000/- was lying in the upper box of the vehicle as the vehicle was returning after sale of sand of Rs.50,000/-. The driver reported the matter to the petitioner whereafter the petitioner contacted L.H. Pandit and Kavindra Tiwary but they did not take any care.

6. It is the case of the petitioner that he had invested Rs.3,00,000/- as down payment against the price of the chasis plus Rs.3,00,000/- in construction of truck body and had also paid a sum of Rs.9,31,000/- as installment. The dues during the Covid period against the petitioner was only Rs.2,15,500/- for which the vehicle in which the petitioner had invested Rs.17,31,000/- was seized with the use of arms.

7. Petitioners have relied upon a judgment of the Hon’ble Supreme Court in the case of ICICI Bank vs. Shanti Devi Sharma & Ors arising out of SLP (Crl.) No. 4935 of 2006 reported in (2008) 7 SCC 532 in which the Hon’ble Supreme Court has held such action of the Bank illegal. The petitioner has also relied upon the judgment of this Court in case of Sujay Kumar vs. Uco Bank reported in 2020(1) PLJR 583 wherein this Court has declared the seizure of this nature illegal and ordered the financial institution to return the vehicle to the owner with liberty to claim damage by the owner. This Court also held