In a judgment delivered on 16 September 2026, the Supreme Court ordered the Reserve Bank of India to secure genuine compliance with its rules on loan recovery after finding that a finance company took a borrower’s truck without the notice required by its own agreement. The Court set aside an Allahabad High Court order that had dismissed the borrower’s challenge and awarded him compensation.
Hari Dutta Sharma had financed a commercial vehicle through Cholamandalam Investment and Finance Company. He fell behind on instalments, and the company said it had issued demands. Sharma maintained that recovery agents took the truck around 1 a.m. on 9 April 2023 by breaking its steering lock. The company later sold it for ₹4.5 lakh. The Supreme Court found that no seven-day notice required before repossession under the loan agreement had been issued. It also noted that the possession memorandum lacked Sharma’s signature.
The bench of Justices P. S. Narasimha and Alok Aradhe accepted that a lender may have a contractual right to recover a financed vehicle. It held that this right must be exercised lawfully and fairly. In particular, the agreement’s terms allowing the lender to waive notice at its own discretion and enter places in search of the vehicle failed to meet the standards of the RBI guidelines and contractual fairness. A default did not give recovery agents a licence to seize property by force or stealth.
The judgment set out safeguards drawn from RBI instructions, including proper notice, a fair procedure for taking possession and sale, scrutiny of recovery agents, and action on complaints of abusive practices. The Court directed the RBI to take effective steps to ensure that scheduled commercial banks and non-banking financial companies comply with those instructions.
The Court did not undo the sale, which had already taken place. It directed the company to close Sharma’s two loan accounts and refund the ₹4.5 lakh sale price with six percent annual interest from the sale date. It also awarded ₹10 lakh for mental anguish and loss of livelihood, and ₹50,000 in costs. The decision addresses an unlawful repossession on these facts; it does not prohibit every contractual repossession after a borrower defaults.