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Repossession of a vehicle subject of a hire purchase agreement if done in accordance with its terms and conditions does not constitute deficiency in service

M/s Magma Fincorp Ltd v Rajesh Kumar Tiwari

Civil Appeal No 5622 of 2019

Supreme Court of India

D Y Chandrachud & I Banerjee, SCJJ

October 1, 2020

Reported by Faith Wanjiku

Download the Decision

Commercial Law – hire purchase – hire purchase agreements – default in payment – where a purchaser defaulted in payment and upon repossession merely gave assurances to clear outstanding balances – whether the financier was obliged to accept – whether repossession of a vehicle by a financier constituted deficiency in service – Consumer Protection Act, 1986, section 2(1)(g).

Consumer Protection – consumer complaint – hire purchase agreement – failure to produce a copy of the hire purchase agreement before the District Consumer Disputes Redressal Forum – whether adverse inference could be drawn against a financier for failure to produce a hire purchase agreement – Consumer Protection Act 1986, section 13(4)(iii).

Consumer Protection – consumer complaint – hire purchase agreement of a vehicle – repossession of vehicle by financier due to default in payment – plea of purchaser taking possession without pre-sale notice – whether a financier was obliged to divulge details of sale of vehicle to the complainant where all instalments had not been paid – what was the effect of error in address of the complainant in notice for repossession – whether repossession of a vehicle subject of hire purchase by the financier could amount to theft – Consumer Protection Act 1986, sections 11, 17 & 21(b).

Commercial Law – hire purchase – damages for breach of hire purchase agreements – taking repossession of a vehicle by financier where the complainant was admittedly in default – whether depreciation of the vehicle could be considered where the complainant had been given free use of vehicle for a considerable period of time – whether a court could award a complainant damages for an error in notice of repossession without considering the prejudice caused to him and without making any assessment of loss – Consumer Protection Act 1986, sections 11, 14(1)(c), 14(d), 17 & 21(b).

Brief facts:

The dispute arose from a hire-purchase agreement between the financier and the complainant over the hire purchase of a Mahindra Marshal Economic Jeep bearing the Registration No. UP-42-T/1163 (vehicle). The complainant defaulted through post-dated cheques which were, according to the financier, dishonoured. In the circumstances, the financier took re-possession of the vehicle allegedly upon notice to the complainant, and in accordance with the conditions of the hire-purchase agreement and sold it. Exactly two years after the financier took possession of the vehicle, the complainant filed the complaint under section 12 of the Consumer Protection Act, 1986, admitting that he had paid only 7 complete instalments. The District Forum allowed the complaint and directed the financier to pay Rs.2,23,335/- to the complainant, along with simple interest at 10% per annum from the date of filing of the complaint till payment, Rs.10,000 towards damages for physical and mental agony and Rs.1000/- as litigation expenses, within 45 days from the date of the order. Aggrieved, the financier appealed to the State Commission contending that the vehicle had to be sold since the complainant had not paid an outstanding amount of Rs.2,80,132/-. His appeal was dismissed which then led to the instant appeal.

Issues:

i. Whether there could be any impediment to the financier taking repossession of the vehicle when the hirer did not make payment of instalments in terms of the hire purchase agreement.

ii. Whether the service of proper notice on the hirer was necessary for repossession of a vehicle which was the subject of a hire purchase agreement, and if so, what was the consequence of non-service of proper notice.

iii. What amounted to a valid complaint under the Consumer Protection Act, 1986?

iv. What was the purpose of a notice required to be issued to hirer before taking possession of a vehicle subject of a hire purchase agreement?

Held:

