The Allahabad High Court has observed that a finance firm cannot use goons to seize vehicles over loan default and arm a private party with the coercive authority of the state in the process.
The court said a finance company’s contractual right to repossess a financed vehicle must be enforced through a forum known to law, such as a civil court or an arbitrator and not by recovery agents who waylay the borrower and seize the vehicle by force.
The court said that reading a repossession clause literally to allow this would arm a private party with the coercive authority of the State.
The court noted that the vehicle of a borrower who had paid 31 of 45 instalments was seized at gunpoint on a highway and the allegation was never specifically denied.
While allowing the writ petition filed by a borrower, Sadab Ahmad, a division bench comprising Justice J J Munir and Justice Indrajeet Shukla directed the vehicle to be delivered forthwith without any precondition, imposed costs of Rs 10,000 and directed the finance company to restructure the loan without penal interest. It left the question of any default open for adjudication by a competent forum.
Passing these directives, the court observed, “The right of the finance company engrafted into a hire-purchase agreement to seize the chattel, the vehicle here, purchased on hire-purchase, gives an enforceable right, no doubt, to the finance company, but that enforcement has to be done through a process known to law. It cannot be done by force employing goons, styled as agents”.
“It would be virtually arming a private party with the coercive authority of the state, invariably exercisable by a judge, an arbitrator or some quasi-judicial authority with the aid of its own agency and re-enforced by the police,” the court added.
The petitioner, a self-employed man, bought a TATA goods carrier in December 2023 with finance from HDB Financial Services Limited, repayable in 45 instalments of Rs 64,059 each.
On August 9, 2026, men acting for the company allegedly intercepted him at Chandauli, threatened him at gunpoint, took the vehicle and made him sign a repossession inventory, according to the petitioner.
He raised a complaint with the company, the local police and the district magistrate, and then approached the high court, seeking release of the vehicle.
The company said that his loan account was linked to a loan taken by his brother -- Shoaib Ahmad, who had defaulted and whose vehicle was untraceable.
It said the petitioner, too, had defaulted, his 30 post-dated cheques had bounced, his facility was terminated and it had authorised a repossession agency, Poonia Associates Private Limited on August 8, 2026.
It said it relied on the repossession clauses and on Supreme Court decisions.
The high court had earlier restrained the company from transferring the vehicle to any third party. The bench, in its decision on October 26, held that, however well-documented the default, the company could not seize the vehicle by force.
It noted that in the brothers’ case, the company went to an arbitrator, obtained interim orders and an award and that even that award provided for police aid.
It said no proceedings were taken against the petitioner.
While allowing the writ petition filed by Sadab Ahmad, the court directed the company to deliver the vehicle forthwith without precondition, furnish an updated statement of account, restructure the loan with fresh instalments at the usual interest but no penal interest and sign a fresh agreement.