Holding

Repossession of the vehicle is permissible under Clause 10 of the hire‑purchase agreement, but release is contingent upon payment of the deposited defaulted instalments plus Rs.1,50,000 and an undertaking to return the vehicle if the suit fails.

Summary

The appellant, Orix Auto Finance, repossessed a truck from the respondent hirer after the latter defaulted on instalment payments under a hire‑purchase agreement containing a clause allowing repossession on default. The hirer filed a suit for declaration, permanent and mandatory injunction, and an interim order directing the financier to release the vehicle upon deposit of the balance instalments with interest. The trial court ordered release subject to such deposit, and the High Court upheld it. On appeal, the Supreme Court held that repossession is permissible under Clause 10 of the agreement, but the vehicle should be released only after the hirer pays the deposited defaulted instalments plus an additional Rs.1,50,000 and furnishes an undertaking to return the vehicle if the suit is ultimately dismissed. The Court also emphasized that contractual disputes are generally beyond the scope of writ petitions unless the contract is unconscionable or against public policy, and High Courts should not prescribe guidelines that alter agreed terms. The appeal was allowed.

Issues considered

Whether a financier may repossess a financed vehicle under the hire‑purchase agreement upon the hirer's default.
Whether the civil suit for declaration and injunction is maintainable when the defaulted amount has been deposited.
Scope of judicial interference in contractual matters through writ petitions or PILs, and the test for a contract being unconscionable or against public policy.
Whether the trial court should condition the release of the vehicle on additional payment and an undertaking.
Whether High Courts can lay down guidelines that effectively vary the terms of a hire‑purchase agreement.

Legislation cited

Code of Civil Procedure, 1908s. 115
Constitution of Indias. Article 226

Subjects

hire purchaserepossessiondefaultcontractpublic interest litigationwrit petitioninjunctionvehicle financingbreach of contractcourt jurisdiction

Judgment

- -"':v THE MANAGING DIRECTOR, ORIX AUTO FINANCE (INDIA) LTD. A
V.

SHRI JAGMANDER SINGH AND ANR.

FEBRUARY IO, 2006

[ARIJIT PASA YAT AND S.H. KAPADIA, JJ.] B

"· Hire-Purchase: Hire-Purchase Agreement-Clause ID-Financier taking
repossession offinanced vehicle in case of default-Suit for declaration and
injunction by hirer-Trial Court directing financier to release vehicle on deposit
ofbalance instalments with interest-Order upheld by High Court-On appeal,
c
held: Repossession of vehicle was permissible in terms of the agreement-
However, defaulted amount having been deposited and also vehicle if not used
would lose its value, vehicle directed to be released on payment of additional
sum.
D
Constitution of India, I 950-Article 226-Financier taking repossession
> offinanced vehicle in terms of Hire-Purchase Agreement-Writ petitions styled
+- as Public interest litigation-Scope of interference-Held: Such matters are
contractual-For interference it is to be shown that the contract is
unconscionable or opposed to public policy-Such matters cannot be
generalized to say that repossession is improper-It depends on facts of each
E
case.

Appellant-financier and respondent no. I-hirer executed a Hire
?urchase Agreement and possession of a truck was handed over to the
hirer. Respondent no. I was to repay financed amount in m<>nthly F
instalments within stipulated period and in case of default, to pay delay
.J charges. Hirer defaulted in making payment despite several requests and
was in arrears. Appellant repossessed the vehicle and called upon
respondent no. I to pay the amount due. Hirer did not make the payment
and filed suit for declaration with consequential relief, permanent and
mandatory injunction and also interim injun<:tion. Civil Judge directed G
the appellant to release the vehicle subject to deposit of balance instalment
with interest. High Court upheld the order of trial court. Hence, the
\, present appeal.

169 H
170 SUPREME COURT REPORTS [2006] 2 S.C.R.

A Allowing the appeal, the Court

HELD: I. Re-possession of financed vehicle is clearly permissible in
terms of Clause IO of the Hire Purchase Agreement. Trial Court is to
ultimately decide in the suit the amount to which the appellant is entitled
to. The vehicle was directed to be released on payment of the defaulted
B instalments which has been deposited. But at the same time it was
imperative for the High Court to ensure that in the event the suit is
dismissed, and the hirer is liable to pay the amount, how the same is ,.
secured. It is not disputed that the vehicle if not used would lose its value.
In the peculiar circumstances of the case, it is directed that the vehicle
C would be released on payment of Rs.l,50,000/- in addition to the amount
already deposited. Respondents should file an undertaking before the trial
court that in the event o: non-success the vehicle would be returned to
the fimrncier, unless the trial court fixes some other terms. (l 74-B-DI