  1. The Consumer Protection Act, 1986 (the Act) was enacted to protect the interests of consumers, by making provisions for the establishment of Consumer Councils and other fora for speedy redressal of consumer disputes and for matters connected therewith. As per its Statement of Objects and Reasons placed before Parliament, it was enacted to promote and protect the rights of consumers such as the right to be protected against marketing of goods which were hazardous to life and property; the right to be heard and to be assured that consumers’ interests will receive due consideration at appropriate forums; and the right to seek redressal against unfair trade practices or unscrupulous exploitation of consumers.
  2. The fora constituted under the Consumer Protection Act were quasi-judicial bodies, required to observe the principles of natural justice and to award relief of a specific nature and to award wherever appropriate, compensation to consumers. Section 11 of the Act conferred jurisdiction on the District Forum, having territorial jurisdiction, to entertain a complaint, subject to the pecuniary limit of the value of the goods or services and/or the compensation claimed. In the instant case, the territorial or the pecuniary jurisdiction of the District Forum, to entertain the complaint, was not in dispute. There could also be no dispute that the complainant was a consumer of services provided by the financier. The question was whether the complaint filed by the complainant was a complaint within the meaning of section 11, read with Section 2(1)(c) of the Act. The ingredients of a complaint were provided in sections 2(1)(c) (ii), (iv), (v) and (vi) of the Act. Further, there had to be a deficiency in the services availed by the complainant from the financier, within the meaning of section 2(1)(g) of the Act. The financier, as a service provider, had to have adopted any unfair trade practice within the meaning of section 2(1)(r) of the Act.
  3. In the instant case, the complainant only made a vague assertion that the action of the financier in taking possession of the vehicle, admittedly for default in payment of instalments, and in not releasing the vehicle to the complainant, in spite of the complainant’s assurance to the financier to clear outstanding instalments and pay future instalments timely, amounted to an act of unfair trade practice and constituted deficiency of service. Deficiency was been defined in section 2(1)(g) of the Act as any fault, imperfection or shortcoming or inadequacy in the quality, nature or manner of performance which was required to be maintained by or under any law, for the time being in force, or undertaken to be performed by a person, in pursuance of a contract or otherwise, in relation to any service. Under the terms and conditions of the hire purchase agreement, the ownership of the vehicle was to stand transferred to the complainant from the financier, upon payment of all the 35 instalments and other dues, if any. Until then, the ownership was to be with the financier. As all the 35 instalments had not been paid by the complainant to the financier, the ownership of the vehicle remained with the financier.
  4. The hire purchase agreement enabled the financier to take possession of the vehicle, on default in payment of any of the instalments. There was no term in the hire purchase agreement, that required the financier to give notice to the complainant before terminating the hire purchase agreement, upon breach of any term thereof, or before taking possession of the vehicle. On the other hand, clause 15 of the hire purchase agreement expressly provided for determination of the hire purchase agreement without notice to the complainant, upon default in hire instalments. Clause 15 enabled the financier and/or its agent to enter the premises of the complainant, where the vehicle under hire may be lying, and to take possession of the same.
  5. The repossession of a vehicle under hire, in accordance with the terms and conditions of a hire purchase agreement, upon default in payment of hire instalments and refusal to release the same on mere assurance of the complainant to clear outstanding arrears of hire instalments, and pay future instalments in time, did not constitute ‘deficiency’ in service.
  6. The financier claimed to have issued notice to the complainant before taking possession of the vehicle and also a pre-sale notice. Unfortunately, there was an error in the address of the complainant in the notice purported to be issued to the complainant before taking possession. It could thus, reasonably be assumed that an obligation to give notice to the complainant was implicit in the hire purchase agreement between the parties. The financier also construed the hire purchase agreement to contain an implicit requirement to give notice to a hirer before taking possession of the vehicle covered by the hire purchase agreement. The question thus, was whether the financier could have been directed to return the entire amount paid by the complainant, by way of instalments or otherwise, including Rs.1,04,000/- paid by the complainant directly to the dealer, and also to pay damages of Rs.10,000 for physical and mental suffering, only because of an error in the address of the complainant, in the notice sent by the financier, and that too, without even considering how the complainant was prejudiced by the error, when the vehicle had been taken away for non-payment of hire instalments and sold after about four months.
  7. The object of a notice before taking possession of a vehicle on hire under a hire purchase agreement, was to enable the hirer, to make a written request to the financier to revive the hire purchase agreement in terms of clause 12 of the said agreement, upon payment of all outstanding dues together with damages, as might be mutually agreed upon.
  8. A notice also drew the attention of the hirer to the alleged breaches of agreement on the part of the hirer, on the basis of which, the financier claimed to be entitled to take possession. Such notice gave the hirer an opportunity to show that the hirer had not, in fact, committed any breach of agreement. For example, the hirer could be able to show that the financier had erroneously omitted to give credit to the hirer for payments made, or had not presented a cheque in its possession for payment, even though there were sufficient funds in the concerned bank account of the hirer, to honour the cheque.
  9. Many self-employed hirers, operated vehicles taken on hire, to earn a livelihood. Such vehicles were often driven over long distances. A notice ensured that the hirer was not taken by surprise and had time to stop operating the vehicle, so that third persons using the vehicle on payment of charges were not put to sudden inconvenience by reason of re-possession of the vehicle.
  10. On the face of the averments in the complaint, the complainant had approached the financier after possession of the vehicle was taken, to be told that the financier had taken possession of the vehicle, as the complainant had defaulted in payment of instalments. The financier had not agreed to release the vehicle, on the assurance of the complainant to clear outstanding instalments and to pay future instalments in time.
  11. A District Forum constituted under the Consumer Protection Act, 1963, derived its power to grant relief from its section 14. If the District Forum was satisfied that the allegations contained in the complaint about the services were proved, it could direct the service provider to;

