In case of default on repayment of a secured loan like a home or car loan, the biggest worry of a borrower is that they would have to part with the financed asset like the house, car etc. However, borrowers should know that even upon default, they have certain basic rights which cannot be overlooked by the lender.

Here is a look at 4 important rights that defaulting borrowers have.

1. Right to adequate notice-It is not a criminal offence to default on loan repayment. “Loan default is generally a civil wrong, except in cases where there is fraudulent or dishonest intention on the part of the borrower at the time of availing the loan. A right to adequate notice makes sure that you are informed about a possible future action by the lender well in advance so that you have time to act on it. “Typically banks and financial institutions give a 60-day notice under the SARFAESI Act before proceeding with securitisation action in respect of the secured asset.

2. Right to fair valuation of assets– The value of the property is often much more than the total dues of the lender. However, the lender may only be interested in realizing as much value so that the dues are recovered, which may not be in the best interest of the borrower. To ensure borrower’s right to fair valuation, RBI has set guidelines for valuation of collaterals. As per the SARFAESI Act, before selling the repossessed asset, the lender needs to get the valuation done from an approved valuer.

3. Right to balance proceeds– When the security for a loan is auctioned by the lender to recover the dues, and if the sale proceeds are more than the total dues, a borrower is entitled to receive the balance amount.

“Even if a borrower’s asset is repossessed, it is imperative to monitor the auction process. The reason being lenders tend to refund any excess amount realized after recovering their dues from the auction. Therefore, the borrower must ensure that the money is refunded to the borrower in a timely manner,”.

4.Right to humane treatment– Lenders are required to follow the due process prescribed by the law. “Lenders frequently engage recovery agents to coerce borrowers to repay their loans, however; their conduct should never violate norms of decency, civil behavior, and ultimately the code of commitment to customers signed by the banks,”

An Analysis of the Patna High Court Ruling on Forcible Seizure of Vehicles

In a recent landmark judgment, the Patna High Court has held that banks and financial institutions cannot forcibly repossess vehicles from loan defaulters through recovery agents or “goons”. The judgment came in response to a set of pleas wherein the petitioners claimed that their vehicles, bought with financial assistance from banks, were forcibly seized without due legal process, often at odd hours and by musclemen.


The court, presided over by Justice Rajeev Ranjan Prasad, expressed distress over the actions of the banks and financial companies, labeling them as wholly illegal. The judgment, passed on May 19, underscored that seizure or repossession of vehicles without adherence to the Reserve Bank of India (RBI) guidelines and the law of the land is unacceptable.

Key Findings of the Court

The court held that the banks and financial companies, being under a constitutional obligation, should not act in violation of the law. The ruling stated that “no person may be deprived of his livelihood and the right to live with dignity without following the established procedure of law.” The right to recovery of the banks and financial institutions, when juxtaposed against the constitutional right to life and livelihood, cannot supersede the latter.

The petitioners had sought that the seized vehicles be returned to them, along with all the necessary documents. They also sought compensation for loss of reputation caused by the forcible seizure of their vehicles.

The Court’s Verdict

The court made it clear that banks and financial institutions cannot, under the guise of the power acquired through the loan agreement to repossess the vehicle, violate the legislative mandate and the regulatory law such as the Act of 2002.

The court ordered that each of the contesting respondents, i.e., the banks/financial institutions, must pay a sum of ₹50,000 as cost of litigation to the respective writ petitioners within 30 days from the date of receipt of a copy of this judgment.


The balance between financial institutions’ rights to recoup loans and people’s constitutional rights to life and a means of subsistence is strengthened by this ruling. It emphasises that these institutions’ actions must stay within the bounds of the law and the Constitution and that doing otherwise may result in consequences.

Thus, the court’s decision sends a clear message to financial institutions about the boundaries of their power in loan recovery procedures and how crucial it is to always respect the law and the Constitution.

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