Making Pre-Owned Car Registration Safer – Tips from Kaushik Mahan | AU Small Finance Bank
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Kaushik Mahan: ‘The inclusion of intermediaries in the regulatory system will make pre-owned car registration much safer’

    Sumana Sarkar, Autocar Professional

    The current Motor Vehicle Act hardly makes distinction between sale of new and pre-owned cars. However, given the recent spurt in sales, the industry sees the need for better regulatory cover. Kaushal Mahan, Group Business Director, Chase India says the Act should recognize the expanding market of pre-owned cars and protect interests of the consumers who purchase pre-owned vehicles.

     

    What are the key amendments suggested in the MV Act to accommodate challenges of the used car market?

    The MV Act should be amended to include the definition of a ‘Motor Vehicle Intermediary’ as a dealer or trader who facilitates transactions between the buyer and seller in context to the sale and purchase of a pre-owned/registered motor vehicle.

    The Act should be amended to ensure that intermediaries, buyers and sellers are all required to ensure transfer of registration within a stipulated time period. Section 50 of the Act should be amended to provide for a penalty in case of non-transference of registration by the intermediary and the buyer.

    The Act should be amended to allow for temporary registration of vehicles by intermediaries under Section 43 of the Act, which currently only allows owners to apply for temporary registration of vehicles. The Act should also require issuance of delivery receipts by the intermediaries in favour of the sellers, which would allow the seller to approach the registering authority, in case the intermediary defaults.

    Driving of vehicles temporarily registered as – ‘in possession of intermediaries’ should be prohibited, except for purposes enumerated in Rule 41 of the Central Motor Vehicle Rules. Section 39 of the Act, which provides for the necessity of registration and prohibits driving of an unregistered motor vehicle, should accordingly be amended.

    The Act should account for this distinction and recognize the expanding market of pre-owned cars; identify the different actors involved; require their registration; and protect interests of the consumers who purchase pre-owned vehicles, particularly from the unorganized sector.

    These changes will grant recognition to intermediaries and lay down their accountability under the law. If sale and purchase of pre-owned vehicles happens in a more organized manner, through registered intermediaries, with transfer of registration in a time bound manner, the risk of misuse of vehicles gets minimized and interests of the sellers and buyers are better protected.

     

    How should the registration transfer process be reworked to protect the seller and buyer interests?

    The underlying problem here is that the dealers who purchase the vehicles or secure pre-owned vehicles as part of exchange programs do not register the car or transfer ownership until a buyer is found. Even after sale of pre-owned cars, new buyers don’t transfer the ownerships in their name for lack of any incentive, although any such transfer has to be intimated to the registering authority within a stipulated time period. The car gets traded multiple times before it is eventually registered in the name of the ultimate owner. This is due to three main factors:

    -There is no regulatory recourse for the dealer to register the car unless he finds a real buyer.

    -There is no incentive for the buyer to transfer ownership to his name.

    -There is a disincentive to carry out multiple transfers as the price of the pre-owned vehicle goes down upon each transfer.

    The Section 50 of the MV Act, read with rule 55 of the Central Motor Vehicle Rules lay down the process for transfer of ownership of motor vehicles. They mandate that upon sale of a vehicle, the Registration Certificate is required to be transferred in favour of the buyer, and an application for the same has to be made before the registering authority. However, these provisions only consider the role of transferors and transferees. Intermediaries, holding vehicles and facilitating sale, are not made accountable for their role in transferring the Registration Certificates in a time bound manner. This makes the sellers i.e., ‘owners’ of the vehicles, susceptible to prosecution in case of misuse of such vehicles.

    Therefore, the report highly recommends that the Act should be amended to ensure that intermediaries, buyers and sellers are all required to ensure transfer of registration within a stipulated time period. The Section 50 of the Act should be amended to provide for a penalty in case of non-transference of registration by the intermediary and the buyer.

     

    How to protect the intermediaries' interest in the pre-owned car market? Are any special provisions required to protect their interest, given the fact that organized used car sale is still just 20-25% of the market and mostly it is through unorganized car dealers?

    The mushrooming of the pre-owned car industry has resulted in the growth of various players who act as intermediaries in buyer-seller transactions, including online marketplaces. Most owners deal with these players including brokers, intermediates etc. to sell their car. However, the MV Act, which is the current law on sale, purchase and registration of motor vehicles has been unable to keep up with the changing dynamics in the market, particularly with respect to the role played by intermediaries. There is a vacuum in the law to regulate the evolving market practices in the pre-owned car industry and to ensure consumer protection in sale and purchase of pre-owned cars.

    The unorganized and fragmented nature of the pre-owned car market as well as lack of regulatory provisions for the intermediaries have raised concerns not only for the Government but also for consumers. The inclusion of intermediaries in the regulatory system will make the process of pre-owned car registration much safer and more transparent.

    Therefore, the interest of the intermediaries can be safeguarded by making the following provisions in the law:

    A ‘dealer’ under section 2(8) of the Act is defined as “persons who are engaged - (b) in building bodies for attachment to chassis; or (c) in the repair of motor vehicles; or (d) in the business of hypothecation, leasing or hire-purchase of motor vehicle”. This definition of ‘dealers’ does not explicitly include intermediaries dealing in pre-owned cars. This results in their market operations being rendered completely unregulated. Rule 33 of the Central Motor Vehicle Rules (“CMVR”) specifically requires dealers to obtain trade certificates. This provision recognizes and regulates dealers’ role in the market, while intermediaries in pre-owned cars remain outside the purview of the law.

    Therefore, the MV Act should be amended to include the definition of a ‘Motor Vehicle Intermediary’ as a dealer or trader who facilitates transactions between the buyer and seller in context to the sale and purchase of a pre-owned/registered motor vehicle. 

    Vehicles often remain with intermediaries for a substantial period, especially when pre-owned vehicles are exchanged for new vehicles. The MV Act does not require intermediaries to keep a record of vehicles that are in their possession and out of owner’s possession, pending sale. If vehicles are temporarily registered as - ‘in possession of intermediaries’ and the registration certificates are kept in abeyance, the owner’s liability in case of an accident or misuse can be excluded. By temporarily registering vehicles that are with intermediaries, the registering office will be able to keep a record of vehicles that have been put up for sale. It will also ensure that the intermediary is obligated to get the vehicle’s registration transferred in favour of the final buyer.

    Therefore, the MV Act should be amended to allow for temporary registration of vehicles by intermediaries under Section 43 of the Act, which currently only allows owners to apply for temporary registration of vehicles. The Act should also require issuance of delivery receipts by the intermediaries in favour of the sellers, which would allow the seller to approach the registering authority, in case the intermediary defaults.

    Trade Certificates issued to dealers under Rule 33 can only be used for specific purposes enumerated in Rule 41 of the CMVR. There are no such restrictions on how pre-owned vehicles, in possession of intermediaries can be used. Temporary registrations issued in favour of intermediaries should also restrict the purposes for which the vehicle can be used.

    Therefore, driving of vehicles temporarily registered as – ‘in possession of intermediaries’ should be prohibited, except for purposes enumerated in Rule 41 of the CMRV. Section 39 of the Act, which provides for the necessity of registration and prohibits driving of an unregistered motor vehicle, should accordingly be amended.