M/s. Magma Fincorp Ltd. vs Rajesh Kumar Tiwari

HELD: 1.1 Section (2)(1)(r) of Consumer Protection Act, 1986 defines “unfair trade practice” to mean a trade practice, for the purpose of promoting provision of any service, by adoption of unfair method or unfair or deceptive practice, including any of the practices enumerated in Sections 2(1)(r)(i) to (x), 2(r)(2), 2(r)(3) and 2(r)(3A). The complaint in the present case does not make out any case of unfair trade practice within the meaning of Section 2(1)(r) of the Consumer Protection Act 1986. [Para 25] [98-D-E]

1.2 Under the terms and conditions of the hire purchase agreement, the ownership of the vehicle was to stand transferred to the Complainant from the Financier, upon payment of all the 35 instalments and other dues, if any. Until then, the ownership was to be with the Financier. As all the 35 instalments had not been paid by the complainant to the Financier, the ownership of the vehicle remained with the Financier. The hire purchase agreement clearly enabled the Financier to take possession of the vehicle, on default in payment of any of the instalments. There is no term in the Hire Purchase Agreement, that requires the Financier to give notice to the Complainant before terminating the Hire Purchase Agreement, upon breach of any term thereof, or before taking possession of the vehicle. On the other hand, clause 15 of the Hire Purchase Agreement expressly provides for determination of the Hire Purchase Agreement without notice to the Complainant, upon default in hire instalments. [Paras 2830][98-H; 99-A-D]

1.3 The Complainant has only made a vague assertion that the action of the Financier in taking possession of the vehicle, admittedly for default in payment of instalments, and in not releasing the vehicle to the Complainant, in spite of the Complainant’s assurance to the Financier to clear outstanding instalments and pay future instalments timely, amounts to an act of unfair trade practice and constitutes deficiency of service. The repossession of a vehicle under hire, in accordance with the terms and conditions of a hire purchase agreement, upon default in payment of hire instalments and refusal to release the same on mere assurance of the Complainant to clear outstanding arrears of hire instalments, and pay future instalments in time, does not constitute ‘deficiency’ in service. [Paras 26 and 31][98-E; 99-D-E]

1.4 The object of a notice before taking possession of a vehicle on hire under a Hire Purchase Agreement, is to enable the hirer, to make a written request to the Financier to revive the hire purchase agreement in terms of Clause 12 of the said agreement, upon payment of all outstanding dues together with damages, as might be mutually agreed upon. A notice also draws the attention of the hirer to the alleged breaches of agreement on the part of the hirer, on the basis of which, the Financier claims to be entitled to take possession. Such notice gives the hirer an opportunity to show that the hirer had not, in fact, committed any breach of agreement. [Paras 34, 35][100-B-D]

2.1 A District Forum constituted under the Consumer Protection Act derives its power to grant relief from Section 14 of the said Act. If the District Forum is satisfied that the allegations contained in the complaint about the services are proved, it may direct the service provider to (i) return the charges paid by the Complainant [Section 14(1)(c)]; (ii) to pay such amount, as may be awarded by the District Forum as compensation to the consumer for any loss or injury suffered by the Complainant/Consumer, due to the negligence of the service provider [Section 14(1)(d)]; (iii) to pay punitive damages in such circumstances as the District Forum deems fit [Proviso to Section 14(1)(d)]; (iv) to remove the deficiencies in the service in question. [Section 14(1)(a)]; (v) to discontinue the unfair trade practice [Section 14(1) (f)] [Para 38][100-G; 101-A-C]

2.2 Before a District Forum can grant relief to the consumer of a service, it has to be satisfied that the allegations in the complaint, and/or in other words, the allegations which constitute a valid complaint, that is allegations of unfair or restrictive trade practice adopted by the service provider, or the allegations of deficiency in the service hired, or availed of or agreed to be availed of by the Complainant from the service provider, or the allegations of the service provider charging a price in excess of the price fixed for the service, under any law, for the time being in force or agreed between the parties or allegations of offering spurious services or services hazardous to life or safety, are proved. [Para 39][101-D-E]

2.3 Section 13(2)(b) of the Consumer Protection Act, 1986 casts an obligation on the District Forum to decide a complaint on the basis of the evidence brought to its notice by the Complainant and the service provider. Irrespective of whether the service provider adduces evidence or not, the decision of the District Forum has to be based on evidence relied upon by the Complainant. The onus of proof is on the Complainant making the allegation. Section 27 of the Consumer Protection Act casts an obligation on the District Forum, the State Commission or the National Commission to dismiss frivolous complaints with costs not exceeding Rs.10,000/-. [Para 40][101-F-G]

