Hire Purchase Agreement or Hypothecation of the Vehicle with any Bank or Financial Institution [CASE LAW]

Release of vehicle in a case where there is hypothecation agreement executed between registered owner and financer/banker - Once borrower fails to pay installment in terms of agreement then, the financer/banker has a right to take possession of the vehicle back or get the vehicle released in its favour.

HIGH COURT OF JAMMU AND KASHMIR AT JAMMU

Coram: Hon’ble Mr. Justice Sanjay Kumar Gupta, Judge

CRR No. 23/2018 & IA No. 01/2018

Date of order:16.11.2018

Mohammad Din Vs State of J&K and another

Appearing counsel: For Petitioner(s) : Mr. G. Q. Bhat, Advocate. For respondent (s) : Mr. Rajneesh Oswal, Advocate for respondent No.1. Ms. Padmaja Vemuri Lal, Advocate for respondent No.2.

1. In this criminal revision petition, petitioner has challenged the order dated 09.02.2018 passed by Principal Sessions Judge, Jammu, in file No. 01/Appeal and order dated 31.01.2018, passed by the Forest Magistrate, Jammu.

2. The factual matrix of the case is that the petitioner is a registered owner of one Scorpio bearing No. JK02BS-1234, which has been purchased by him from one-Jan Mohd. S/o Shah Mohd. R/o Bathandi, Jammu in the year, 2006 for consideration of Rs.14,00,000/-(Rupees Fourteen Lakh). After making payment of the entire consideration amount of the vehicle, it was transferred in the name of the petitioner by making necessary entries in the record of the concerned registering authority. When the petitioner purchased the vehicle form the erstwhile owner, its Registration Certificate was never reflected about any hire purchase agreement or hypothecation of the vehicle with any bank or financial institution. The petitioner, as a bonafide purchaser, inspected the documents and satisfied himself about the vehicle being free of any encumbrance and, accordingly, the petitioner paid Rs.14,00,000/- to the ex-owner and also got the vehicle transferred in his name in the Registration Certificate. Moreover, the Insurance Certificate and other documents were also transferred in the name of the petitioner with respect to the vehicle. Since purchase of the vehicle, the petitioner was continuously and peacefully used the vehicle to the exclusion of the whole world till 23.01.2017, when the vehicle was seized by the respondent No.1 in a false and frivolous case bearing FIR No.35/2017, registered at Police Station, Crime Branch for commission of offences under Sections 420, 465, 467, 468, 471 and 120-B RPC. The respondent No.1 seized the vehicle from the possession of the petitioner. Accordingly, petitioner filed an application, seeking release of the vehicle before the Forest Magistrate, Jammu on 23.01.2018. In the meanwhile, respondent No.2-Bank also filed an application, seeking release of the said vehicle. Both the applications were considered and decided by a common order on 30.01.2018 by the learned Magistrate, directing the release of the vehicle in favour of the respondent No.2 and declining the claim of the petitioner for release of the vehicle in favour of the petitioner. The aforementioned order was challenged by the petitioner before the learned Principal Sessions Judge, Jammu through an appeal bearing No.01/Appeal, which has been dismissed on 09.02.2018.

3. In the instant revision petition, petitioner has challenged both impugned orders on the following grounds:-

A. That the impugned orders have been passed in blatant violation of the relevant provisions of law as contained in Criminal Procedure Code and the law judicially evolved from time to time. It is trite law that pre-trial detention of property is total waste of the property subjecting its rightful owner to irreparable loss. Hence judicial opinion has always been in favour of release of property in favour of a person prima facie holding a better title. So far as the movable property is concerned, its possessor is having better title than the whole world at least till the question of title is decided by a competent court of law. This important dictum of law has been clearly over looked by the Hon’ble courts below passing the impugned orders.

B. That the petitioner is the registered owner of the vehicle in question which is an admitted fact and the petitioner has not been involved in any illegal or unlawful act with respect to the acquiring the title of the vehicle in question. The petitioner is a bonafide purchaser and he cannot be made to suffer for the fault of any other person because the petitioner has acquired title of the vehicle in a legally permissible process. In this view of the matter the title and possession of the petitioner viz-a-viz the vehicle is not only legally perfect but morally also sound. Hence the learned courts below were not legally justified in denying the custody of vehicle to the petitioner. On this count also the revision petition merits to be allowed.

