Union Bank: Consumer Forum says Banks are responsible for protecting the assets of Customers

The Ernakulam District Commission, chaired by Shri D.B. Binu, Shri V. Ramachandran, and Smt. Sreevidhia T.N., recently ruled that banks are responsible for protecting the assets their customers pledge, like gold, and cannot neglect this duty. Click here to join our whatsapp channel to receive banking news updates.

Case Summary

In this case, customers filed a complaint against Union Bank of India, accusing the bank of poor service and unfair practices. The customers had pledged their gold ornaments for loans but were unable to get them back when they were ready to repay the loans. The bank initially told them that a staff member had stolen the gold but assured them that they would return either the gold or its market value once the customers repaid the loan with interest.

However, when the customers tried to close their loan accounts, the bank demanded extra interest beyond the agreed period and offered a low compensation of ₹2,900 per gram of gold instead of returning their original ornaments. The customers, who had already repaid the loan in full, wanted either their gold back or its market value, along with ₹25,000 each for the mental distress caused by the bank.

Bank’s Defense

The bank argued that the customers were trying to close their loan accounts on their own terms, paying interest only up to a date they had chosen themselves. Each customer had taken separate gold loans under agreements that required full repayment of principal and interest. The bank provided two options: repay the loan fully to retrieve the gold from the court or accept the market value of the gold. The customers did not choose either option and did not settle their accounts, leading to additional interest. The bank also denied agreeing to limit the interest calculation to the date the customers had proposed.

Commission’s Observations

The Commission found that the bank failed in its duty to protect the pledged gold, leading to its theft. It was clear that the customers had shown their willingness to repay the loans with interest, assuming it would be calculated only until November 2018, as previously agreed with the bank manager. The bank’s refusal to honor this agreement and its demand for extra interest was seen as a failure in service.

The Commission held the bank accountable for the loss of the gold and ordered it to either return gold ornaments of the same weight or pay the current market value of the gold to the customers. The bank was instructed to calculate interest only up to November 1, 2019, on the loan amounts, as long as the customers settled the principal and interest within 45 days of receiving the order.

This ruling underscores the importance of banks upholding their responsibilities and protecting their customers’ assets, as failing to do so can lead to serious consequences.