2.4 The Complainant produced a delivery receipt in respect of the vehicle, some payment receipts, Insurance papers in respect of the vehicle, an FIR unconnected with the Financier and/or copies thereof and some documents relating to the filing of the Complaint and payment of Court Fees etc., none of which establish any deficiency of service or unfair trade practice on the part of the Financier. [Para 41][101-G-H; 102-A]

2.5 The District Forum drew adverse inference against the Financier for not producing the Hire Purchase Agreement and assumed that there was no provision in the Hire Purchase Agreement for taking the vehicle back or selling it to a third party. No adverse inference could have been drawn against the Financier for not producing the Hire Purchase Agreement before the District Forum, when there was no allegation in the complaint of breach by the Financier of the Hire Purchase Agreement, in taking possession of the vehicle. The District Forum did not exercise its power under Section 13(4)(ii) to call upon the Financier to produce the Hire Purchase Agreement. Even otherwise, the District Forum did not direct the Financier to produce the Hire Purchase Agreement. [Paras 42, 43][102-B-D]

2.6 The finding of the District Forum, of the vehicle having been lifted “forcefully” or “snatched” is, contrary to the Complainant’s own case made out in the Complaint, and therefore perverse. It is well settled that a new case cannot be made out by way of evidence, when there are no pleadings to support the same. [Para 44][102-E-F]

3.1 The State Commission assumed that the error in the address of the complainant in the notice despatched by the Financier was deliberate, in order to sell the vehicle without the knowledge of the Complainant. Such assumption was not based on any materials on record but patently conjectural. The State Commission observed that the Complainant had been deprived of the opportunity to deposit the amount, due from him to the Financier, which again is contrary to the Complainant’s own pleadings in his complaint. The State Commission further found that there was no mention of the amount due to be paid by the Complainant to the Financier, in the Written Statement filed by the Financier before the District Forum. There was also no mention in that written statement of when the vehicle had been sold and the amount for which the vehicle had been sold, whether such amount was more than or less than the amount due from the Complainant to the Financier. Observing that the silence on the part of the Financier in not divulging anything about the sale rendered the sale ‘dubious’, the State Commission concluded that the Financier had surreptitiously sold the vehicle, without the knowledge of the Complainant, without notice to the Complainant, and without disclosing the details of the sale. The aforesaid observation, of the sale being dubious, has been made, overlooking the terms and conditions of the hire purchase agreement, and without considering the law governing hire purchase agreements. The Financier remains the owner of the vehicle taken by the complainant on hire, on condition of option to purchase, upon payment of all hire instalments. The hire instalments are charges for use of the vehicle as also for the exercise of option to purchase the vehicle in future. The Financier being the owner of the vehicle, there was no obligation on the part of the Financier, to divulge details of the sale of that vehicle, and that too on its own, without being called upon to do so. [Paras 46-48][102-G-H; 103-A-E]

3.2 The finding of the State Commission that the Financier sold the vehicle without the knowledge of the Complainant is contrary to the Complainant’s own case in his complaint before the District Forum. The Complainant has established that there was a discrepancy and/or error in the address of the Complainant in the notice for repossession, from which all the three fora under the Consumer Protection Act, 1986, have concluded that possession of the vehicle was taken without notice. It was not the case of the Complainant that the vehicle was sold without notice to or knowledge of the complainant. The error and/or discrepancy in the address is minor and there are no materials on the basis of which the State Commission concluded that the error was deliberate. The finding of the State Commission, of the error in the address being deliberate, is unsubstantiated. [Paras 49, 50 and 51][103-F-H; 104-A-C]

3.3. By directing the Financier to pay to the Complainant, the entire amount paid by the Complainant to the Financier from the inception, as also the amount paid by the Complainant to the dealer directly, along with interest at the rate of 10% per annum, damages of Rs.10,000/- and litigation costs, the fora constituted under the Consumer Protection Act, 1986, have given a defaulting hirer the benefit of free use of the vehicle of the value of Rs.4,21,121/- for almost twelve months, plus damages, oblivious to the depreciation in the value of the vehicle by reason of wear and tear, due to use by the hirer, as also an admitted accident for which the vehicle lay seized with the Police for some time. [Para 53][104-E-G]

4.1 The Consumer Protection Act, 1986, which creates fora for expeditious adjudication and settlement of consumer disputes, is not in derogation of any law in existence, but in addition thereto, as provided in Section 3 thereof. The said Act protects consumers of services from being charged a price in excess of the price fixed for the service under any law or the price agreed between the parties and also redressal of deficiency in the services availed by the Consumer and/or against restrictive or unfair trade practices, and/or spurious services. The Consumer Protection Act, 1986 does not override the Contract Act, 1872, and other enactments in force, applicable to the service availed by the consumer from the service provider. [Paras 55, 56][105-B-C]

