Re: Legal Opinion regarding selling procedure of repossessed vehicles.
We refer to your letters dated May 22, 2007 and dated May 28, 2007 on the above subject.
From perusal of your letters and the provided documents, it appears that, Company 1 (“COMPANY 1”) has been extending personal Car Loans since 2005 and the cars were being registered in the name of COMPANY 1. Some of the borrowers have defaulted in their payment of the car loans. As such, vide an order of the Magistrate dated 17.04.07 in the Motijheel Thana Case No. 72(3) of 2007, COMPANY 1 has repossessed some vehicles from some defaulting borrowers, in accordance with the terms and conditions of the car loan agreements,.
In these circumstances, you have requested us to provide our legal opinion regarding the following issues:
(a) The selling procedure of the repossessed vehicles. Whether the repossessed vehicles can be sold without the order from the court.
(b) Can COMPANY 1, being the owner of the vehicle, participate in the bid to purchase the repossessed vehicle?
(c) Can the defaulting borrower seek any legal measures against COMPANY 1 regarding repossession of the vehicle?
1st Query: The selling procedure of the repossessed vehicles. Whether the repossessed vehicles can be sold without the order from the court?
Response: From perusal of the order of the Magistrate dated 17.04.07 in the Motijheel Thana Case No. 72(3) of 2007 (the “Order”), it appears that the court allowed the repossession of the cars by COMPANY 1, subject to COMPANY 1 giving an undertaking that COMPANY 1 shall reproduce the cars in front of the court if so demanded by the court (the “Undertkaing”). However, vide your letter dated May 28, 2007 you have informed us that the authorised repossession agent of COMPANY 1 has repossessed the cars without giving any such undertaking to the Court.
The Order granted pursuant to Section 516A of Chapter XLIII of the Code of Criminal Procedure 1898, only allows COMPANY 1 to repossess the cars pending trail which does not extend to the sale of the cars and this is evident from the fact that no explicit order has been granted for sale of the cars and instead COMPANY 1 is required under the Order to reproduce the cars before the court if so demanded under the Undertaking. The non-compliance of the Order is a violation and non submission of the Undertaking does not mean that COMPANY 1 can go ahead and sell the cars in violation of the terms of the Order. The Court may still demand COMPANY 1 to reproduce the cars in front of the court if the Order made on 17.04.07 is not modified or set aside on appeal.
In view of the above, for sale of the cars, COMPANY 1 will require applying for a further order from the Court under Section 516A for sale of the cars possessed by it. Subject to the court granting COMPANY 1 the right to sell the cars, COMPANY 1, as the registered owner of the cars, can sell the repossessed cars.
According to clause 23 of the Car Loan Agreement, the proceeds from sale proceeds of the cars will be used to liquidate and/or offset the outstanding Car Loan with accrued interest together with all costs incurred for repossession of the vehicles.
After perusing the relevant laws there appears to be no specific legal procedure set for sale of the repossessed cars. The Car Loan Agreement also does not impose any obligation on COMPANY 1 to sell the cars in any specific way. Therefore, it is a commercial decision as to how COMPANY 1 may sell the cars. However, COMPANY 1 should ensure that the cars are sold at the best possible market price and selling the cars through public auction is the best possible procedure for ensuring that the cars are sold for the highest possible price.
2nd Query: Can COMPANY 1, being the owner of the vehicle, participate in the bid to purchase the repossessed vehicle?
Response: COMPANY 1, being the owner of the vehicle, cannot participate in the bid to purchase their own vehicles. If COMPANY 1 desires to retain the ownership of the vehicle, then COMPANY 1 may set-off the reasonable price of the cars (calculated by taking into consideration the average market price of a comparable car) from the outstanding loan amount with accrued interest together with the costs incurred for repossession of the vehicles.
3rd Query: Can the defaulting borrower seek any legal measures against COMPANY 1 regarding repossession of the vehicle?
Response: The repossession of the vehicle by COMPANY 1 is through a court order and if COMPANY 1 obtains a further order for sale of the vehicle, the defaulting borrower will also have to abide by the terms of the orders.
If you have any further query, please do not hesitate to contact the undersigned.
For: “The Lawyers & Jurists”