a) return the charges paid by the complainant [section 14(1)(c)];

b) to pay such an amount, as could be awarded by District Forum as compensation to the consumer for any loss or injury suffered by the complainant/consumer, due to the negligence of the service provider [section 14(1)(d)];

c) to pay punitive damages in such circumstances as the District Forum deemed fit [proviso to section [14(1)(d)];

d) to remove the deficiencies in the service in question [section 14(1)(a)]; and, e) to discontinue the unfair trade practice [section 14(1)(f)].

  1. Before a District Forum could grant relief to the consumer of a service, it had to be satisfied that the allegations in the complaint, and or the allegations which constituted a valid complaint were proved, i.e;

a) allegations of unfair or restrictive trade practice adopted by the service provider; or

b) the allegations of deficiency in the service hired, or availed of or agreed to be availed of by the complainant from the service provider; or,

c) the allegations of the service provider charging a price in excess of the price fixed for the service, under any law, for the time being in force or agreed between the parties; or,

d) allegations of offering spurious services or services hazardous to life or safety.

  1. Section 13(2)(b) of the Consumer Protection Act, 1986 obligated the District Forum to decide a complaint on the basis of the evidence brought to its notice by the complainant and the service provider. Irrespective of whether the service provider adduced evidence or not, the decision of the District Forum had to be based on evidence relied upon by the complainant. The onus of proof was on the complainant making the allegation. Section 27 of the Consumer Protection Act required the District Forum, the State Commission or the National Commission to dismiss frivolous complaints with costs not exceeding Rs.10,000/-.
  2. The evidence to which the complainant drew the attention of the District Forum was apparent from its judgment and order. 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 established any deficiency of service or unfair trade practice on the part of the financier.
  3. 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. Significantly, it was not even the case of the complainant in his complaint, that the hire purchase agreement, which the complainant had signed, did not authorize the financier to take possession of the vehicle upon default, or to sell the same to a third party. No adverse inference could have been drawn against the financier for not producing the hire purchase agreement before the District Forum, when there was no allegation in the complaint of breach by the financier of the hire purchase agreement, in taking possession of the vehicle. The District Forum did not exercise its power under section 13(4)(ii) of the Act to call upon the financier to produce the hire purchase agreement. Even otherwise, the District Forum did not direct the financier to produce the hire purchase agreement.
  4. In the complaint, a copy of which was annexed to the Paper Book, there was not a whisper of application of any force in taking possession of the vehicle. The finding of the District Forum, of the vehicle having been lifted forcefully or snatched was, with the greatest of respect, contrary to the complainant’s own case made out in the complaint, and therefore perverse. A new case could not be made out by way of evidence, when there were no pleadings to support the same.
  5. The District Forum concluded that “snatching” the vehicle, without notice, was in breach of the hire purchase agreement and was a deficiency in service. The State Commission dismissed the appeal of the financier on the ground of delay and also on merits, on the ground of non-service of notice at the correct address of the complainant. The State Commission assumed that the error in the address of the complainant in the notice despatched by the financier was deliberate, in order to sell the vehicle without the knowledge of the complainant. Such assumption was not based on any materials on record but patently conjectural. The State Commission observed that the complainant had been deprived of the opportunity to deposit the amount, due from him to the financier, which again was contrary to the complainant’s own pleadings in his complaint.
  6. The State Commission further found that there was no mention of the amount due to be paid by the complainant to the financier in the written statement filed by the financier before the District Forum. There was also no mention in that written statement of when the vehicle had been sold and the amount for which the vehicle had been sold, whether such amount was more than or less than the amount due from the complainant to the financier. Observing that the silence on the part of the financier in not divulging anything about the sale rendered the sale dubious, the State Commission concluded that the financier had surreptitiously sold the vehicle, without the knowledge of the Complainant, without notice to the complainant, and without disclosing the details of the sale. That observation overlooked the terms and conditions of the hire purchase agreement and did not consider the law governing hire purchase agreements.
  7. A financier remained 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 were 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, had no obligation to divulge details of the sale of that vehicle, and that too on its own, without being called upon to do so. Moreover, the finding of the State Commission that the financier sold the vehicle without the knowledge of the complainant was contrary to the complainant’s own case in his complaint before the District Forum.
  8. The complainant had established that there was a discrepancy and/or error in the address of the complainant in the notice for repossession, from which all the three fora under the Consumer Protection Act, 1986, i.e.; the District Forum, the State Commission, and the National Commission, had concluded that the vehicle was taken without notice. However, it was the case of the complainant that the vehicle was sold without his knowledge or notice.
