Lawfarm Team
Asked January 15, 2016

investment frauds

  • 1 Answer

Me and My wife had invested a sum of 3 lakh each in a Taxi Company in Rourkela. According to the agreement, the company was supposed to purchase two second hand cars in our name and run it on rental. They were expected to run the taxi for a period of 3 years and pay us a rental of Rs. 25,000/- every month cumulatively for the use of both cars. At the end of 3 years, they were supposed to buy the two cars off us.   They did pay us our instalment for a couple of months, but stopped after that. We have been at our wits end. After inquiring from other sources, I found out that they hadn’t even bought the second car which they were supposed to buy and run it as a taxi. I suspect that the company is having its own financial trouble. What can I do to get back my money?

Answer 1

According to the details of the agreement drawn between you and the taxi company  (Sigma Taxi Auto Corp Ltd), you and your wife are the owners of the one car that has been purchased by them and the latter is contractually expected to purchase the car(s)from you after 3 years. This understanding between you and the taxi company is generally legally regarded as a Hire-purchase agreement, where the taxi company is the hirer and you the hiree.

There are certain cases like K.L Johar& Co. v. Deputy Commercial tax Officer[1] where a hire purchase agreement was defined. It laid down that this kind of agreement is basically bailment which changes into sale after the hirer has fulfilled certain conditions as laid down in the contract and the option of buying is exercised(In your case those conditions are the one aforementioned).

Coming to the issue, please note that according to established legal principle of law non payment of installment for a continuous period of three months would not be considered as repudiation of the contract, even if you show that you had sent repeated warning letters to the hirer. [2]This means that a default in the monthly payment does not mean that the contract comes to an end automatically and that you can sue the company for damages.  However, you can terminate the contract(explicitly by sending in a letter)in light of the default in payments and repossess the car.[3]

It is advised that you must examine the terms of the contract to determine the rights of the owner. Some hire-purchase agreements are terminable at will under which the owner can acquire possession of the car (let on hire) and sue the taxi company for arrears of rent.[4] The owner is entitled to recover any accrued debt from the taxi company even if he has taken possession of the car.

Look out for provisions in your contract carefully. Often contracts of this nature have clauses stating how much should be paid in case of a default. It might be beneficial for you to note that the courts have tried to uphold the terms of an otherwise legally valid contract as far as possible. So even if the taxi company claims that the pre-decided default payment was set rather high, the chances are that the court will compel the taxi company to pay you the pre-decided sum (according to the contract), unless it can be proved by him that the set amount is very harsh or unconscionable.[5]Whereas, if there is no such clause in your contract, then you can pray for a sum that you consider justified and the Court can determine the amount that the owner can recover.[6]

It is a common practice for owners (like you) in hire-purchase agreements to insist on having a third party guarantor, who they can approach to get the hirer (like, the taxi company) to perform his promises under the contract. This is what you can do if you had required the taxi company to produce a guarantor for themselves. Also a company not having money to pay at a particular time is different from pleading insolvency. They might ask you for more time to pay back the installments. However it is advisable that you sue him because if you accept his plea of paying the installments later, it would amount to a waiver of your rights to sue him. In case, there is no guarantor and insolvency has been pleaded and the taxi company is going into liquidation, the assets and property of the company will vest in a trustee and then the creditors will be repaid. Now, first the secured creditors will be paid. They are the creditors who have a security interest over some or all parts of property of the debtor. Then the shareholders follow and then the unsecured creditors. You will get your money depending upon the category you fall in.

[1]AIR 1965 SC 1082

[2] Financings Ltd v. Baldock,(1963) 2 QB 104.

[3]P.V.Sadasivam v. Industrial Credit & Syndicate Ltd. AIR 2002 Ker 207

[4] Taylor v.Thompson[1930] W.N 16

[5] Bridge v. Campbell Discount Co. Ltd.,(1962) AC 600

[6]Code of Civil Procedure, 1908 s. 34

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