Fraudulent Sale of Vehicle During Hire Purchase Renders Agreement Void: Gauhati High Court Upholds Decree for Refund of ₹4.90 Lakhs

“When the Agreement is Tainted With Fraud, the Question of Part Performance Does Not Arise at All”, In a significant ruling Gauhati High Court dismissed a second appeal, affirming the decisions of the civil courts below which held that an agreement for sale of a vehicle entered during the subsistence of a hire-purchase loan was void for having an unlawful and fraudulent object. Justice Susmita Phukan Khaund upheld the decree directing refund of ₹4,90,000 with interest, reiterating that when a party executes a contract without legal authority to transfer the subject matter and conceals material facts, the agreement is hit by Section 23 of the Indian Contract Act, 1872 and becomes void.

The case throws sharp light on the legal implications of transferring property still under hire-purchase and reaffirms the position that ownership remains with the financing institution until full repayment. A seller who misrepresents the state of loan repayments and seeks to enforce such a contract cannot retain the consideration received.

Agreement to Sell Vehicle Without Ownership or Full Disclosure

The respondent-plaintiff, Enuish Ali, filed Money Suit No. 02/2014 seeking recovery of ₹4,90,000, paid as earnest money under an agreement dated 16.10.2012 with the appellant-defendant, Khurshida Ahmed, for purchase of a truck bearing registration No. AS-19A-6722. The total consideration was ₹8,90,000. The plaintiff alleged that the defendant falsely claimed she had already paid ₹1,00,000 towards a loan from Sriram Transport Finance Company and fraudulently represented herself as having the right to sell the vehicle.

Upon attempting to pay future instalments as agreed, the plaintiff discovered that an outstanding amount of ₹67,500 was due, and the finance company disclosed that only one instalment had been paid in May 2011, over a year before the agreement. The plaintiff returned the vehicle and sought refund, which the defendant refused.

Agreement Was Void, Defendant Had No Title to Transfer

The learned Civil Judge at Goalpara decreed the suit in favour of the plaintiff. The Court accepted that the defendant had executed the agreement knowing there was a subsisting loan, and misrepresented material facts about repayment.

Referring to Section 23 of the Indian Contract Act, the Court held: “According to the provisions of Section 23 of the Indian Contract Act, a fraudulent object of an agreement is not lawful and thus the agreement is void.”

Further, relying on Section 73, it held that the plaintiff was entitled to restitution of the earnest money, observing: “As per Section 73 of the Contract Act and on the allegation of suppression of material facts at the time of execution of the agreement, the suit was decreed with cost and the earnest money of ₹4,90,000 was directed to be paid to the plaintiff with interest at the rate of 7% per annum.”

The Court concluded that the defendant was not legally competent to enter into a contract of sale during the subsistence of the hire-purchase loan, as the ownership still vested with the finance company.

First Appellate Court: No Ownership, No Right to Sell Vehicle

The defendant’s appeal in Money Appeal No. 1/2021 was also dismissed. The appellate court reiterated that under the hire-purchase arrangement, ownership of the vehicle remained with the financier and not the appellant, and hence she lacked authority to execute a sale agreement.

Citing the testimony of PW-5 (finance company official), the Court found: “After paying the first instalment of ₹16,500 on 23.03.2011, the appellant failed to pay the remaining 47 EMIs. The loan obtained to purchase the vehicle is not disputed.”

The court also rejected the claim that the plaintiff had defaulted in his obligations, pointing out that the agreement itself was premised on a fraudulent misrepresentation by the appellant about having cleared a substantial portion of the loan.

It further held that the appellant admitted receipt of ₹4,90,000 and had not produced any documentary evidence to show payment of ₹1,00,000 to the finance company as claimed.

No Substantial Question of Law, Findings Based on Evidence

Dismissing the second appeal under Section 100 of the CPC, Justice Khaund observed that the entire foundation of the defendant’s argument collapsed on facts and admissions, and that the High Court was not empowered to interfere in findings of fact in a second appeal unless a substantial question of law arose.

Reiterating the principle, the Court held: “When the agreement was executed fraudulently, the question of part performance of contract does not arise at all.”

The Court also emphasized that since the appellant had regained possession of the vehicle following seizure in a criminal case, she could not retain the earnest money, stating:

“When the appellant has not denied that she has returned the vehicle, the direction to recover the entire money ₹4,90,000 by the plaintiff cannot be held to be infirm or erroneous.”

In a categorical finding, the Court held that the evidence overwhelmingly supported the plaintiff’s version, and that “the execution of Exhibit -1 has not been disputed”. The Court concluded: “This is sufficient to prove on preponderance of probabilities that the plaintiff is entitled to recover the amount of ₹4,90,000 which has been paid to the defendant.”

Attempt to Sell Hired Vehicle Without Disclosure is Fraudulent

With this judgment, the High Court reinforced two fundamental principles of contract law: a contract entered into with a fraudulent object is void under Section 23 of the Indian Contract Act, and anyone seeking to enforce rights under such a contract cannot claim protection of performance or retain benefits.

The Court found no illegality in the concurrent findings of the courts below and upheld the decree for refund of earnest money with interest.

Date of Decision: 03 December 2025