2. The orders regarding right of financiers to take possession of the
D vehicle in terms of the agreement prima facie have no legal foundation, as
virtually while dealing with writ petitions subsisting contracts are being
re-written. It is still more surprising that petitions styled as PIL are being
entertained in this regard. Essentially these are matters of contract and
unless the party succeeds in showing that the contract is unconscionable
E or opposed to public policy the scope of interference in writ petitions in
such contractual matters is practically non-existence. If agreements permit
the financier to take possession of the financed vehicles, there is no legal
impediment on such possession being taken. Of course, the hirer can avail
such statutory remedy as may be available. But mere fact that possession
has been taken cannot be a ground to contt!nd that the hirer is prejudiced.
F As regards the submission of the hirer that convenience of the hirer cannot
be overlooked and improper seizure cannot be made, there cannot be any
generalization in such matters. It would depend upon facts of each case.
Therefore, it would not be proper for the High Courts to lay down any
guideline which would in essence amount to variation of the agreed terms
G of the agreement. If any such order has been passed effect of the same
would be considered by the concerned High Court in the light of this
judgment and appropriate orders would be passed. ( l 74-G-H; 175-A-BI

CIV.IL APPEL LA TE JURISDICTION : Civil Appeal No. I 070 of 2006.
.'
H From the Judgment and Orders dated 21.8.2004 of the Punjab and
MANAG. DIRECTOR. ORIX AUTO FIN (INDIA)LTD. "· JAGMANDERSINGH [PASAYAT,J.J ) 7J
- :y~ Haryana High Court in Revision Petition No. 4680 of 2002. A
P.K. Seth, Sudhir Kumar Gupta for the Appellant.
-,
• S.K. Sabharwal and Ajay Siwach, Pardeep Dahiya and Sandeep Sharma
for the Respondents.
B
The Judgment of the Court was delivered by

ARIJlT PASAYAT, J. Leav(: granted.

Challenge in this appeal is to the order passed by a learned Single c
Judge of the Punjab and Haryana High Court dismissing the Civil Revision
filed under Section 115 of the Code of Civil Procedure, 1908 (in short the
'Code').

The background facts in a nutshell are as follows:
D
Under a Hire Purchase Agreement executed between the appellant
.> (hereinafter referred to as the 'Financier') and the respondent no. I (hereinafter
~ referred to as 'Hirer') possession of truck No.HR-46-C-3689 was handed
over to the hirer subject to compliance of the terms and conditions of the
agreement. As per the terms and conditions stipulated in the agreement, the E
hirer was to repay the total financed amount of Rs.9,24,000/- in 33 monthly
instalments of Rs.28,000/- each. As per the agreement the first instalment
was payable on 25.10.2000 and the last instalment was payable on 25.6.2003.
In case of default in making payment of the monthly instalment the hirer was
liable to pay delay charges. Clause I 0 of the _agreement which is relevant for
this purpose of this appeal reads as follows:
F
_J
"I 0. In case the Hirer shall during the continuance of this Agreement
do or suffer any of the following acts or things, viz. either:

a. fail to pay any of the hiring (rent) instalments or any such monies G
which has fallen due within the provisions of this agreement, within
or at the stipulated time, whether demanded or not;
) b. die, become insolvent, or compound with its creditors;
,'

c. the Hirer, being a Limited Company, shall pass a resolution for H
voluntary winding up or shall have a petition for winding up presented
172 SllPRFMF COURT RFPORTS [20061 2 S.C.R.

A against it or if a Receiver shall be appointed of its undertaking;

d. pledge or sell or hypothecate or charge or mortgage or let or assign
or attempt to pledge or sell or assign or part with possession of or
otherwise alienate or transfer the vehicle;

B e. do or suffer any act or thing whereby or in consequence of which
the said vehicle may be distrained or taken in execution under legal
process or by legal process or by any public authority;

f. fail to keep or cause the vehicle comprehensively insured during
the period of the Agreement;
c
g. fail to indemnify the Owner, the Insurance premium paid by the
Owner, resulting from the Hirer's failure to keep the insurance effective
at any point of time during the currency of this Hire Agreement.
h. fail to pay to the Government or any public authority any tax or
D surcharge or other levies due in respect of the vehicle;

i. remove the vehicle to another State and get it re-registered there;

j. break or fail to perform or observe any of the conditions on its part
herein contained.

E Then, on the occurrenc!! of any such event, the right of the Hirer
under this Agreement shall forthwith stand determined ipso facto
without any notice to the Hirer and all the instalments previously
paid by the Hirer shall be absolutely forfeited by the Owner who
shall thereupon be entitled to enter into any house or place where the
said vehicle may then be, remove and retake possession of the same
F and to sue for all the instalments due and for damage for breach of
the Agreement and for all the costs of retaking possession of the said
vehicle and all costs occasioned by the Hirer's default."

