Name of the Case: SREI Equipment Finance Ltd. Vs. Ramjan Ali & Ors.

Case Number: Criminal Appeal No. 6 of 2021 arising out of S.L.P. (Crl.) No. 3893/2020

Judges Name: Hon’ble Judges ASHOK BHUSHAN J, R. SUBHASH REDDY J, M. R. SHAH J.

Order dated: 05.01.2021

“vehicle transfer in lieu of fraud cannot be deemed legitimate even though it is carried out with a bonafide interest.”

Facts of the case:

• Amarnath Yadav purchased the JCB machine and entered into a finance agreement dated 22.10.2016 with Srei Equipment Finance Limited [SEF](Appellant), under which agreement the appellant financed an amount of Rs.19,83,360/-. Under the agreement, Shri Amarnath Yadav (hereinafter referred to as “original owner”) agreed to repay the loan in 46 monthly instalments @ Rs.56,300/- for each month from 15.12.2016 to 15.09.2020. 
• The vehicle was registered by Regional Transport Officer, Basti, Shri Amarnath Yadav as owner of JCB machine bearing Registration No. UP 51 AT 5709. The registration also mentioned the finance agreement with Srei Equipment Finance Limited, making an entry of hypothecation as required by Section 51 of the Motor Vehicles Act, 1988. Amarnath failed to pay any instalment of loan. 
• The Appellant as per terms of the finance agreement dated 22.10.2016 referred the dispute to an arbitrator. Amarnath failed to appear before the arbitrator. The arbitrator gave an award dated 26.03.2018 in favour of the appellant namely M/s. Srei Equipment Finance Private Limited for an amount of Rs.25,97,053/- with interest @ 10% p.a. from the date of notice of termination (07.03.2017). 
• Amarnath made an application with the Regional Transport Officer to cancel the entry of Srei Equipment Finance Limited as the person with whom the vehicle was hypothecated. Without informing the Srei Equipment Finance Limited RTO withdrew the entry from the registration certificate and issued a fresh registration certificate in the name of Amarnath. On 16.08.2018, the Regional Transport Officer, Basti issued a clearance certificate in favour of original owner noticing the fact that vehicle has been sold to Ramjan Ali, the respondent No.1 in the jurisdiction of other registration authority, i.e., Sitapur.

Supreme Court held:

• The Supreme Court observed that the High court committed an error while directing the vehicle’s release favouring Ramjan. The High Court order was held to be unsustainable by the Supreme Court and was set aside. The court allowed the appeal accordingly and had that vehicle be released in favour of Srei Equipment Finance Limited. The court directed that Chief Judicial Magestrate, Sitapur shall ensure that vehicle is received back from Ramajan and released in favour of SREI Equipment Finance on such terms and conditions as may be deemed fit and proper, which exercise shall be completed within four weeks from the date of judgement. The Court referred Rule 61 of The Central Motor Vehicle Rules, 1989 deals with termination of hire purchase agreement etc. and Section 55(5) dealing with registration cancellation.
  
• It further observed that the High Court ignored the application for release of the vehicle was filed SEF and had also filed an objection to Ramjan’s application of release. The application was filed objecting the release and claiming ownership of the vehicle as the hypothecation entry was fraudulently removed. This fraudulent removal facilitated the transfer in favour of Ramjan was illegal and void. 
• The Supreme Court held that the Regional Transport Officer at the time of cancelling the vehicle’s registration issued by it should note that entry of the appellant as a person in whose favour the vehicle was hypothecated, had been fraudulently deleted.