Supreme Court of India· 16 September 2026

Can banks and financial institutions employ 'goondas' to take possession of a hypothecated vehicle by force?

HARI DUTTA SHARMA v. STATE OF U.P. & ORS

2026 INSC 998
Coram: Justice Pamidighantam Sri Narasimha · Justice Alok Aradhe

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Answer

Banks and financial institutions cannot employ 'goondas' to take possession of a hypothecated vehicle by force.

No. Banks and financial institutions cannot employ 'goondas' to take possession of a hypothecated vehicle by force; seizure can only be effected through lawful means. Recovery of loans and seizure of vehicles must be made through legal means alone, and a mode of repossession achieved by breaking open a steering lock at about 1:00 a.m. bears every mark of the 'goonda-ism' this Court condemned in ICICI Bank Ltd. v. Prakash Kaur and Ors. (¶19, 21, 26)

Headnote

Banking Regulation Act, 1949 — s.35-A — RBI Fair Practices Code — Self-help repossession — Article 14 — Article 21 — Repossession clause — Banking Regulation Act, 1949 — s.35-A — RBI Fair Practices Code — Repossession clause validity — Held: A repossession clause dispensing with notice and leaving possession to the financier's discretion does not conform to the RBI's Guidelines. Such a clause converts a floor of minimum protection into an illusory promise defeasible at the financier's will. (¶24, 25) Self-help repossession — No force, no 'goondas' — Held further: Banks and financial institutions cannot employ 'goondas' to take possession of a hypothecated vehicle by force; seizure can only be effected through lawful means. Breaking open a steering lock at night to seize a vehicle bears every mark of the 'goonda-ism' this Court has condemned. (¶19, 21, 26) Article 14 — Article 21 — Livelihood — Held further: An unauthorised and arbitrary repossession that deprives a person of modest means of his livelihood violates Articles 14 and 21 of the Constitution. Such a borrower is entitled to compensation for the resulting mental agony and loss of livelihood. (¶30) Writ jurisdiction — Delay — Held further: A writ petition cannot be dismissed on the ground of delay alone without examining its merits and any demonstrated prejudice. Appeal allowed with costs; impugned order quashed, sale proceeds ordered refunded with interest and compensation awarded. (¶27, 29, 32, 33)

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In the Court's own words

Paragraph 19A two-Judge Bench of this Court had occasion to consider the 2003 Guidelines in ICICI Bank Ltd. v. Prakash Kaur and Ors.[^3] where registration of First Information Report against the recovery agents of ICICI Bank Ltd. for forcibly taking possession of a vehicle fell for consideration. This Court emphasised that the rights of financial institutions in employing alternate means of recovery other than the due process of law either through courts or tribunals has to be viewed from the angle of common man no less than that of financial institutions. It was observed that once a loan is taken and there is a default, the witch-hunt begins and the bank is an aggressor whereas the public is the victim. It was also noted that financial institutions employ recovery agents to trace the defaulter and recover the amounts of loans and a person’s self-respect and stature in the society is immaterial to such an agent. This Court held in terms which bear reiteration that ours is a country governed by rule of law and recovery of loans or seizures of vehicles could only be made through the legal means and the banks cannot employ ‘goondas’ to take possession of the vehicles by force. The court enumerated the suggestions to be followed by the financial institutions/banks for recovery of the amount and seizure of the vehicle and noted that even though the RBI had issued the Guidelines on 21.11.2005 which remains only on paper and is not being followed.

Paragraph 21A careful reading of the Master Circulars, the Guidelines and the clarifications issued by the RBI, discloses the following position which we consider necessary to set out for the guidance of financial institutions and of the Courts dealing with similar controversies in future:

Paragraph 26Turning to the facts, the action taken against the appellant is shown to be in contravention both RBI Guidelines, which carry statutory force, and of the very terms of Article 11 on which the Company relies. No seven-day notice, as contemplated by Article 11(a)(i), was in fact issued to the appellant prior to repossession; the right of repossession, being conditional upon such notice, never accrued to the Company in the first place. The appellant’s specific and unrebutted case is that possession was taken at about 1:00 a.m. on 09.04.2023 by breaking open the steering lock of the vehicle, a mode of taking possession that is, by no stretch, peaceful, and one which bears every mark of the very ‘goonda- ism’ that this Court, in Prakash Kaur (supra), and the RBI, in its successive Guidelines, have condemned in unambiguous terms. The possession memorandum does not even bear the appellant’s signature which reinforces the conclusion that the vehicle was taken by the Company’s recovery agents without following the due process of law. The High Court failed to advert to this aspect of the matter, which had a direct and material bearing on the controversy before it.

Acts & Sections

Section 35-A of the Banking Regulation Act, 1949Article 14 of the Constitution of IndiaArticle 21 of the Constitution of IndiaSection 156(3) of the Code of Criminal Procedure, 1973Indian Contract Act, 1872

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Also decided in this judgment

Does a repossession clause dispensing with notice and leaving possession to the financier's discretion conform to the RBI's Guidelines?Does an unauthorised and arbitrary repossession that deprives a person of modest means of his livelihood amount to a violation of Articles 14 and 21?Can a writ petition be dismissed on the ground of delay alone without examining its merits and any demonstrated prejudice?

Plain-language answer prepared by the LexStreak Editorial Desk — verify against the judgment. Source: Supreme Court of India. Corrections