Canara Bank Ordered to Pay Rs 45,000 for Auto-Debiting Woman’s Account to Close Gold Loan
The District Consumer Commission in Palakkad has held Canara Bank guilty of deficiency in service after it automatically debited ₹53,464 from a woman’s savings account on a Sunday to close her gold loan without her consent. In its order dated July 13, the Commission directed the bank to pay the customer ₹35,000 as compensation and ₹10,000 towards litigation costs, taking the total amount to ₹45,000.
What Happened in the Case?
The woman had taken a gold loan of ₹90,000 from Canara Bank on March 10, 2023. The loan was due for repayment on March 10, 2024, which happened to be a Sunday. She claimed that she planned to visit the bank on the next working day, March 11, to pay the required amount and renew the loan.
However, on the due date itself, the bank’s computerized system automatically debited ₹53,464 from her savings account and closed the gold loan account without informing or obtaining permission from her.
The next day, after she approached the bank, she obtained a fresh gold loan, and the deducted amount was credited back to her savings account. She later filed a complaint before the Consumer Commission, seeking compensation for the bank’s unilateral action.
Bank’s Defence
Canara Bank argued that the loan agreement required the borrower to repay the entire loan by March 10, 2024. Since the customer failed to repay the amount on the due date, its computerized auto-debit system adjusted the available balance in her savings account towards the outstanding loan.
The bank also claimed that its action was permitted under the loan agreement, the savings account terms and conditions, and the banker’s lien under Section 171 of the Indian Contract Act. It further stated that the customer cleared the remaining outstanding amount on March 11, 2024, and simultaneously took a fresh gold loan of ₹90,000.
Commission’s Findings
The Consumer Commission noted that the loan had indeed become due for full repayment on March 10, 2024. However, it said the main issue was not whether the loan was overdue but whether the bank had the legal right to debit the customer’s savings account without her consent.
The Commission observed that the gold loan was already secured by pledged gold ornaments, which gave the bank sufficient security to recover its money. After examining the loan agreement, it found that there was no clause allowing the bank to automatically withdraw money from the customer’s savings account in case of default.
Instead, the agreement allowed the bank to recover its dues by selling the pledged gold if necessary. The bank also failed to produce any document showing that the customer had authorised automatic debits from her savings account.
Important Observation by the Commission
The Commission also stated that since the loan was secured by adequate collateral, there was no need for the bank to invoke its banker’s lien by debiting the customer’s savings account, especially on a Sunday when the bank was closed. It described the bank’s action as illegal, unwarranted, and a violation of the terms of the loan agreement.
What This Judgment Means
The ruling makes it clear that banks cannot automatically debit money from a borrower’s savings account to recover loan dues unless the customer has specifically authorised such action. It also reinforces that when a loan is backed by adequate security, banks must follow the recovery process mentioned in the loan agreement instead of taking unilateral action. The decision strengthens consumer rights and promotes greater accountability in loan recovery practices.