4.2 The protection, to which the consumer of a service is entitled under the Consumer Protection Act, is against loss of money, by reason of being denied service, of a quality agreed upon expressly or by necessary implication, inter alia, in view of the applicable law, for which the consumer has paid, or has agreed to pay a consideration. The said Act also protects consumers from being overcharged for any service obtained and/or agreed to be obtained. The consumer of a service may also be entitled to damages for any loss suffered by the consumer, by reason of denial or deficiency in service for which the consumer has paid or agreed to pay (if the parties have agreed to deferred payment), charges and/or in other words, price for the service. In cases of breach of contract, liquidated damages may be imposed on the party in breach, if the agreement provides for liquidated damages, that is a fixed amount by way of damages. Where the parties to an agreement have not agreed to liquidated damages, the party in breach of agreement may be directed to pay unliquidated damages which are compensatory. Such compensatory damages are not to punish the party in breach, but to compensate the party not in breach, for losses suffered as a result of the breach. Where, however, the damages caused by the breach are severe and extensive, the party in breach may be required to pay to the party not in breach, such damages as would restore the position of the party not in breach, to the position before the breach occurred. [Paras 57-59][105-D-H]

4.3 Apart from compensatory damages, an Adjudicating Authority may impose on the party in breach, punitive damages or nominal damages. Punitive damages are awarded where the party in breach of agreement has behaved in a manner, which is reprehensible and calls for punishment. Nominal damages are awarded where there is no real harm done, by reason of the breach of the contract. [Para 60][106-A-B]

4.4. Section 14 of the Consumer Protection Act, 1986 empowers the District Forum to award compensation to the party not in breach by directing the party in breach to return the price or the charges as may have been paid by the complainant [Section 14(1)(c)]. The said Section also enables the District Forum to award compensatory damages to the consumer for loss or injury suffered by the consumer due to negligence of the party in breach [Section 14(1)(d)]. The Forum may direct removal of the deficiency in service, if the deficiency can be removed and it can direct discontinuation of unfair trade practices or restrictive practices and direct the same not to be repeated [Section 14(1)(e) and (f)]. The proviso to Section 14(1)(d) of Consumer Protection Act, 1986 empowers the District Forum to grant punitive damages in such circumstances as it deems fit. Punitive damages are not generally awarded in cases of breach of contract unless the act is so reprehensible that it calls for punishment of the party in breach, by imposition of punitive and/or exemplary damages. Compensation which is compensatory, has to be assessed taking into account relevant factors, such as the loss incurred by the claimant, though some amount of guess work and/or estimation may be permissible. In the instant case, the District Forum did not even undertake the exercise of assessment of the loss/damages, if any, suffered by the complainant by reason of nonservice of notice before taking possession of the vehicle. [Paras

61 and 62][106-B-F]

5.1 Goods are let out on hire under a Hire Purchase Agreement, with an option to purchase, in accordance with the terms and conditions of the Hire Purchase Agreement. The hirer simply pays for the use of the goods and for the option to purchase them. Until the option to purchase is exercised by the hirer, upon payment of all amounts agreed upon between the hirer and the Financier, the financier continues to be owner of the goods being the subject of hire purchase. Till such time the hirer remains a trustee and/or bailee of the goods covered by the Hire Purchase Agreement. The Financier continues to remain the owner of a vehicle, covered by a hire purchase agreement till all the hire instalments are paid and the hirer exercises the option to purchase. Thus, when the Financier takes re-possession of a vehicle under hire, upon default by the hirer in payment of hire instalments, the Financier takes re- possession of the Financier’s own vehicle. When the agreement between the Financier and the hirer permits the Financier to take possession of a vehicle financed by the Financier, there is no legal impediment to the Financier taking possession of the vehicle. When possession of the vehicle is taken, the Financier cannot be said to have committed theft. [Paras 7780][111-F-H; 112-A-C]

5.2 Whether the transaction between a Financier and a purchaser/hirer is a hire purchase transaction, or a loan transaction, might be determined from the terms of the agreement, considered in the light of surrounding circumstances. However, even a loan transaction, secured by right of seizure of a financed vehicle, confers licence to the Financier to seize the vehicle. [Para 81][112-C-D]

5.3 In the present case, the agreement executed by and between the Financier and the Complainant is a Hire Purchase Agreement as will appear from the terms and conditions thereof. In any event, the fora under the Consumer Protection Act, have not arrived at any specific finding to the contrary. There is no discussion of the nature of the agreement between the Financier and the Complainant. Be that as it may, the agreement clearly permits the Financier to take possession of the vehicle, upon default in payment of instalments. [Para 82][112-E]

