Financier is the real owner in hire-purchase agreement – Supreme Court

In the case of M/S Magma Fincorp Ltd Vs Rajesh Kumar Tiwari [SLP (C) NO. 33720 OF 2018] Supreme Court held that 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.

In 2002 the Respondent entered into a hire-purchase agreement with the Financier – Appellant for a Mahindra Marshal Economic Jeep. Even though the Respondent was required to pay the first instalment within 1st August, 2002 and the subsequent instalments within the 1st of each succeeding month, the Respondent did not adhere to the schedule of repayments, which according to the Appellant, was of essence to the hire-purchase agreement. The Appellant took the possession of the vehicle when the Respondent did not pay the remaining dues and sold it. Exactly two years after the Appellant took possession of the vehicle, the Respondent filed a complaint under Section 12 of the Consumer Protection Act, 1986. The district consumer forum decided the judgement in favour of the Respondent and directed the Appellant to pay the whole sum of the vehicle along with instalments paid by the Respondent with interest. The same was upheld by the State forum as well.

The issues raised before the court were whether the Financier-Appellant is the real owner of the vehicle which is the subject of a hire purchase agreement, and if so, whether there can be any impediment to the Financier, taking repossession of the vehicle, when the hirer does not make payment of instalments in terms of the hire purchase agreement. Another question which arose for determination in this appeal was, whether service of proper notice on the hirer is necessary for repossession of a vehicle which is the subject of a hire purchase agreement, and if so, what is the consequence of non-service of proper notice.

The court observed that, “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. The onus of proof is on the Complainant making the allegation. 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.”

The court further noted that 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.

The court held that, “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.”

The court relied on Charanjit Singh Chadha & Ors. v. Sudhir Mehra [(2001) 7 SCC 417] where it was held that, “Hire Purchase Agreement is an executory contract of sale, conferring no right in rem on the hirer, until the conditions for transfer of the property to him have been fulfilled. The Financier continues to be the owner of the goods under a hire purchase agreement. The hirer simply pays for use of the goods and for the option to purchase them. The finance charge, representing the difference between the price and the hire purchase price represents the sum which the hirer has to pay for the privilege of being allowed to pay the purchase price in instalments. Where the hirer had defaulted in payment of instalments and the agreement specifically provided that the Financier was entitled to repossess the vehicle in case of default, no case was made out against the Financier.”

Referring to the case of Sundaram Finance Ltd. v. The State of Kerala & Anr [AIR 1966 SC 1178] it was inferred that, “the law which emerges from the judgment, is that 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.”

Supreme Court while setting aside the judgement of the National Commission, the State Commission and the District Forum held that, “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.”


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