C. That the Courts below have legally erred and factually faltered, inasmuch as an important aspect of the matter has escaped attention of the courts below. Because the learned trial courts below have not appreciated that the respondent No. 2 is a purely financial institutional and its claim to the vehicle could be safe guarded by an alternative arrangement than by releasing the vehicle in its favour. There is no denying the fact that as on date the entitlement of the vehicle has not been finally settled. In case the claim of the respondent No. 2 could have been found genuine at any point of time the petitioner could be bound even at this time to compensate the respondent No. 2 whereas the vehicle has been purchased by the petitioner for his use and the releasing of the vehicle in favour of respondent No. 2 would result in denying the petitioner legal use of the vehicle. Such denial cannot be compensated by the respondent No. 2 by the courts at any point of time. The comparative mischief to which the petitioner has been subjected on account of release of the vehicle in favour of respondent No. 2 is far more larger than that which the respondent No. 2 would suffer in case the vehicle is handed over to the custody of petitioner. Because the petitioner has an interest in use of the vehicle whereas the respondent No. 2 has only pecuniary interest in the vehicle. The loss of former cannot be compensated whereas the loss of later is always compensate able. In this view of the matter the revision petition merits to be allowed.

D. That the releasing of the vehicle in favour of respondent No. 2 will not serve any purpose because it will amount to continuous detention of the vehicle. It is of no use to keep the seized vehicle either at the police station or in the hands of the respondent No. 2. The respondent No. 2 cannot make efficient and appropriate use of the vehicle. The vehicle will be damaged in custody of the respondent No. 2. The only course of action known to the respondent No. 2 is to sell a seized vehicle in case of default. By virtue of the orders passed by the courts below, the respondent No. 2 is restrained from alienating the vehicle. Resultantly the vehicle will remain idle in custody of the respondent No. 2 and will naturally decay resulting in irreparable loss to the petitioner. The better course would always have been to release the vehicle in favour of the petitioner and the petitioner would submit sufficient security for compensating the respondent No. 2 or any other party in case of having a better title than the petitioner.

E. That the impugned orders are a result of illegal and irregular exercise of jurisdiction by the courts below. The releasing of vehicle pending trial under section 561-A Cr.P.C. is meant to ensure that the vehicle does not get damaged in custody of the police or courts as the same may invite legal action for compensation against the state authorities. But at the same time it is to be kept in mind that apart from title the suitability and feasibility of an appropriate custody is to be taken into account while directing custody of seized vehicle pending trial. In the present case the learned courts below have not delved into this aspect of the matter also which renders the impugned orders liable to be set aside and quashed.

F. That the entitlement of the petitioner viz-a-viz the vehicle is legally on sound basis. The petitioner has a genuine and legally sustainable claim to the vehicle. There is cogent evidence and facts strongly suggesting the bona fides of the petitioner in the entire episode. On this count also the learned Courts below were not legally justified in brushing aside the claim of the petitioner so lightly.