5.4 The Financier being the owner of the vehicle which is the subject of a Hire Purchase Agreement, there can be no impediment to the Financier taking possession of the vehicle when the hirer does not make payment of instalments/hire charges in terms of the Hire Purchase Agreement. However, such repossession cannot be taken by recourse to physical violence, assault and/or criminal intimidation. Nor can such possession be taken by engaging gangsters, goons and musclemen as so called Recovery Agents. [Para 87][113-G-H; 114-A-B]

5.5 Whether the service of proper notice on the hirer would be necessary for repossession of a vehicle, which is the subject matter of a Hire Purchase Agreement, would depend on the terms and conditions of the Hire Purchase Agreement, some of which may stand modified by the course of conduct of the parties. If the hire purchase agreement provides for notice on the hirer before repossession, such notice would be mandatory. Notice may also be necessary, if a requirement to give notice is implicit in the agreement from the course of conduct of the parties. If the hirer commits breaches of the conditions of a hire purchase agreement which expressly provides for immediate repossession of a vehicle without further notice to the hirer, in case of default in payment of hire charges and/or hire instalments repossession would not be vitiated for want of notice. [Paras 88, 89][114-C-G]

5.6. In a case where the requirement to serve notice before repossession is implicit in the hire purchase agreement, non service of proper notice would tantamount to deficiency of service for breach of the hire purchase agreement giving rise to a claim in damages. The Complainant consumer would be entitled to compensatory damages, based on an assessment of the loss caused to the complainant by reason of the omission to give notice. Where there is no evidence of any loss to the hirer by reason of omission to give notice, nominal damages may be awarded. Where a Financier erroneously and/or wrongfully invokes the power to repossess without notice to the hirer, causing thereby extensive pecuniary loss to the hirer or loss of goodwill and repute, a forum constituted under the Consumer Protection Act may award punitive damages. [Paras 90 and 91][114-G-H; 115-A-C]

5.7 In the instant case, there is no evidence of any loss suffered by the complainant by reason of non-receipt of notice. Admittedly, several instalments, remained unpaid. After repossession the complainant contacted the Financier and was informed of the reasons for the repossession. He only made an offer to pay outstanding instalments and gave an assurance to pay future instalments in time. If the Financier was not agreeable to accept the offer, the Financier was within its rights under the hire purchase agreement. This is not a case where payment had been tendered by the hirer but not accepted by the Financier/lender. The Complainant had not tendered payment. [Para 92][115C-E]

6. The Financier admittedly paid Rs.3,15,000/- for acquisition of the vehicle, out of which the Financier had been able to realize Rs.1,19,000/- inclusive of all charges. There was depreciation in the value of the vehicle by reason of usage by the Complainant, for about a year. The District Forum did not even notionally assess the depreciation in the value of the vehicle. The District Forum was not justified in directing the Financier to pay the Complainant Rs.2,23,335/- being the entire amount paid by the Complainant to the Financier from the inception as well as the payment of Rs.1,04,000/- made by the Complainant to the dealer along with damage of Rs.10,000/- and litigation costs of Rs.1,000/- after the Complainant had held and used the vehicle for almost a year. The Complainant, admittedly a defaulter, has in effect, been allowed free use of the vehicle for about a year, plus damages, for an error in the notice of repossession, without considering the prejudice, if any, caused to the complainant by the error and consequential non receipt of the notice, and without making any assessment of the loss, if at all, to the Complainant by reason of the error/omission. [Paras 93, 94][115-E-H; 116-A]

Charanjit Singh Chadha & Ors. v. Sudhir Mehra

(2001) 7 SCC 417; K. L. Johar & Co. v. Deputy

Commercial Tax Officer, Coimbator AIR 1965 SC 1082 : [1965] SCR 112; Anup Sarmah v. Bhola Nath Sharma and Others (2013) 1 SCC 400 : [2012] 11 SCR 360; Orix Auto Finance (India) Ltd. v. Jagmander Singh and Another (2006) 2 SCC 598 : [2006] 2 SCR 169; K. A. Mathai alias Babu & Anr. v. Kora Bibbikutty & Anr. (1996) 7 SCC 212; Sundaram Finance Ltd. v. The State of Kerala & Anr. AIR 1966 SC 1178 : [1966] SCR 828 – relied on.

ICICI Bank Ltd. v. Prakash Kaur & Ors. (2007) 2 SCC

711 : [2007] 3 SCR 253; Citicorp Maruti Finance Ltd. v. S. Vijaylaxmi (2012) 1 SCC 1 : [2011] 14 SCR 1050 – distinguished.

Jagdish Chandra Nijhawan v. S.K. Saraf (1999) 1 SCC 119; Smt. Lalmuni Devi v. State of Bihar & Ors. (2001)

2 SCC 17 – held inapplicable.