On 16 September 2026, India’s Supreme Court directed the Reserve Bank of India to take effective steps to secure genuine compliance with its vehicle-recovery safeguards by non-banking financial companies and scheduled commercial banks. The direction followed a finding that Cholamandalam Investment and Finance Company had unlawfully repossessed a borrower’s commercial vehicle without the notice required by the loan agreement. The court held that the seizure was arbitrary and violated Articles 14 and 21 of the Constitution. The judgment directed enforcement of existing RBI guidance rather than announcing a new regulatory package.
The borrower had financed a Tata SFC 407 commercial vehicle and later defaulted on instalments. The agreement required seven days’ notice before repossession, but no such notice was issued before the vehicle was taken. Four unidentified persons broke its steering lock at about 1:00 a.m. on 9 April 2023 and drove it away, according to reports of the judgment. The company later said it had sold the vehicle on 31 August 2023 for ₹4.50 lakh.
COURT SETS LIMITS ON SELF-HELP RECOVERY
The court said a financier may possess a contractual right to recover a secured asset after default, but that right must remain within lawful procedures. Existing RBI instruments prohibit undue harassment and the use of muscle power, require due diligence over recovery agents and call for valid repossession clauses. The court found that the company’s clause and conduct failed those standards, including on notice and the method of taking possession.
The Supreme Court set aside the Allahabad High Court order that had dismissed the borrower’s case, although it left the completed vehicle sale undisturbed. It ordered the company to close both of the borrower’s loan accounts and refund the ₹4.50 lakh sale price with interest of 6% a year from 31 August 2023 until payment. The borrower was also awarded ₹10 lakh in compensation for mental agony and loss of livelihood, while costs were fixed at ₹50,000.
RBI COMPLIANCE BECOMES THE NEXT TEST
The court directed the RBI to take effective steps to secure genuine compliance with the guidelines, master circulars and clarifications it has issued to non-banking financial companies and scheduled commercial banks. It also instructed the court registry to send the judgment to the central bank.
The bench observed that the RBI’s instruments had existed only on paper and that no steps had been taken by the RBI to implement them.