The Hindu Business Line : Payment default in hire purchase — Calcutta HC upholds financier's rights to repossess asset

THE Calcutta High Court has upheld the financier's right to repossess the asset in case of a default. In a recent judgment, in the matter of Magma Leasing Ltd vs State of West Bengal and Others, the court has held that "where the acquisition of assets has been financed on hire purchase, the financier is entitled to repossess the asset according to the terms of the hire purchase agreement, in the event of a default by the hirer". The court has pointed out that repossession of the asset by the financier in terms of the agreement does not amount to a criminal offence.

While exercising the Criminal Revisional Jurisdiction of the High Court, Mr Justice P.N. Sinha dwelt at length on decisions of the Supreme Court to hold that in a hire purchase transaction, the property in the goods does not pass on in favour of the intending purchaser (read the hirer) at the time of the agreement. "It passes later only when the hirer exercises the option to purchase the asset after complying with all the terms of the agreement."

The court has clarified that the intending seller (the financier) remains the owner of the asset at all material times prior to exercise of the option to purchase.

Mr P.K. Srivastava, counsel appearing for Magma Leasing in the above matter, felt that this was a landmark judgment, "which has cleared the nebulous haze hitherto prevailing over the financier's right to repossess an asset in terms of the agreement".

Talking to Business Line from Raipur, Mr Sanjay Chamria, Managing Director of Magma Leasing, said such repossession of an asset, like say a truck, by NBFCs is done with utmost diligence and after exhausting all avenues for recovery of the payment. A proper demand notice is sent at the first instance of default of instalment payment by a party, and this is followed by further notices, and only after the third default that we send a terminal notice exercising our right to repossess the asset, he pointed out.

He said even in the terminal notice, an option is provided to the purchaser to make full payment, and settle the matter. The actual repossession is triggered only after a lapse of 7 days from the date of sending the terminal notice. Mr Chamria said as per a highly standardised procedure, the law enforcement agencies are kept fully informed of the re-possession process to avoid any untoward incidents. He clarified that a repossessed vehicle is kept with the company, and the purchaser informed to make the full payment, with other charges, within a certain number of days, and on receipt of zero response after this period, the companies sell these vehicles in the open market to recover the payments.

He said in the case of Magma, such repossessions (referred to as Delinquent Accounts) accounted for a mere 2-3 per cent of the total business transacted annually.

More Stories on : Courts/Legal Issues | NBFCs | Non-Performing Assets

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