Introduction:

The Madhya Pradesh High Court has held that a financier cannot claim interim custody of a vehicle seized in connection with an offence under the Narcotic Drugs and Psychotropic Substances Act, 1985 merely on the ground that the registered owner has defaulted on repayment of the vehicle loan. The Court clarified that contractual rights arising from a financing or hire-purchase agreement cannot, by themselves, confer a right upon a financier to obtain custody of case property from a criminal court during the pendency of an NDPS trial.

The ruling was delivered by Justice Jai Kumar Pillai while dealing with a criminal revision petition filed by SK Finance Ltd. against the State of Madhya Pradesh. The petition, registered as Criminal Revision No. 3437 of 2026 and reported as [2026 LiveLaw (MP) 384], challenged the order dated April 2, 2026, passed by the Special Judge under the NDPS Act. The Special Judge had rejected the finance company’s application seeking interim custody, or Supurdagi, of a vehicle seized in an opium trafficking case.

The case arose from an incident investigated by Neemuch City Police Station. Acting on information that the owner of a vehicle was allegedly transporting and delivering opium to a person in Rajasthan, the police intercepted the vehicle. During the search, 7 kilograms of opium were allegedly recovered from the possession of the vehicle’s owner. The owner was arrested in connection with the alleged NDPS offence, while the vehicle used in the incident was seized as case property.

The vehicle had been purchased by the accused after obtaining finance of ₹5,04,741 from SK Finance Ltd. Under the loan arrangement, the borrower was required to repay the amount through 36 Equated Monthly Instalments of ₹17,499 each. According to the finance company, the borrower subsequently defaulted on the repayment obligations and an amount of approximately ₹4,70,274.20 remained outstanding.

The financier approached the Special Judge seeking interim custody of the seized vehicle. Its case was that the loan agreement specifically entitled it to repossess the vehicle upon default. It was further argued that the vehicle had been used in violation of the terms of the financing arrangement and that such conduct disentitled the borrower from retaining custody of the vehicle. The finance company therefore claimed that it was the appropriate person to whom the vehicle should be released during the pendency of the criminal proceedings.

The Special Judge, however, rejected that request. The finance company thereafter approached the High Court, contending that the Special Judge had failed to properly appreciate the terms of the financing agreement and the endorsement appearing on the vehicle’s registration certificate.

The High Court ultimately declined to interfere with the Special Judge’s order. Justice Jai Kumar Pillai held that the finance company was merely a financier and was neither the registered owner nor an agent of the registered owner. Consequently, it could not seek interim custody of the vehicle in the criminal proceedings merely by relying upon its contractual right to repossess the vehicle following a loan default.

The Court distinguished between a financier’s contractual or civil rights against a borrower and the criminal court’s jurisdiction over property seized during an investigation or trial. According to the High Court, a criminal court exercising jurisdiction concerning custody of seized property is not the appropriate forum for enforcing the terms of a loan agreement or determining contractual disputes between a financier and borrower.

The judgment also addressed the significance of a hypothecation endorsement in a vehicle’s registration certificate. The Court held that such an endorsement protects the financial interest of the financier but does not convert the financier into the statutory owner of the vehicle for the purpose of criminal proceedings.

In reaching this conclusion, the High Court relied upon the Supreme Court’s decision in Bishwajit Dey v. State of Assam, concerning the release of vehicles seized in connection with offences under the NDPS Act. The High Court reiterated the principle that interim custody or Supurdagi of such a vehicle can ordinarily be claimed by the owner or the owner’s agent, and that contractual rights of a financier cannot simply be substituted for ownership in criminal proceedings.

The Court consequently dismissed the criminal revision petition and upheld the Special Judge’s order.

Arguments of the Parties:

The finance company, SK Finance Ltd., challenged the Special Judge’s refusal to release the seized vehicle into its interim custody. The central submission on behalf of the petitioner was that the financing arrangement did not merely create an ordinary unsecured debt. According to the petitioner, the hire-purchase or loan agreement contained specific provisions conferring a right of repossession upon the financier in the event of default by the borrower.

Counsel for the finance company argued that the borrower had failed to comply with the repayment schedule agreed under the loan arrangement. The vehicle had been financed for ₹5,04,741 and was repayable in 36 monthly instalments of ₹17,499. The petitioner claimed that the borrower had defaulted and that a substantial amount, approximately ₹4,70,274.20, remained outstanding.

According to the finance company, once the borrower committed default, the contractual terms entitled the financier to repossess the vehicle. The fact that the vehicle had subsequently been seized by the police in connection with an NDPS offence, it was argued, should not deprive the financier of its contractual rights.

