The court clarified the necessity of bonds in ensuring compliance with loan repayment terms within hypothecation agreements.

Judgment

Dated this the 02^nd June, 2025

1.

The appellant is the financier who granted loan of Rs.10 lakhs to the 1^st respondent with respect to the vehicle bearing Registration No. KL- 46-Q-0957. In order to secure the said loan, hypothecation was created by executing Hypothecation Agreement and endorsement regarding the hypothecation is endorsed in the Registration Certificate of the vehicle. The respondents 2 and 3 are the guarantors to the loan.

2.

The respondents defaulted certain instalments for repayment of the loan and thereupon the appellant decided to invoke the arbitration clause in the Hypothecation Agreement in order to recover the entire loan amount. Invoking Section 9 of the Arbitration and Conciliation, Act 1996, the appellant filed MA(Arb)No.110/2025 before the District Court, Kollam to obtain possession of the said vehicle by appointing an Advocate Commissioner, as an interim measure. As per the interim order in MA(Arb) 110/2025 the vehicle was repossessed from the 1^st respondent through the Advocate Commissioner. The respondents filed OP(C)No.1099/2025 before this Court, challenging the order by which the vehicle was repossessed. This court considered the OP(C) on 16.04.2025 and after hearing the appellant passed Annexure A2 order that the petitioner therein may move the vacation court for release of the vehicle by offering to pay the total overdue amount and if such an application is filed the same shall be considered on the next posting day itself.

3.

The respondents filed I.A No. 3/2025 for returning possession of the vehicle on clearing the outstanding instalments. The respondents deposited Rs. 2,35,636/- in Court towards the overdue amount and filed a Memo in this regard. Taking note of the fact that the said amount covers the entire overdue amount, the Trial Court allowed I.A No. 3/2025 directing the appellant to stop proceedings regard to the sale of the vehicle and handover the vehicle to the respondent within a period of seven days. It is made clear that the respondents shall continue to pay the monthly instalments of the loan amount in terms of the agreement at the specified time, failing which the appellant will be at liberty to repossess the vehicle in due course of law and that the respondents shall not part with the possession of the vehicle in any manner without obtaining written permission of the appellant and if any transfer of vehicle is made violating the above conditions, the same shall not be valid.

4.

Now, the present appeal is filed by the petitioner before the Trial Court, contending that if the vehicle is released there is every chance of the respondents removing the vehicle from the jurisdiction of this Court and in such case, the appellant will not be able to enforce the hypothecation against the vehicle. Learned Counsel for the appellant Sri.C.Harikumar contended that necessary safeguards have to be made to prevent the same, at least directing the 1^st respondent to execute a Bond for production of the vehicle in case of future defaults in repayment of the loan.

5.

On the other hand, the learned counsel for the respondents Sri.Alexander George contended that there is already a hypothecation noted in the Registration Certificate of the vehicle and the conditions in the impugned order itself. Hence no additional safeguards are necessary to protect the interest of the appellant. The Appellant had filed a Review Application before the District Court seeking to add an additional condition by including execution of Bond for the production and the same was dismissed.

6.

Learned counsel for the appellant submitted that he said Order in Review