(Underlined for emphasis)
G
According to the financier there was default in making payment of the
monthly instalments and the hirer was requested to clear the amounts due by
several letters. In spite of several requests/demands the hirer did not pay the
amount due and as on 27 .8.2002 he was in arrears of Rs. I,34,000/- on account
of monthly instalments due excluding other charges payable on account of
H
MANAG. DIRECTOR. ORIX AUTO FIN. (INDIA) LTD. v. JAGMANDER SINGH [PASA YAT,J.] 173

~v
de lay in making payment. Accordingly, the appellant repossessed the vehicle A
on 27.8.2002. According to the fina'lcier in vi~w of the violation of the terms
by the hirer the agreement stood terminated. Therefore, by registered letter
dated 27.8.2002 the financier called upon the hirer to pay a sum of Rs.4,27,485/
- which was the amount due. The notice stipulated that the amount was to be
paid within 10 days from the date of the receipt of the letter. The hirer did
not make any payment and on the other hand made a false complaint to the
B
Reserve Bank of India (in short 'RBI'), and filed a civil suit in the Court of
~.
Civil Judge, Senior Division, Sonepat for decl<!ration with consequential reliefs
and permanent injunction along with mandatory injunction. In the said civil
suit the hirer also filed application under Order XXXIX Rules I & 2 read
with Section 151 of the Code praying for interim relief. On receipt of the c
summons, written statement was filed by the appellant. The matter was taken
up 13.9.2002. A prayer was made for an adjournment of the date as learned
counsel for the appellant had met with an accident. The matter was adjourned
for arguments on the said application on 27.9.2002. But at the same time
learned Civil Judge directed the appellant to release the vehicle subject to
deposit of the balance of instalments along with interest amounting to D
Rs.1,61,504/-. The said order was the subject-matter of challenge in Civil
> Revision No.4680/2002. Initially the High Court had granted stay of the
·-r operation of the order. The hirer filed an application for vacation of the order
of stay. By the impugned order the High Court dismissed the Civil Revision
upholding the order passed by the Trial Court. E
According to learned counsel for the appellant the order passed is clearly
unsustainable. The suit filed was not maintainable. While passing order for
release, the trial Court did not take note of the fact that according to the
appellant the arrears were much higher than the defaulted instalments. It was
not considered by the Trial Court as to how the appellant would recover its F
-I dues if the suit was ultimately dismissed.

Learned counsel for the respondent on the other hand submitted that
the re-possession as taken by the appellant was clearly contrary to law. Merely
because the hirer had signed the agreement which permitted re-possession
that would not give arbitrary power to the financier to take possession of the
G
vehicle. It was pointed out that in several case~ different High Courts have
) deprecated the practices of the financers taking possession of the financed
.. ')
vehicles.

By order dated 16.11.2004 while issuing notice interim stay was granted H
174 SUPREME COURT REPORTS (2006] 2 S.C.R.

A subject to the opposite party-respondent depositing Rs.2,50,000/- with the
Registry of this Court within four weeks without prejudice to the claims
involved. Admittedly the amount has been deposited.

So far as the question of re-possession is concerned, it is clearly
permissible in terms of Clause I0 of the Hire purchase agreement referred to
B above. What ultimately is to be decided by the Trial Court in the suit is the
amount to which the appellant is entitled to. Learned counsel for the appellant
has submitted that without taking note of the defaulted amount which according
to him is in the neighbourhood of Rs. I0 lakhs, the vehicle was directed to be
released on payment of the defaulted instalments. The said amount has also
C been deposited. But at the same time it was imperative for the High Court to
ensure that in the event the suit is dismissed, and the hirer is liable to pay the
amount, how the same is secured. It is not disputed that the vehicle if not
used would lose its value. In the peculiar circumstances of the case we direct
that in case the respondent no. I-hirer pays the appellant a sum of Rs.1,50,000/
- in addition to the amount already deposited within I0 days from today, the
D vehicle shall be released. The respondents shall file an undertaking before the
Trial Court that in the event of non-success the vehicle shall be returned to
the financier, unless the Trial Court fixes some other terms. It is made clear
that we have not expressed any opinion on the merits of the case which shall
be decided in accordance with law.
E
Before we part with the case, it is relevant to take note of submission
of learned counsel for the Hirer that in several cases different High Courts
have passed orders regarding the right to re-possess where the High Courts
have entertained writ petitions including writ petitions styled as PIL on the
question of right of financiers to take possession of the vehicle in terms of
F the agreement. It is stated that directions have been given to the RBI for
framing guidelines in this regard. If it is really so, the orders primafacie have
no legal foundation, as virtually while dealing with writ petitions subsisting
contracts are being re-written. It is still more surprising that petitions styled
as PIL are being entertained in this regard. Essentially these are matters of
G contract and unless the party succeeds in showing that the contract is
unconscionable or opposed to public policy the scope of interference in writ
petitions in such contractual matters is practically non-existence. If agreements
permit the financier to take possession of the financed vehicles, there is no
legal impediment on such possession being taken. Of course, the hirer can
avail such statutory remedy as may be available. But mere fact that possession
H has been taken cannot be a ground to contend that the hirer is prejudiced.
MA NAG. DIRECTOR, ORIX AUTO FIN. (INDIA) LTD. r. JAGMANDER SINGH [PASAYAT, l] J75

Stand of learned counsel for the respondent that convenience of the hirer A
cannot be overlooked and improper seizure cannot be made. There cannot be
any generalization in such matters. It would depend upon facts of each case.
It would not be therefore proper for the High Courts to lay down any guideline
which would in essence amount to variation of the agreed terms of the
agreement. If any such order has been passed effect of the same shall be
considered by the concerned High Court in the light of this judgment and B
appropriate orders shall be passed.

The appeal is allowed to the aforesaid extent. No orders as to costs.

N.J. Appeal allowed.

+

_J

),
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