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IF your vehicle is financed by a bank or a financial company, the vehicle will be hypothecated to the financier till you repay the entire loan amount. Suppose during this time the vehicle meets with an accident and you need the insurance money to have it repaired, to whom should the insurance company make the payment? To the owner— that is the person who has bought the vehicle and who needs to have it repaired—or to the company to which the vehicle is hypothecated? This was the important question that came up before the court recently. Its verdict in this case is extremely important from the point of view of consumers. The case has its origin in the damage sustained by the vehicle of Mohammed Abu Fazal Choudhary and his subsequent complaint before a district forum in Assam, seeking repairing costs to the vehicle from the insurer. The district forum, on the basis of the assessment of the surveyor, directed the insurance company to pay the complainant Rs 4,14,500, towards the repair of the vehicle. The district forum also directed the insurance company to pay the complainant Rs 3,000 towards mental agony and harassment and Rs 1,000 as costs of the case. The forum also directed the insurance firm to pay the amount to the complainant within 45 days from the date of receipt of the copy of the order. Failure to do so would entail an interest of 9 per cent per annum on the entire amount, the forum warned. Now, in response to this order, the insurance company paid the amount of Rs 4,18,500 to Tata Motors from whom the complainant had purchased the vehicle (The vehicle had been financed by Tata Finance and hypothecated as such to Tata Finance), and said that it had paid the amount in lieu of the balance amount outstanding against the vehicle, and this discharged them of their liability to pay the awarded amount. Aggrieved, the complainant filed an execution petition before the district forum, which directed the insurance company to make the payment to the consumer. The insurance firm filed a revision petition before the state commission against this order. When it was dismissed, it filed another revision petition before the national commission. The company’s argument in this case was that the vehicle had been financed and hypothecated to Tata Finance, and till such time as the entire loan amount was repaid by the consumer, he would not be the owner of the vehicle. The company was, therefore, right in remitting the amount to Tata Motors in discharge of the liability of the complainant under the agreement of hypothecation. After considering the arguments of both the parties, the apex court said the only issue to be decided by it was whether the payment made by the company to Tata Motors would be considered as due payment made to the complainant, and whether it would discharge the insurance company of its liability under the order passed by the district forum. In the end, its verdict was that the payment made by the insurance company to Tata Motors or Tata Finance cannot be deemed to be payment to the customer or the complainant, and this payment had not discharged the insurance company of its liability under the forum’s award. The insurance company should, therefore, make the payment to the consumer. The finance company would be free to work out its claim against the complainant in accordance with law, the commission held (United India Insurance Company v Mohammed Abul Fazal Choudhary, RP No 911 of 2006). This is an extremely important order from the point of view of clients as it upholds their rights vis-a-vis a hypothecated vehicle. However, a note of caution here: whenever you take a loan from a bank or a finance company to buy a vehicle, make sure that you read fully the agreement between you and the company advancing the loan. Read the hypothecation agreement and also see if there is any reference to it in your insurance document. Make sure that the terms are fair to you. Most of those agreements run into pages and consumers usually ignore them. Instead, ask for a copy, read it carefully and if you have objections to any terms, say so in writing. Unfortunately, we do not have a law to protect customers from unfair terms in, but courts have come to their help in many such cases where the terms are unfair but the consumer has no option but to sign on the dotted line.
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