The petitioner further sought to rely upon the registration certificate of the vehicle. It was submitted that the registration records contained an endorsement in favour of the finance company and that this endorsement demonstrated the financier’s interest in the vehicle. Counsel argued that until the entire financed amount had been repaid, the borrower could not be treated as having unrestricted ownership over the vehicle.

The petitioner also emphasised the alleged misuse of the vehicle. The vehicle had been intercepted while its owner was allegedly transporting opium, and 7 kilograms of opium were recovered. According to the financier, such use was plainly contrary to the terms of the loan agreement.

The finance company argued that the borrower had therefore not only defaulted on the financial obligations but had also used the financed vehicle for an unlawful purpose. This alleged breach, according to the petitioner, strengthened its claim for custody because the borrower could not be permitted to retain possession of an asset in circumstances where its use had violated the financing agreement.

The petitioner consequently submitted that the Special Judge had failed to properly consider the contractual rights flowing from the loan arrangement and the endorsement on the registration certificate. It was argued that the financier, rather than the accused borrower, was entitled to obtain interim custody of the vehicle pending the conclusion of the criminal proceedings.

The State opposed the revision petition and supported the order passed by the Special Judge. The State’s position was that the finance company could not be treated as the registered owner for the purpose of seeking interim custody of the seized vehicle.

The State argued that the criminal proceedings concerned an offence under the NDPS Act and that the vehicle had been seized as case property in connection with that offence. In such circumstances, the financier’s contractual relationship with the accused could not automatically give it a right to obtain custody from the criminal court.

The State essentially maintained that a financier could not substitute itself for the registered owner merely because the borrower had allegedly failed to repay the loan. Any contractual right to repossess the vehicle, according to the State, had to be enforced in accordance with the applicable civil or contractual remedies and could not be converted into a claim for Supurdagi in the criminal proceedings.

The competing submissions therefore placed before the High Court a question concerning the interaction between two distinct legal relationships. On one side was the contractual relationship between the financier and borrower, under which the financier claimed a right to repossess the vehicle upon default. On the other was the criminal court’s authority over a vehicle seized as case property in an NDPS prosecution.

The High Court was consequently required to determine whether the contractual rights asserted by the financier were sufficient to entitle it to interim custody of the vehicle while the criminal trial remained pending.

Court’s Judgment:

Justice Jai Kumar Pillai declined to interfere with the order of the Special Judge and dismissed the criminal revision petition filed by SK Finance Ltd.

At the heart of the High Court’s reasoning was the distinction between contractual rights and the statutory concept of ownership relevant to criminal proceedings. The Court found that the petitioner was a financier and not the registered owner of the vehicle. It therefore held that the Special Judge was legally correct in refusing to grant interim custody to the finance company.

The Court observed that the finding of the Special Judge was supported by the documentary material on record, particularly the relevant registration document. The High Court found that the financier’s status did not establish a basis for treating it as the owner or as an agent of the owner for the purpose of obtaining Supurdagi.

A significant aspect of the judgment concerns the nature of proceedings for interim custody of seized property. The Court relied upon the principle recognised in Bishwajit Dey v. State of Assam, a decision of the Supreme Court dealing with the custody of vehicles seized in NDPS cases.

The High Court reiterated that a criminal court exercising jurisdiction under Sections 497 and 503 of the Bharatiya Nagarik Suraksha Sanhita, 2023 cannot be converted into a forum for enforcing the terms of a civil contract or loan agreement. Those provisions concern the custody and disposal of property in the context of criminal proceedings; they do not provide a mechanism for adjudicating contractual disputes between a financier and borrower.

The Court thus drew a clear line between the financier’s right to recover money or enforce contractual remedies and the criminal court’s authority to determine who should have interim custody of seized case property.

The Court’s reasoning was that a contractual right of repossession arising from an EMI default is fundamentally a civil matter. If a borrower breaches the financing agreement, the financier may have remedies available under the agreement or applicable civil law, including arbitration where the contract so provides. However, the existence of such remedies does not automatically entitle the financier to obtain custody of a vehicle that has become part of a criminal case.

This distinction was particularly important because the vehicle in the present case had allegedly been used in an offence under the NDPS Act. The police had seized it after allegedly recovering 7 kilograms of opium from the vehicle’s owner. Once seized, the vehicle became case property connected with the criminal proceedings.

The finance company’s assertion that the accused had violated the loan agreement by using the vehicle for an unlawful purpose did not alter that legal position. The High Court expressly held that the alleged violation of the loan agreement was extraneous to the question of interim custody in the criminal case.