  9. The error and or discrepancy in the address was minor and there were no materials on the basis of which the State Commission concluded that the error was deliberate. The finding of the State Commission, of the error in the address being deliberate, was thus unsubstantiated. Be that as it were, it was prudent to proceed on the basis of the concurrent factual findings of the District Forum, the State Commission and the National Commission that; the financier took possession of the vehicle without notice. Thus, since the financier deemed it necessary to issue notice to the complainant, and accordingly dispatched a notice, the notice should have been sent to the correct address of the Complainant, as recorded in the hire purchase agreement. The question which arose then was whether repossession of the vehicle without proper notice, for admitted default in payment of hire instalments, warranted the order passed by the District Forum, which was subsequently affirmed by the State Commission and the National Commission.
  10. By directing the financier to pay to the complainant, the entire amount paid by the complainant to the financier from the inception, including the amount paid to the dealer directly, along with interest at the rate of 10% per annum, damages of Rs.10,000/- and litigation costs, the tribunals below gave a defaulting hirer the benefit of free use of the vehicle of the value of Rs.4,21,121/- for almost twelve months, plus damages, oblivious to the depreciation in the value of the vehicle by reason of wear and tear, due to use by the hirer, including an admitted accident for which the vehicle laid seized by the police for some time.
  11. The Consumer Protection Act, 1986 created fora for quick adjudication of consumer disputes. The Act protected consumers from defective goods, deficient services, unfair or restrictive trade practices, or spurious goods or services. The Act also protected consumers of goods and services from being charged a price, in excess of the price fixed by or under any law in force, the price agreed between the parties, or the price declared by the service provider or the supplier of the goods inter alia by display, and/or representation. The Act was not in derogation of any law in existence but in addition thereto, as provided in section 3. The Act protected consumers of services from being charged a price in excess of the price fixed for the service under any law or the price agreed between the parties and also redressal of deficiency in the services availed by the consumer and/or against restrictive or unfair trade practices, and/or spurious services. The Consumer Protection Act, 1986 did not override the Contract Act, 1872, and other enactments in force, applicable to the service availed by the consumer from the service provider.
  12. The protection, to which the consumer of a service was entitled under the Consumer Protection Act, was against loss of money, by reason of being denied service, of a quality agreed upon expressly or by necessary implication, inter alia, in view of the applicable law, for which the consumer had paid, or had agreed to pay a consideration. The said Act also protected consumers from being overcharged for any service obtained and/or agreed to be obtained.
  13. The consumer of a service could be entitled to damages for any loss suffered by the consumer, by reason of denial or deficiency in service for which the consumer had paid or agreed to pay (if the parties had agreed to deferred payment), charges or price for the service. In cases of breach of contract, liquidated damages could be imposed on the party in breach, if the agreement provided for liquidated damages that were a fixed amount by way of damages. Where the parties to an agreement had not agreed to liquidated damages, the party in breach of agreement could be directed to pay unliquidated damages which were compensatory. Such compensatory damages were not meant to punish the party in breach, but to compensate the aggrieved party for losses suffered as a result of the breach. Where, however, the damages caused by the breach were severe and extensive, the party in breach could be required to pay to the party not in breach such damages as would restore the position of the party not in breach to the position before the breach occurred.
  14. Apart from compensatory damages, an adjudicating authority could impose, on the party in breach, punitive damages or nominal damages. Punitive damages were awarded where the party in breach of agreement had behaved in a manner, which was reprehensible and called for punishment. Nominal damages were awarded where there was no real harm done, by reason of the breach of the contract.
  15. Section 14 of the Consumer Protection Act, 1986 empowered the District Forum to award compensation to the party not in breach by directing the party in breach to return the price or the charges as could have been paid by the complainant. That provision also enabled the District Forum to award compensatory damages to the consumer for loss or injury suffered by the consumer due to negligence of the party in breach. The Forum could direct removal of the deficiency in service, if the deficiency could be removed and it could direct discontinuation of unfair trade practices or restrictive practices.
  16. The proviso to section 14(1)(d) of the Consumer Protection Act, 1986 empowered the District Forum to grant punitive damages in such circumstances as it deemed fit. Punitive damages were not generally awarded in cases of breach of contract unless the act was so reprehensible that it called for punishment of the party in breach. Compensation which was compensatory, had to be assessed taking into account relevant factors, such as the loss incurred by the claimant, through some amount of guess work/estimation.
  17. The District Forum did not even undertake the exercise of assessment of the loss/damages, if any, suffered by the complainant by reason of non-service of notice before taking possession of the vehicle. The District Forum, the State Commission and the National Commission did not consider the law relating to hire purchases as enunciated by the instant court in a plethora of past judgments. The law emerging from those precedents was that; goods were 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 paid for the use of the goods and for the option to purchase them.
