Sold Before Notice Arrived: Bank Fined ₹3 Lakh After Selling Borrower’s Seized Car Behind His Back in Surat

A consumer court in Gujarat has slapped AU Small Finance Bank with a ₹3 lakh penalty for illegally seizing and selling a customer’s car before giving him a fair chance to clear his remaining dues.

The Navsari District Consumer Disputes Redressal Commission (CDRC) ordered the private lender to refund ₹2.5 lakh raised from the unauthorized vehicle sale and pay an additional ₹50,000 in compensation to the aggrieved car owner. The ruling came after the court discovered the bank sold off the vehicle a day before even issuing an official arbitration notice to the borrower.

Seven EMIs Away From Ownership

The complainant had financed his car in February 2021 by securing a ₹7.35 lakh loan from AU Small Finance Bank, structured across 60 monthly instalments scheduled to wrap up in February 2026. For four years, he serviced the loan diligently. By July 2025, with just seven instalments remaining, he ran into temporary financial difficulties.

Instead of working through a standard repayment window, the bank deployed a recovery agency to impound the vehicle on 21 August 2025. The owner received an arbitration notice dated 31 October 2025, directing him to settle the outstanding balance of ₹2.74 lakh within ten days.

When the customer walked into the bank branch to settle the amount and reclaim his vehicle, staff dropped a bombshell: the car had already been sold on 30 October, 24 hours before the arbitration notice was even dated—and his loan account had been closed.

Hidden Auction and Unfair Trade Practices

Outraged by the ambush, the borrower approached the consumer forum, alleging that the bank had colluded with its recovery agents to flip the vehicle for quick profits while bypassing mandatory legal procedure. Regional Transport Office (RTO) records revealed that the vehicle remained registered under the original owner's name despite the secret transaction.

In its defence, the bank argued that the customer had defaulted on instalments during 2022 and 2023, claiming it had alerted the local police prior to repossessing the car and gave the owner two months to clear his account.
However, legal counsel for the complainant pointed out that while short-term defaults occurred due to financial strain, the bank routinely charged and collected penal interest for delayed payments, demonstrating the customer's ongoing commitment to clear his debt.

Consumer Court Slams Arbitrary Repossession

The Navsari CDRC rejected the lender’s arguments, noting that AU Small Finance Bank failed to prove the loan account had ever been officially classified as a Non-Performing Asset (NPA).
The panel held that issuing an arbitration notice with a 10-day payment deadline after already selling the car was a clear breach of protocol and constituted an unfair trade practice. Finding that restoring the vehicle was no longer physically possible, the commission directed the bank to hand over the full ₹2.5 lakh sale proceeds alongside ₹50,000 to cover mental harassment and litigation costs