Citation: 2026 INSC 998 (Hari Dutta Sharma v. State of U.P. & Ors.). Judgment date September 16, 2026.
While a financial institution has a legitimate right under a contract to repossess and sell a hypothecated asset upon a borrower’s default, that right cannot be exercised through force, stealth, or in violation of statutory RBI Fair Practices Guidelines and contractual notice requirements. When a lender bypasses due process—such as seizing a vehicle at night without prior notice—it acts arbitrarily and violates Articles 14 and 21 of the Constitution, rendering the lender liable to pay compensation and refund the sale proceeds, even if the completed sale of the asset itself is not set aside.
The appellant obtained a commercial vehicle loan and a supplementary loan from Cholamandalam Investment and Finance Company Limited for a truck, which was secured by hypothecation and repayable in monthly instalments. After the appellant defaulted on the repayments, the company issued recall notices and eventually repossessed and sold the vehicle for Rs. 4,50,000 on August 31, 2023, without serving the mandatory seven-day pre-seizure notice.
The appellant discovered the sale after receiving a legal notice and subsequently filed a police complaint, a section 156(3) CrPC application, and a writ petition before the High Court. The High Court dismissed his writ petition on the ground of delay, leading the appellant to approach the Supreme Court via a special leave petition challenging the arbitrary repossession and sale of his livelihood asset.
The Supreme Court held that the financier’s repossession and sale of the appellant’s vehicle without mandatory notice and through forcible means violated RBI Guidelines, contractual terms, and Articles 14 and 21 of the Constitution. Consequently, the Court set aside the High Court’s order, directed the company to close the loan accounts, refund the vehicle’s sale price of Rs. 4,50,000 with 6% interest, and pay Rs. 10,00,000 as compensation for loss of livelihood and mental agony, alongside costs of Rs. 50,000.
