SC tells RBI to ensure banks follow rules on loan recovery, vehicle repossession
The Supreme Court directed the RBI to ensure banks and NBFCs follow loan recovery rules, saying defaults do not permit lenders to seize vehicles by force.
The Supreme Court has ordered the Reserve Bank of India (RBI) to ensure that banks and finance companies follow guidelines on loan recovery and vehicle repossession. The court ruled that borrowers cannot be dispossessed of their livelihoods without notice or recourse. The court cited an April 2025 Allahabad High Court order that allowed a finance company to seize a borrower's truck without prior notice after he defaulted on loan payments.
The court emphasized that while loan agreements can permit repossession, they must not be used as a license to seize property through force or deceit. The court also noted that the clause in the loan agreement violated the RBI guidelines and Indian Contract Act, 1872.
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