G. That all other grounds will be taken at the time of arguments.

H. That this revision petition is supported by duly sworn affidavit.

4. Status Report produced on behalf of respondent-Crime Branch in the open court is taken on record, wherein it is stated that during the investigation of case FIR No.21/2017 u/s 420, 465, 467, 468 and 471 RPC of Police Station, Crime Branch, Jammu, accused Sanjay Bajaj R/o H.No.23, Mohalla Hari Om Enclave 1/B Roop Nagar opposite Peer Baba Jammu was arrested on 10.06.2017 and during questioning he disclosed that there is an organized gang of criminals who are indulging in luring people in arranging vehicles on loan from various financial institutions as well as banks after preparing fake ITRs and when not in a position to repay the EMIs as fixed, the same vehicle is being kept mortgage to a person who pays half of the amount of the vehicle on the higher interest rates for repaying EMIs to the Banks/Financial Institutions and ultimately the financer in league with the gang disposes off the vehicle either by making fake sale letter or by removing hypothecation by preparing fake NOC. Upon this disclosure, a separate case FIR No.35/2017 u/s 420, 467, 468, 471 and 120-B RPC has been registered in Crime Branch, Jammu on 27.09.2017 and investigation taken up. During the course of investigation, record obtained and seized during the investigation of case FIR No.21/2017 dated 10.06.2017 u/s 420, 465, 467, 468, 471 RPC has been re-seized in case FIR No. 35/2017 and from the perusal of the record so re-seized in the case, it is found that accused Sunil Kumar in connivance with Dheeraj Singh, Gurjinder Singh, Udit Chadha, Ameet Kour, Ullah Rakha, Satish Kumar, Puran Chand, Tarsem Sharma and others have fraudulently prepared fake NOCs of different Financing companies and Banks after obtaining a huge loans for purchase of vehicles. The accused so involved in the process of preparing Fake NOCs have purchased different types of vehicles against the loan acquired from the different financing companies/ Banks and soon after purchasing the vehicles against the loan fraudulently acquired by the accused. These accused used to prepare fake NOCs in order to further sale these vehicles financed by different companies and cause huge loss to the Banks as well as to financing companies by means of cheating and forgery, so as to earn illegal benefit/gain for themselves. During the course of investigation it was found that vehicle bearing registration No. JK02BS-1234 (Mahinda Scorpio) has been purchased by one alleged accused Jaan Mohd. S/o Shah Mohd. R/o Doongia Bathindi after acquiring a loan of Rs.11.00 lacs on 30.09.2016 from Canara Bank, Bakshi Nagar, Jammu. Thereafter, the alleged accused Jaan Mohd. in connivance with other accused fraudulently prepared Form No.35 dated 08.02.2017, Bank Loan Statement dated 08.02.2017 and NOC bearing No. CBBN/NOC/32022017 dated 08.02.2017 of Canara Bank, Bakshi Nagar, Jammu and produced these forged and fraudulent documents before RTO Jammu and managed fraudulent removal of hypothecation by way of cheating and fraud. Therefore, after obtaining a fresh fraudulent and fake registration certificate from the RTO on the basis of these fake documents by way of cheating and fraud, has further sold the said vehicle to one Mohd. Din S/o Ghulam Hussain R/o Rathal Choudhary Nar, Rajouri for a sale consideration of Rs.4,80,000/- as per the Sale Deed dated 19.06.2017, while as the basic price of the vehicle is Rs.12,94,603/- but within a short period the vehicle was fraudulently transferred without the knowledge of the Bank and sold for an amount of Rs.4,80,000/- just to earn huge illegal money by fraudulent means in connivance with other accused involved in the process of acquiring loan and transferring of the vehicle. Accordingly, on 18.01.2018, during the search, the said vehicle was spotted at Sidhara Bye Pass, Jammu which was driven by some unknown person. The said unknown driver was signaled to stop, but the driver did not stop and ran away by driving the vehicle towards Bajalta. The said vehicle driver was followed, but the unknown vehicle driver parked the vehicle on the roadside at Bajalta and escaped from the spot leaving vehicle abandoned. Therefore, with the help of a police driver the vehicle was taken in possession and further taken to Police Post Sidhra. In this regard I/c Police Post Sidhra was intimated and a detailed report was also entered in the Daily Diary by I/c Police Post, Sidhra. Besides, the I/C Police Post was briefed and directed to trace out the unknown driver, who was rashly driving the vehicle and escaped from the spot. He was also directed to inform the registered owner of the vehicle to attend Crime Branch, Jammu for further clarifications, but neither the unknown driver nor the registered owner has approached Crime Branch, Jammu till date despite of issuing various summons from this office. The said vehicle has not been seized from the possession of any registered owner or so, but was found abandoned on the road side thrown by some unknown driver and was accordingly seized. Therefore, the vehicle has not been seized from the possession of any owner as claimed in the report. However, during investigation it has come to fore that the said vehicle has been sold to some other person by Mohd. Din S/o Ghulam Hussain R/o village Rathal Choudhary Nar, Rajouri and Jaan Mohd. S/o Shah Mohd. R/o Doongia Bathindi, who have fraudulently got transferred the vehicle in the name of Mohd. Din by producing fake documents before RT, Jammu. The accused applicant in connivance with others has sold the said vehicle to many people fraudulently in order to earn huge amounts. The investigation revealed that alleged accused Jaan Mohd. has similarly also purchased various vehicles after acquiring loan from different Banks and other finance companies and has sold these vehicles fraudulently in order to earn huge illegal amounts, thus has caused huge losses to the Banks and other Financial companies. The alleged accused are avoiding to attend this office and are still absconding. The details of vehicles fraudulently purchased and sold by the said accused Jaan Mohd. is as under, which are yet to be recovered from the possession of the said accused:- (1) Vehicle No. JK02BE-6615 (Bolero Pickup) (2) Vehicle No. JK02AK-7636 (LPT Truck). Therefore, the applicant as per the record and Section 2(30) of Motor Vehicle Act, is neither the actual owner of the vehicle nor the vehicle has been seized from his possession. The accused mentioned above are habitual offenders and have purchased the above mentioned vehicles after acquiring loan from the Banks/other financial companies and after obtaining the loan, sold these vehicles to other people fraudulently by preparing fake NOCs. Moreover, the vehicle seized in the case as per Bank statement obtained from Canara Bank, Bakshi Nagar and as per the statement of Bank Manager, a loan amounting to Rs. 10,67,012/- is pending against accused Jaan Mohd. Besides, alleged accused Jaan Mohd. is a defaulter and has not paid any installment since long. Therefore, vide Court order dated 02.02.2018, the vehicle has been released and given on Supardnama to Manager, Canara Bank, Bakshi Nagar, Jammu.