The Court observed that such a violation could potentially give rise to civil consequences or arbitration proceedings between the parties. However, it could not, by itself, authorise the criminal court to hand over the seized vehicle to the financier during the pendency of the NDPS trial.

This aspect of the judgment is particularly important because the finance company attempted to connect the borrower’s alleged criminal conduct with its contractual right of repossession. The High Court declined to treat those two questions as interchangeable.

The alleged misuse of the vehicle may have consequences under the financing agreement. It may permit the financier to initiate appropriate contractual proceedings against the borrower. But the criminal court’s decision regarding Supurdagi must be governed by the principles applicable to custody of case property, rather than by the alleged breach of a loan agreement.

The Court also rejected the argument based upon the hypothecation endorsement in the registration certificate. The finance company had contended that the registration certificate itself recorded it as the owner and that this strengthened its claim to custody.

The High Court, however, clarified that a hypothecation endorsement does not have the effect of transferring statutory ownership of the vehicle to the financier for the purposes of criminal proceedings. Such an endorsement protects the financier’s financial interest in the vehicle, but it does not place the financier in the same legal position as the registered owner when a criminal court considers an application for interim custody.

The distinction is important because financing arrangements frequently create significant financial interests in vehicles without necessarily making the financier the registered owner. A financier may have security or contractual rights over an asset while the borrower remains the registered owner and user of the vehicle.

The High Court therefore refused to treat the financier’s financial interest as equivalent to statutory ownership for determining Supurdagi.

The Court further noted that the petitioner company was neither the registered owner nor the agent of the registered owner. This finding was decisive in applying the principle emerging from Bishwajit Dey. Since the financier could not establish either of these capacities, it could not claim interim custody merely on the basis of its financing relationship with the accused.

The judgment also reinforces the limited role of the criminal court when dealing with contractual disputes. The criminal court is concerned with the criminal case and with ensuring appropriate custody and preservation of property connected with that case. It is not ordinarily the forum for determining whether a borrower has breached a financing agreement or whether a financier has validly exercised a contractual right of repossession.

If the finance company believed that the borrower had breached the loan agreement, it remained free to pursue whatever civil or contractual remedies were available to it. The High Court did not hold that the financier had no rights whatsoever in relation to the vehicle. Rather, it held that those rights could not be enforced through an application for interim custody before the criminal court merely because the borrower had defaulted.

The Court’s reasoning also prevents the criminal process from becoming a substitute mechanism for recovery of secured debts. The existence of criminal proceedings involving an asset does not necessarily enlarge the contractual rights of a financier or permit it to bypass the legal framework applicable to civil recovery.

At the same time, the decision does not determine the guilt or innocence of the accused in the NDPS case. The allegation that 7 kilograms of opium were recovered and that the vehicle was used for transporting the contraband forms part of the underlying criminal proceedings. The High Court’s determination was confined to the petitioner’s entitlement to interim custody of the seized vehicle.

The Court consequently found no legal error in the Special Judge’s order dated April 2, 2026. Since the Special Judge had correctly concluded that the financier, being neither the registered owner nor the owner’s agent, was not entitled to Supurdagi, the High Court found no reason to exercise its revisional jurisdiction.

Justice Jai Kumar Pillai accordingly dismissed the criminal revision petition.

The judgment establishes a clear procedural distinction between a financier’s contractual remedies and the criminal court’s jurisdiction over seized property. A financier may possess enforceable rights arising from a loan, hire-purchase or hypothecation arrangement, including rights that may permit repossession in appropriate circumstances. But those contractual rights do not, by themselves, confer an entitlement to interim custody of a vehicle seized as case property in an NDPS prosecution.

The decision is also significant for clarifying the evidentiary and legal relevance of a hypothecation endorsement. While such an endorsement records the financier’s financial interest and protects its security, it does not automatically make the financier the statutory owner for every legal purpose.

Ultimately, the High Court’s approach rests on the principle that different legal remedies must remain within their proper spheres. A dispute over loan repayment and repossession belongs to the contractual or civil domain, whereas custody of a vehicle seized in connection with an NDPS prosecution must be considered within the framework governing criminal proceedings.

The Madhya Pradesh High Court therefore upheld the Special Judge’s refusal to release the vehicle to SK Finance Ltd. The finance company’s alleged contractual right to repossess the vehicle because of EMI default, as well as the allegation that the borrower had violated the loan agreement by using the vehicle in an NDPS offence, did not provide a sufficient legal basis for the criminal court to grant interim custody to the financier.

The criminal revision was accordingly dismissed, leaving the vehicle subject to the course of the pending criminal proceedings.