Never took bike loan but marked as defaulter, man wins Rs 60,000 after 10 years

A consumer body in Kerala has found Muthoot Capital Services liable for deficiency in service after it marked a man as a loan defaulter years after he submitted documents for a motorcycle purchase that never materialised, allegedly affecting his ability to avail of loans and credit cards. The commission directed the finance company to pay Rs 60,000 as compensation, remove adverse entries from his credit records, and restore his credit status.

President George Baby and member Nishad Thankappan of the Pathanamthitta District Consumer Disputes Redressal Commission were hearing a complaint filed by one Abhijith Balan alleging deficiency in service and unfair trade practice on the part of Muthoot Capital Services Ltd and seeking directions to rectify his credit records, compensation and costs.

“Credit information maintained by financial institutions directly affects the financial reputation and borrowing capacity of a consumer. Reporting an alleged loan liability without establishing its authenticity and thereafter failing to rectify the same despite receipt of objections amounts to a serious deficiency in service and unfair trade practice,” the June 30 order read.

Bike never bought, but loan ‘sanctioned’

The complainant claimed that on August 6, 2016, he approached the Evergreen Yamaha showroom at Mulakuzha to purchase a Fazer motorbike. He claimed to have paid an advance of Rs 20,000 and submitted certain documents to process a vehicle loan. According to the complainant, before the transaction could be completed, the showroom was abruptly closed and no vehicle was delivered to him.

The complainant also claimed that he never purchased the vehicle, that no vehicle was ever registered in his name, and that he never availed any loan from the finance firm. However, years later, he experienced difficulties in obtaining loans and credit facilities due to adverse entries in his credit history.

The complainant further submitted that in November 2024, he received a legal notice from Muthoot Capital alleging that he had availed a vehicle loan under a loan agreement dated August 6, 2016, and had committed default in repayment. The notice further alleged that the financed vehicle had been surrendered on February 18, 2017, and thereafter sold by the finance company.

According to the complainant, these allegations are entirely false, as he never purchased any vehicle. On receipt of the notice, he added that he issued a reply denying the allegations and demanding correction of the adverse entries in his credit records. However, Muthoot Capital failed to respond to or rectify the grievance, leading to this complaint.

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Muthoot submitted no documents

The commission noted that Muthoot Capital did not file any version contesting the complaint and failed to produce any documents establishing the existence of a valid loan transaction, execution of a loan agreement, disbursal of the loan amount, delivery of the vehicle, registration of the vehicle in the complainant’s name, surrender of the vehicle, or sale proceedings.

The commission further found that if a loan had in fact been sanctioned and disbursed, the finance company could have easily produced the loan agreement, statement of account, vehicle registration particulars, hypothecation records, surrender documents and sale records.

“The complete absence of such evidence strengthens the case put forward by the complainant. The evidence on record further reveals that the complainant had been subjected to adverse credit reporting based on the alleged loan account,” the court added.

Finding that the complainant has suffered mental agony, inconvenience, loss of financial opportunities and damage to his creditworthiness due to the company’s conduct, the commission held that awarding reasonable compensation is justified.

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Rectify records: Court

The commission directed the finance company to remove and rectify all adverse entries relating to the alleged loan agreement from the complainant’s records maintained with credit information companies, including CIBIL and other credit bureaus, within 45 days.

It was also added that the company should issue necessary communications to the credit information companies certifying that no amount is due from the complainant in relation to the disputed transaction and to ensure restoration of his credit status.

The commission also directed the finance company to pay Rs 50,000 as compensation for mental agony, inconvenience and deficiency in service, besides litigation costs of Rs 10,000.

Significance of ruling

This ruling highlights that finance companies must be able to substantiate their claims with documentary evidence before reporting a consumer as a loan defaulter.

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For consumer-related grievances, individuals may contact the consumer helpline in their respective states and Union territories (Kerala: 1800-425-1550) or call the National Consumer Helpline at 1915 for assistance.