Supreme Court holds that Consumer Protection Act, 1986 does not override the Indian Contract Act, 1872 and is not in derogation of any existing law.

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The Supreme Court (“Court”)  in division bench comprising of J. D.Y Chandrachud and J. Indira Banerjee in M/S Magma Fincorp Ltd. v. Rajesh Kumar Tiwari observed the importance of the Consumer Protection Act,1986 (“Consumer Act”). The SC further prominently maintained the relationship between the Consumer Protection Act, 1986 and the Indian Contract Act, 1872 in contract of insurance.


On 2 August 2002, M/S Magma Fincorp Ltd (“Financier”) entered into a hire-purchase agreement with Rajesh Kumar Tiwari (“Complainant”) to hire-purchase the Mahindra Marshal Economic Jeep(“Vehicle”), cost of  Rs. 4,21,121 (four lac twenty one thousand one hundred twenty one) out of which initial payment of Rs. 1,06,121 (one lac six thousand twenty one) was made by Complainant.  Balance amount was paid by the financier. Complainant promised to repay the balance amount in monthly instalments till 1st June, 2005 but failed to pay the first instalment which was required to be paid within 1 Aug, 2020. Financier after giving notice took re-possession of the vehicle on 14 July, 2003 and called complainant to clear the dues within 7 days from the date of receipt of the notice. The financier sold the vehicle in November 2003 as the complainant failed to repay the amount.

After two year, i.e. 15 July, 2005, the complainant filed the complaint in District Consumer Dispute Redressal Forum (“District Forum”). District forum directed the financier to pay Rs. 2, 23,335 (two lac twenty three thousand three hundred thirty five) with simple interest at 10% per annum, beside this district forum also directed to pay for the damage and litigation expenses caused. Thereafter, the financier filed an appeal before the State Consumer Disputes Redressal Commission (“State Commission”) which was dismissed later. The financier filed a revision application before the National Consumer Disputes Redressal Commission (“National Commission”) which was again dismissed. Hence, the financier filed an appeal before the Court.


Whether the transaction between the financier and the claimant is hire purchase transaction or a loan transaction?

The Court observed that though a loan transaction confers a licence to the financier to seize the vehicle, the transaction between the financier and the claimant is hire-purchase transaction as per the terms and conditions of the agreement. There is no contrary provision under the Consumer Act.

Whether the financier is the real owner of the vehicle?

The Court held an affirmative decision. The court further held that the financier can take re-possession of the vehicle, but the possession cannot be taken by engaging recovery agents and shouldn’t cause physical violence, assault or criminal intimidation.

Whether is it necessary to give notice to the claimant for re-possession of the vehicle?

Dealing with this issue, the Court held that serving the notice to the claimant before taking the possession is implicit in the hire-purchase agreement and under the Consumer Act; non-service of notice would amount to deficiency of service for breaching the terms of the agreement. Moreover, the Consumer Act has provision for breach of duty, the one who breached need to pay for the damage caused.

Henceforth, the Court set aside the orders of the National Commission, the State Commission and the District forum and awarded the financier to pay the amount for the deficiency in the service.

Read Judgment here.

By Bhoomika Markam.