  18. The financier continued to remain the owner of a vehicle covered by a hire purchase agreement until all the hire instalments were paid and the hirer exercised the option to purchase. Thus, upon default by the hirer in payment of instalments, the financier could take re-possession of the vehicle. When the agreement between the financier and the hirer permitted the financier to take possession of a vehicle, there was no legal impediment to the financier doing so. When possession of the vehicle was taken, the financier could not be said to have committed theft. Whether the transaction between a financier and a purchaser/hirer was a hire purchase transaction or a loan transaction, could be determined from the terms of the agreement, considered in the light of surrounding circumstances. However, even a loan transaction, secured by right of seizure of a financed vehicle, conferred licence to the financier to seize the vehicle.
  19. The agreement executed by and between the financier and the complainant was a hire purchase agreement as would appear from the terms and conditions thereof. In any event, the fora under the Consumer Protection Act had not arrived at any specific finding to the contrary. The agreement clearly permitted the financier to take possession of the vehicle upon default in payment of instalments.
  20. Whether the service of proper notice on the hirer would be necessary for repossession of a vehicle, which was the subject matter of a hire purchase agreement, depended on the terms and conditions of the hire purchase agreement, some of which could stand modified by the course of conduct of the parties. If the hire purchase agreement provided for notice on the hirer before repossession, such notice would be mandatory. Notice could also be necessary if a requirement to give notice was implicit in the agreement from the course of conduct of the parties.
  21. If the hirer committed breaches of the conditions of a hire purchase agreement which expressly provided for immediate repossession of a vehicle without further notice to the hirer in case of default in payment of hire charges and/or hire instalments, repossession would not be vitiated for want of notice. In the instant case, a duty to give notice to the complainant before repossession was implicit in the hire purchase agreement. The hire purchase agreement was a stereotype agreement in a standard form, prepared by the financier. The same kind of agreements, containing, identical terms, except for minor modifications were executed by all hirers of vehicles, equipment, machinery and other goods, who entered into hire purchase agreements with the financier. The financier, who set down the terms and conditions of the hire purchase, construed the hire purchase agreement to contain an implied term for service of notice and accordingly despatched a notice, but did not address it to the correct address of the complainant as given in the hire purchase agreement.
  22. In a case where the requirement to serve notice before repossession was implicit in the hire purchase agreement, non-service of proper notice would be tantamount to deficiency of service for breach of the hire purchase agreement giving rise to a claim in damages. The complainant consumer would be entitled to compensatory damages, based on an assessment of the loss caused to the complainant by reason of the omission to give notice. Where there was no evidence of any loss to the hirer by reason of omission to give notice, nominal damages could be awarded.
  23. A forum constituted under the Consumer Protection Act had the power to award punitive damages. However, punitive damages were granted only in exceptional circumstances, where the action of the financier was so reprehensible that punishment was warranted. For instance, where a financier erroneously and/or wrongfully invoked the power to repossess without notice to the hirer, causing extensive pecuniary loss to the hirer or loss of goodwill and repute, a forum constituted under the Consumer Protection Act could award punitive damages.
  24. There was no evidence of any loss suffered by the complainant by reason of non-receipt of notice. Admittedly, several instalments remained unpaid. After repossession, the complainant contacted the financier and was informed of the reasons for the repossession. He only made an offer to pay outstanding instalments and gave an assurance to pay future instalments in time. If the financier was not agreeable to accept the offer, it was within his rights under the hire purchase agreement. That was not a case where payment had been tendered by the hirer but not accepted by the financier/lender. The complainant had not tendered payment.
  25. The financier admittedly paid Rs.3,15,000/- for acquisition of the vehicle, out of which the financier had been able to realize Rs.1,19,000/- inclusive of all charges. There was depreciation in the value of the vehicle by reason of usage by the complainant for about a year. The District Forum did not even notionally assess the depreciation in the value of the vehicle.
  26. The District Forum was not justified in directing the financier to pay the complainant Rs.2,23,335/- being the entire amount paid by the complainant to the financier from the inception as well as the payment of Rs.1,04,000/- made by the complainant to the dealer along with damage of Rs.10,000/- and litigation costs of Rs.1,000/- after the complainant had held and used the vehicle for almost a year. The complainant, admittedly a defaulter, had in effect been allowed free use of the vehicle for about a year plus damages for an error in the notice of repossession without considering the prejudice, if any, caused to the complainant by the error and consequential no receipt of the notice. Moreover, that award was made without making any assessment of the loss, if at all, to the complainant by reason of the error/omission. Thus, the impugned orders of the National Commission, the State Commission and the District Forum, could be sustained and the same ought to be set aside.

