Supreme Court orders RBI to enforce fair loan recovery and stop forced vehicle seizures

The Supreme Court, hearing an appeal by Hari Dutta Sharma, ruled that banks and non-banking financial companies must strictly adhere to RBI loan-recovery guidelines and may not resort to forceful vehicle repossession. Justice Alok Aradhe noted that a default does not grant lenders a licence to break locks or seize assets in the dead of night without notice. Sharma’s case involved a finance company sending four unidentified men at around 1 a.m. to take his commercial truck after missed instalments, contrary to a loan agreement requiring a seven-day notice.

The court held that the repossession clause was unilateral, breached RBI directives and the Indian Contract Act, and amounted to oppression of borrowers. It cited earlier judgments rejecting the use of “goondas” for repossession and highlighted that RBI’s 2005 guidelines have largely remained unenforced. Consequently, the court instructed the Reserve Bank of India to take effective steps to ensure genuine compliance across scheduled commercial banks and NBFCs.