The Delhi State Consumer Disputes Redressal Commission has dismissed an appeal filed by Kotak Mahindra Bank Ltd., and upheld the finding that the bank was deficient in service for auctioning a borrower’s pledged gold jewellery without any contractual authority.
The Commission observed that the Sanction Letter of the gold loan did not contain any clause allowing the bank to auction the pledged gold in case of default. Therefore, the bank’s action of selling the gold jewellery had no legal basis.
Background of the Case
The complainant, Mrs. Sarmila Sharma, had taken a gold loan of ₹77,000 from Kotak Mahindra Bank on 29 February 2020 for the construction of her house. She pledged 35.90 grams of gold jewellery, which was valued at ₹1,04,103.41, as security for the loan. Between 15 March 2020 and 15 January 2022, she repaid a total amount of ₹29,097.59 towards the loan.
Mrs. Sharma stated that she received a letter from the bank dated 27 October 2021, warning her that if she failed to pay interest of ₹3,260, the pledged gold could be auctioned or sold. She immediately paid the interest amount on the same day.
However, despite clearing the interest dues, the bank allegedly sold her pledged gold jewellery on 30 March 2022. The complainant claimed that she came to know about the auction much later, on 26 July 2022, and that she was never informed in advance about the auction date, sale price, or method of sale.
Complaint Before the District Consumer Commission
Feeling aggrieved, Mrs. Sharma approached the District Consumer Disputes Redressal Commission, accusing the bank of deficiency in service and unfair trade practice. She argued that:
- No prior auction notice was given
- No details of the auction date, rate, or sale process were disclosed
- The auction was conducted without proper authority
She sought compensation for financial loss, mental harassment, interest, and litigation costs.
Order of the District Commission
The District Commission noted that although the bank had received a copy of the complaint, it failed to file any reply and also did not appear before the Commission. As a result, the complainant’s version remained unchallenged.
The District Commission held that a borrower has a right to be informed about the auction of pledged assets, including the date and price of sale. It found the bank guilty of deficiency in service and directed Kotak Mahindra Bank to pay the value of 35.90 grams of gold at the prevailing market rate, after adjusting the outstanding loan dues.
Bank’s Appeal Before the State Commission
Kotak Mahindra Bank challenged the order of the District Commission and filed an appeal before the Delhi State Consumer Disputes Redressal Commission. The bank argued that:
- The complainant had accepted the loan terms mentioned in the Sanction Letter
- A loan recall notice dated 17 February 2022 was issued due to non-payment
- The gold was auctioned legally
- After adjusting dues, an excess amount of ₹9,357.17 remained, which the complainant was asked to collect
Findings of the State Commission
The State Commission examined the case under Section 2(11) of the Consumer Protection Act, 2019, which defines “deficiency in service” as any shortcoming, omission, or withholding of relevant information by a service provider. After reviewing the records, the Commission found that:
- The Sanction Letter dated 29 February 2020 did not authorise auction of the pledged gold
- The bank failed to show any contractual or legal provision allowing such an auction
- Merely issuing a loan recall notice was not sufficient to justify the sale of pledged jewellery
The Commission held that the bank’s action of auctioning the gold jewellery was without authority and illegal, and therefore amounted to deficiency in service.
Agreeing fully with the District Commission’s reasoning, the State Commission found no reason to interfere with the earlier order. As a result, the appeal filed by Kotak Mahindra Bank Ltd. was dismissed, and the order in favour of the borrower was upheld.
Why This Decision Matters
This ruling clearly establishes that banks cannot auction pledged assets unless the loan agreement specifically allows it. It reinforces the rights of borrowers and highlights the importance of transparency, proper notice, and contractual compliance in gold loan transactions.
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