Appeal allowed.

Order

The Financier was ordered to pay a composite sum of Rs.15,000/- to the complainant towards damages for ‘deficiency’ in service and costs for omission to give the complainant a proper notice before taking repossession of the vehicle.

Relevance to Kenya’s legal system

In Kenya hire purchase transactions are governed by Hire Purchase Act, cap 507 of Laws of Kenya. Section 3(1) of the Hire Purchase Act provides that the Act applies to and in respect of all hire-purchase agreements which the hire purchase price does not exceed the sum of four million shillings. The amount may only be varied by the relevant cabinet secretary after taking into account market forces from time to time prevailing except for the case of a hire purchase agreement in which the hirer is a body corporate.

Hire purchase agreements are agreements whereby, an owner of goods allows a person, known as the hirer, to hire goods from him or her for a period of time by paying instalments. The hirer has an option to buy the goods at the end of the agreement if all instalments are being paid. However, it is not a contract of sale but contract of bailment as the hirer merely has an option to buy the goods and although the hirer has the right of using the goods, he is not the legal owner during the term of the agreement, the ownership of the goods remain with the owner.

Section 15 of the Hire Purchase Act prohibits repossession of goods under a Hire Purchase Agreement when two thirds (2/3) of the Hire Purchase price has been paid whether in pursuance of the agreement or of a judgment or otherwise. It is specific that under such circumstances, the owner of the goods shall not enforce any right to recover possession of the goods from the hirer other than by a suit. That is the position of the law as held by the High Court in Civil Appeal No 24 of 2013 David Karobia Kiiru v Laverage Company Ltd [2017] eKLR. Section 15 (ii) further states if an owner retakes possession of the goods in contravention of subsection (1), the Hire Purchase agreement if not previously terminated shall terminate and the hirer shall be released from all liability under the agreement and shall be entitled to recover from the owner by suit all sums paid by the hirer under the agreement or under any security given by him in respect thereof.

Therefore, if the owner breaches provisions under section of the Hire Purchase Act, then the agreement is treated as terminated and the hirer is released from liability and can recover all payments made under the Agreement as was so found in David Karobia Kiiru v Laverage Company Ltd [2017] eKLR. Upon hearing the request for an order to repossess the goods, the court can either order for the specific delivery of the goods to the owner or part thereof and to the hirer title to the remaining goods or suspect repossession on condition the hirer pays the balance.

Further to the above, the Constitution of Kenya, 2010 in article 46 (1) provides that consumers have the right to the information necessary for them to gain full benefit from goods and services and also to compensation for loss or injury arising from defects in goods or services.