5. I have given my thoughtful consideration to whole aspects of the matter.

6. Now law is well settled with regard to release of vehicle in a case where there is hypothecation agreement executed between registered owner and financer/banker; once borrower fails to pay installment in terms of agreement then, the financer/banker has a right to take possession of the vehicle back or get the vehicle released in its favour.

7. In 1979 AIR SC 850, Sardar Trilok Singh and ors vs. Satya Deo Tripathi, Apex court has held that in Hire Purchase agreement, if financer takes back motor vehicle due to default in payment of installment, no process could be issued against the financer u/s 395 IPC on the basis of exaggeration version of the complainant.

8. In 2001 AIR (SC) 3721, Charanjit Singh Chadha and ors vs. Sudhir Mehra, the Apex has held that Re-possession of vehicle on hire purchase agreement does not amount to criminal offence of 379 IPC.

9. In 2012 (4) ACC 697, Anup Sarmah vs. Bhola Nath Sharma and ors, the apex has held as under:-

“We have considered the rival submissions raised by the learned counsel for the parties and perused the records.

5. In Trilok Singh & Ors. v. Satya Deo Tripathi, [AIR 1979 SC 850], this Court examined the similar case wherein the truck had been taken in possession by the financier in terms of hire purchase agreement, as there was a default in making the payment of instalments. A criminal case had been lodged against the financier under Sections 395, 468, 465, 471, 12-B/34, I.P.C. The Court refused to exercise its power under Section 482, Cr.P.C. and did not quash the criminal proceedings on the ground that the financier had committed an offence. However, reversing the said judgment, this Court held that proceedings initiated were clearly an abuse of process of the Court. The dispute involved was purely of civil nature, even if the allegations made by the complainant were substantially correct. Under the hire purchase agreement, the financier had made the payment of huge money and he was in fact the owner of the vehicle. The terms and conditions incorporated in the agreement gave rise in case of dispute only to civil rights and in such a case, the Civil Court must decide as what was the meaning of those terms and conditions. 

6. In K.A. Mathai alias Babu & Anr. v. Kora Bibbikutty & Anr., [(1996) 7 SCC 212], this Court had taken a similar view holding that in case of default to make payment of installments financier had a right to resume possession even if the hire purchase agreement does not contain a clause of resumption of possession for the reason that such a condition is to be read in the agreement. In such an eventuality, it cannot be held that the financier had committed an offence of theft and that too, with the requisite mens rea and requisite dishonest intention. The assertions of rights and obligations accruing to the parties under the hire purchase agreement wipes out any dishonest pretence in that regard from which it cannot be inferred that financier had resumed the possession of the vehicle with a guilty intention. 

