Loan default? Finance cos can't send goons, HC says

In Prayagraj, the Allahabad High Court has ruled that a finance firm cannot employ goons to seize vehicles from borrowers who have defaulted on loan payments. The court emphasized that a finance company's contractual right to repossess a financed vehicle must be enforced through authorized legal channels, such as a civil court or an arbitrator, and not by using forceful recovery agents. The court emphasized that granting a private party the coercive authority of the state through such actions would be unlawful.

The court's decision comes after a borrower, Sadab Ahmad, filed a writ petition against HDB Financial Services Limited. The petitioner's vehicle was seized at gunpoint on a highway despite her having paid 31 out of 45 installments. The court intervened, ordering the immediate delivery of the vehicle to the borrower without any conditions, along with a Rs 10,000 fee and restructuring of the loan without any penal interest. The court left the determination of the loan default to be decided by an appropriate forum.

The court stated that while a finance company's contractual right to repossess a financed vehicle is enforceable, it must be executed through legal processes with the assistance of a competent authority. Employing goons or recovery agents to carry out such seizures would effectively arm a private party with the coercive power of the state, which is not permissible.

The petitioner, a self-employed individual, had purchased a Tata goods carrier in December 2023 through finance from HDB Financial Services Limited. The loan was to be repaid in 45 equated monthly installments of Rs 64,059 each. In August 2026, men said to be acting on behalf of the finance company intercepted the petitioner, threatened him with firearms, seized the vehicle, and forced him to sign a repossession inventory.

The petitioner raised complaints with the finance company, local police, and district magistrate, subsequently approaching the high court to seek the release of his vehicle.

The finance company argued that the borrower's loan account was linked to a defaulted loan taken by his brother, Shoaib Ahmad, whose vehicle could not be located. The finance company claimed that the petitioner also defaulted on his post-dated cheques, resulting in the termination of his facility and the authorization of a repossession agency named Poonia Associates Private Limited on August 8, 2026.

The company relied on the repossession clauses outlined in the hire-purchase agreement and cited relevant Supreme Court decisions.

However, the high court rejected the finance company's arguments, emphasizing that even if the borrower's default was well-documented, the company could not use force to seize the vehicle. The court observed that in the brother's case, the company had sought interim orders and an award from an arbitrator, which included police assistance.

The court further noted that no proceedings had been initiated against the petitioner. As a result, the court directed the finance company to deliver the vehicle to the borrower immediately, without any precondition, and to furnish an updated account statement. Additionally, the company was ordered to restructure the loan, incorporating fresh installments at the usual interest rate, with the exclusion of any penal interest, and to sign a new agreement with the borrower.