There is the Consumer Protection Act No. 46 of 2012 which is an Act enacted by Parliament for protection of the consumer and prevention of unfair trade practices in consumer transactions. Section 5 provides that under the quality of goods and services; the supplier is deemed to warrant that the goods or services supplied under a consumer agreement are of a reasonably merchantable quality and that the implied conditions and warranties applying to the sale of goods under the Sale of Goods Act shall apply with necessary modifications to goods that are leased, traded or otherwise supplied under a consumer agreement. Section 12 provides that it is an unfair practice for a person to make a false, misleading or deceptive representation in relation to contracted goods or services. Section 16 (1) goes ahead to provide that any agreement, whether written, oral or implied, entered into by a consumer after or while a person has engaged in an unfair practice may be rescinded by the consumer and the consumer is entitled to any remedy that is available in law, including damages.

In Athman Mustafa Mohammed v Ecobank Kenya Limited & 2 others [2015] eKLR, the court held that repossession of a motor vehicle without notice was legal as the only interest which defendant had in the vehicle was that it was the security for the financial facility which the bank gave to plaintiff. Provided the plaintiff was paying the monthly instalments, and doing so within time, the defendant would have had no reason to take possession of the vehicle unless the plaintiff violated any other term of the agreement between them. It is the defendant who had taken steps to dispose of the vehicle. They had done so, according to the plaintiff, without first giving him Notice or any Demand Letter. Even assuming that Notice was not issued by the defendant to the plaintiff, that would not, on a prima facie basis, have rendered unlawful or irregular the proposed sale. The Chattels Mortgage expressly stipulated that the power to take possession of the vehicle and to dispose of it accrued immediately to the defendant, when there was a default; and that it accrued without any previous or further notice or concurrence on the part of the grantor.

In Joseph Chege Gitau v CFC Bank Limited [2008] eKLR where it was held that from the pleadings and the evidence adduced before the trial court, it was not disputed that the appellant defaulted in the repayment of the hire instalments for the motor vehicle. The appellant blamed the respondent for repossessing the motor vehicle without taking into account that the appellant was unable to pay the rental instalments because the motor vehicle had mechanical problems and the appellant could not therefore generate any income. However, the fact that the motor vehicle had mechanical problems did not absolve the appellant from his obligation to make the monthly payments, nor did it deny the respondent its right to repossess the motor vehicle.

It was evident that the agreement provided the respondent the right to repossess the motor vehicle as long as there was default in payment of the monthly instalments. It is evident from the above two judgments that the court is willing to enforce consumer rights in hire purchase agreements and protect consumers from unfair trade practices as long as there is proof of violation when consumers have fulfilled their obligations to the agreements.

In Simon Muiruri Wanjohi v Resma Commercial Agencies Nakuru HCA No. 91 of 2002 the 1st respondent took the law into his own hands and unlawfully took possession of the said motor vehicle from the appellant. In the event of breach of the agreement the 1st respondent was required to seek the intervention of the law and not use the law of the jungle to take away the appellant’s property; the 1st respondent robbed the appellant of his motor vehicle.

In Pals Car Ltd v CMC Motors Ltd & 2 Others Nakuru HCCC No.171 of 2005 the court held that if there was breach of the agreement, the defendant ought to have filed a suit to obtain and enforce the agreement, and obtain an order to repossess, and therefore repossession without a court order was unlawful.

The court is also ready to enforce the rights of the owner of the property, as long as they seek intervention of the law where there are breaches in the hire purchase agreements. There is also the Consumer Federation of Kenya (COFEK) which was registered on March 26, 2010. COFEK is a founder Chair of the Government-run Kenya Consumer Protection Advisory Committee (Kecopac) and its mandate is to defend, promote, develop and pursue consumer rights as guided by Article 46 of the Constitution of Kenya 2010, the Consumer Protection Act, 2012 and the Competition Act, Cap 504 and make it possible for the consumers to get value for money.

The above Indian case holds that repossession of goods under hire purchaser by the financier (owner) may be done in accordance with the terms and conditions of the hire purchase. Thus, where the hire purchase agreement requires the financier to issue a presale notice to the complainant (hirer), the financier is obligated to do so. Failure to do so would render repossession illegal and the court may, after accessing the prejudice and loss, if any, caused by that failure to issue presale notice, award the complainant damages for deficiency in service. Unlike in Kenya, the financier does not need to obtain a court order in order to repossess the hired goods once the hirer has defaulted or breached the agreement.

 

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