Tata Motors Finance 'Took Law In Its Hands' By Acting On Ex Parte Arbitral Award To Auction Truck: Patna HIgh Court

The Patna High Court has held that Tata Motors Finance Limited could not proceed against a borrower's commercial vehicle on the basis of an ex parte arbitral award without following the prescribed enforcement process.

Justice Girijish Kumar observed that the finance company had failed to act under Section 36 of the Arbitration and Conciliation Act, 1996, and had “taken the law in its hand," which was impermissible.

Section 36 requires an enforceable arbitral award to be enforced in the same manner as a civil court decree. The court therefore held that Tata Motors Finance should have approached the competent civil court to execute the award before proceeding against the vehicle.

The case concerned Raj Karan Singh's Tata LPT 4825 truck, purchased with ₹42.06 lakh in financial assistance from the company. Singh alleged that the vehicle was seized without prior notice despite his having paid ₹98,130 on August 9, 2024.

Tata Motors Finance relied on the arbitral award and challenged the maintainability of Singh's writ petition. The court rejected that objection, relying on the Supreme Court's ruling in Kaushal Kishore v. State of Uttar Pradesh.

The court also noted that Article 226 jurisdiction can be exercised despite an alternative remedy where, among other circumstances, fundamental rights or principles of natural justice are involved.

The court found that the present case fell within those exceptions. It held that the respondents had not taken recourse to the SARFAESI Act and its rules or to Section 36 of the Arbitration and Conciliation Act before proceeding against the vehicle.

The court then considered the arbitral award relied upon by Tata Motors Finance. It noted that Singh had not participated in the arbitration proceedings.

Tata Motors Finance, the court held, should have approached the competent civil court for execution of the ex parte award. It therefore could not proceed against the vehicle without first following that enforcement process.

“In the present case, the respondent No.7 has failed to act upon in terms of Section 36 of the Arbitration and Conciliation Act, 1996 and taken the law in its hand, which in any circumstance is impermissible,” the court observed.

The court also held the subsequent auction sale illegal. The vehicle had been sold to a third party despite an earlier order directing that it not be sold if it had not already been sold.

Tata Motors Finance had told the court that it was unaware of the September 25, 2024 order because it was not appearing when the order was passed. The court nevertheless held that the sale was illegal and contrary to law.

Since the truck had already been sold to a third party and third-party rights had arisen, the court did not order its restoration.

Instead, it directed Tata Motors Finance to compensate Singh to the extent of the vehicle's insurance value on the date of seizure. The amount is to be adjusted against the outstanding vehicle loan, with any surplus paid to Singh.

The court also left Singh free to challenge the accounts furnished by the finance company and seek further compensation for losses arising from the seizure before the appropriate court or forum.

Finance was additionally directed to pay ₹25,000 towards litigation costs within 30 days of receiving or being furnished with a copy of the judgment.

The writ petition was accordingly allowed.

For Petitioner (Raj Karan Singh): Advocate Saurav Singh.

For Respondent (Union of India): Additional Solicitor General.

For Respondent (Reserve Bank of India): Advocate Rajesh Ranjan.