7. In Charanjit Singh Chadha & Ors. v. Sudhir Mehra, [JT 2001 (7) SC 226 : (2001) 7 SCC 417], this Court held that recovery of possession of the vehicle by financier-owner as per terms of the hire purchase agreement, does not amount to a criminal offence. Such an agreement is an executory contract of sale conferring no right in rem on the hirer until the transfer of the property to him has been fulfilled and in case the default is committed by the hirer and possession of the vehicle is resumed by the financier, it does not constitute any offence for the reason that such a case/dispute is required to be resolved on the basis of terms incorporated in the agreement. The Court elaborately dealt with the nature of the hire purchase agreement observing that in a case of mere contract of hiring, it is a contract of bailment which does not create a title in the bailee. However, there may be variations in the terms and conditions of the agreement as created between the parties and the rights of the parties have to be determined on the basis of the said agreement. The Court further held that in such a contract, element of bailment and element of sale are involved in the sense that it contemplates an eventual sale. The element of sale fructifies when the option is exercised by the intending purchaser after fulfilling the terms of the agreement. When all the terms of the agreement are satisfied and option is exercised a sale takes place of the goods which till then had been hired. While deciding the said case, this Court placed reliance upon its earlier judgments in M/s. Damodar Valley Corporation v.The State of Bihar, [AIR 1961 SC 440]; Instalment Supply (Private) Ltd. & Anr. v. Union of India & Ors., [AIR 1962 SC 53]; K.L. Johar & Co. v. The Deputy Commercial Tax Officer, Coimbatore III, [AIR 1965 SC 1082]; and Sundaram Finance Ltd. v. State of Kerala & Anr., [AIR 1966 SC 1178].

8. In view of the above, the law can be summarised that in an agreement of hire purchase, the purchaser remains merely a trustee/bailee on behalf of the financier/financial institution and ownership remains with the latter. Thus, in case the vehicle is seized by the financier, no criminal action can be taken against him as he is re-possessing the goods owned by him.

9. If the case is examined in the light of the aforesaid settled legal proposition, we do not see any cogent reason to interfere with the impugned judgment and order. The petition lacks merit and, accordingly, dismissed.”

10. The contention of counsel for petitioner that he is registered owner and he got the registration done in his favour after he purchased the vehicle from previous owner and after obtaining no-objection certificate from Canara Bank -respondent no.2, is not tenable because there is specific allegations in FIR No.35/2017, registered at Police Station, Crime Branch, for commission of offences under Sections 420, 465, 467, 468, 471 and 120-B RPC, that fraudulently fake NOCs of Bank were prepared by the accused in said FIR after obtaining a huge loans for purchase of many vehicles including vehicle in question. During the course of investigation it has been found that vehicle in question bearing registration No.JK02BS-1234 (Mahindra Scorpio) has been purchased by alleged accused Jaan Mohd. S/o Shah Mohd. R/o Doongia Bathindi after acquiring a loan of Rs. 11.00 lacs on 30.09.2016 from Canara Bank, Bakshi Nagar, Jammu. Thereafter, the alleged accused Jaan Mohd. in connivance with other accused fraudulently prepared Form No. 35 dated 08.02.2017, Bank Loan Statement dated 08.02.2017 and NOC bearing No. CBBN/NOC/32022017 dated 08.02.2017 of Canara Bank, Bakshi Nagar, Jammu and produced these forged and fraudulent documents before RTO Jammu and managed fraudulent removal of hypothecation by way of cheating and fraud. There are also allegations against Jan Mohd. accused from whom petitioner has purchased the vehicle in question, that he has fraudulently purchased and sold another Vehicle No.JK02AK-7636 (LPT Truck).

11. So all the pleas of petitioner are not tenable at this stage. If petitioner has any grievance i.e. against said John Mohd., for which, he has a right to file compensation/recovery case against him.

12. The instant petition is dismissed accordingly.